oversight

U.S. Customs Service: Prospective Rulings More Timely, but Database Reliability Questions Remain

Published by the Government Accountability Office on 2003-08-06.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

              United States General Accounting Office

GAO           Report to Congressional Requesters




August 2003
              U.S. CUSTOMS
              SERVICE

              Prospective Rulings
              More Timely, but
              Database Reliability
              Questions Remain




GAO-03-828
                                                August 2003


                                                U.S. CUSTOMS SERVICE

                                                Prospective Rulings More Timely, but
Highlights of GAO-03-828, a report to           Database Reliability Questions Remain
congressional requesters




GAO previously reported that the                OR&R headquarters improved its response time for issuing prospective
U.S. Customs Service Office of                  rulings since GAO issued a September 2000 report concluding that most
Regulations and Rulings (OR&R)                  rulings were untimely. GAO’s review of a sample of prospective ruling
headquarters was not timely in                  request cases opened and closed from February through October 2002
issuing most of its prospective                 showed that OR&R headquarters completed about 75 percent of these cases
rulings, which establish the duties
importers pay on imported goods.
                                                within its prior goal of 120 days, with about 64 percent of the cases
The Trade Act of 2002 required                  completed within the 90-day goal mandated by the Customs Commissioner
GAO to determine whether OR&R                   in January 2002. For cases in the latter part of our sample that were opened
has improved the timeliness of its              and closed from July through October 2002, after significant progress had
prospective rulings. In addition,               been made in reducing a backlog of ruling requests, OR&R completed an
GAO determined what actions                     estimated 94 percent of the cases within 90 days. OR&R also reported that it
OR&R took to improve the                        was successful in its efforts to eliminate the February 1, 2002 backlog of 757
timeliness of rulings and whether               ruling requests that had been open more than 90 days.
OR&R resolved challenges it faced
with the reliability of automated               Since the Commissioner’s January 2002 mandate to issue rulings within 90
rulings data.                                   days, OR&R has given ruling requests the highest priority, with increased
                                                attention to balancing workloads and increased management oversight.
                                                OR&R has also taken other actions to help issue rulings within 90 days and
GAO recommends that OR&R                        prevent delays.
continue to assess the reliability of
automated rulings data to                       OR&R continued to face data reliability challenges with its automated
determine whether recent                        rulings database. OR&R has taken corrective actions to improve the
improvements sufficiently resolve               accuracy and reliability of the database. However, these corrective actions
data reliability challenges. Customs            do not provide assurance that OR&R has resolved the data reliability
OR&R generally agreed with our
                                                challenges because some of the actions lack specific procedures for their
conclusions and recommendation
and indicated it was taking steps to            effective implementation.
implement it.
                                                Findings of Three GAO Reviews of the Timeliness of Prospective Ruling Request Cases
                                                Percent of cases completed            Percent of cases completed   Percent of cases completed within prior
                                                within 120-day goal                   within 120-day goal          120-day goal and current 90-day goal
                                                100                                   100                          100
                                                                                                                           75
                                                 75                                     75                          75             64
                                                 50      47                             50                          50
                                                                                                 33
                                                 25                                     25                          25

                                                  0                                      0                           0
                                                         GAO                                   GAO                            GAO
                                                      testimony,                              report,                        report,
                                                        1997a                                 2000b                          2003c

                                                                   120 days                  90 days

                                                Source: GAO reviews of OR&R headquarters data.

www.gao.gov/cgi-bin/getrpt?GAO-03-828.          aOR&R
                                                          headquarters classification cases closed in 1996.
                                                bOR&R
To view the full product, including the scope          headquarters classification, valuation, marking, and drawback cases opened and closed
and methodology, click on the link above.       between January 1, 1997 and October 26, 1999.
For more information, contact Seto J.           cOR&R headquarters classification, valuation, and marking cases opened and closed from
Bagdoyan at (202) 512-8658 or                   February 1, 2002 through October 31, 2002.
bagdoyans@gao.gov.
Contents


Letter                                                                                   1
               Results in Brief                                                          3
               Background                                                                5
               OR&R Headquarters Improved Response Time for Issuing
                 Prospective Rulings                                                     7
               Actions Taken by OR&R Headquarters to Improve the Timeliness
                 of Rulings and Eliminate the Backlog                                  13
               OR&R Has Taken Actions to Improve LCIS Data Reliability, but
                 Challenges Remain                                                     18
               Conclusions                                                             23
               Recommendation for Executive Action                                     23
               Agency Comments and Our Evaluation                                      24

Appendix I     Scope and Methodology                                                   26
               Response Time for OR&R Headquarters Rulings                             26
               OR&R Headquarters Actions on Rulings                                    28
               OR&R Data Reliability Challenges                                        28
               Trade Community Perspective on OR&R Headquarters Rulings                29

Appendix II    Comments from the Bureau of Customs and Border
               Protection                                                              31



Appendix III   GAO Contacts and Staff Acknowledgments                                  36
               GAO Contacts                                                            36
               Staff Acknowledgments                                                   36


Tables
               Table 1: Timeliness of Prospective Ruling Request Cases Opened
                        and Closed from February 1, 2002, through October 31,
                        2002 9
               Table 2: OR&R Headquarters Ruling Request Backlog, February 1,
                        2002, through April 30, 2003                                   11
               Table 3: Comparison of LCIS and Case File Data for 281
                        Prospective Ruling Request Cases Closed from February 1,
                        2002, through October 31, 2002                                 20




               Page i                                      GAO-03-828 U.S. Customs Service
         Table 4: File Review Strata for OR&R Headquarters Cases
                  Categorized as Prospective Rulings and Closed from
                  February 1, 2002, through October 31, 2002                                       27
         Table 5: 95-Percent Confidence Intervals for Estimates to
                  Populations of Total Cases                                                       28


Figure
         Figure 1: Findings of Three GAO Reviews of the Timeliness of
                  Prospective Ruling Request Cases                                                 10




         Abbreviations

         COAC              Commercial Operations of the U.S. Customs Service
         LCIS              Legal Case Inventory System
         OR&R              Office of Regulations and Rulings
         SOP               Standard Operating Procedure



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         Page ii                                                GAO-03-828 U.S. Customs Service
United States General Accounting Office
Washington, DC 20548




                                   August 6, 2003

                                   The Honorable Charles E. Grassley
                                   Chairman
                                   The Honorable Max Baucus
                                   Ranking Member
                                   Committee on Finance
                                   United States Senate

                                   The Honorable William M. Thomas
                                   Chairman
                                   The Honorable Charles B. Rangel
                                   Ranking Member
                                   Committee on Ways and Means
                                   House of Representatives

                                   As mandated by the Trade Act of 2002,1 we are providing you with a report
                                   on the U.S. Customs Service’s2 Office of Regulations and Rulings (OR&R)
                                   progress in issuing timely prospective rulings. OR&R issues prospective
                                   rulings on such matters as the proper classification and valuation of
                                   imported goods in response to requests from importers and others. OR&R
                                   rulings advise importers of Customs regulations and assist importers in
                                   making marketing and pricing decisions. Delayed rulings can adversely
                                   affect importers’ ability to make plans to import, price, and sell their
                                   products. In March 1997, we testified before the Subcommittee on Trade,
                                   House Committee on Ways and Means that OR&R had not consistently
                                   met its timeliness requirement for classification rulings.3 More recently, in
                                   September 2000, we issued a report also concluding that OR&R’s
                                   headquarters office in Washington, D.C., had not issued the majority of its




                                   1
                                       P.L. 107-210, sec. 335 (2002).
                                   2
                                    While our work was being conducted, the U.S. Customs Service was transferred from the
                                   Department of the Treasury to the Department of Homeland Security and is now known as
                                   the Bureau of Customs and Border Protection. For this report, we refer to the agency as
                                   Customs.
                                   3
                                     U.S. General Accounting Office, U.S. Customs Service: Office of Regulations and Rulings
                                   Has Yet to Establish Performance Measures, GAO/T-NSIAD-97-115 (Washington, D.C.:
                                   Mar. 11, 1997).



                                   Page 1                                                 GAO-03-828 U.S. Customs Service
prospective rulings in a timely manner.4 The Subcommittee on OR&R of
the Treasury Advisory Committee on Commercial Operations of the U.S.
Customs Service (COAC), a private sector group composed of those
affected by Customs’ operations, had also expressed concern about the
timeliness of OR&R headquarters rulings in its January 2000 report on the
structure, staffing, and performance of OR&R. Based on concerns
surrounding delayed rulings, in January 2002, the U.S. Customs
Commissioner, on his own initiative, instructed OR&R by memorandum to
issue its rulings within 90 days and eliminate the backlog of ruling requests
that existed.

As required by the Trade Act of 2002, we studied the extent to which
OR&R headquarters has made improvements to decrease the amount of
time taken to issue prospective rulings on the classification, valuation, and
marking of imported goods.5 Specifically, we addressed the following
questions:

•   Did OR&R headquarters response time for issuing prospective rulings
    on the classification, valuation, and marking of imported goods
    improve since our September 2000 report?

•   What actions did OR&R headquarters take to improve the timeliness of
    its prospective rulings and to eliminate its backlog of ruling request
    cases?

•   Did OR&R resolve the data reliability challenges it faced with its Legal
    Case Inventory System, the automated database used to monitor and
    track the timeliness of prospective rulings?

To address these questions, we reviewed files for a sample of 325 cases,
from a random sample of 344 cases, categorized as prospective rulings that
were closed by OR&R headquarters from February 1, 2002, through
October 31, 2002, covering the classification, valuation, and marking of




4
  U.S. General Accounting Office, U.S. Customs Service: OR&R Needs to Resolve
Timeliness and Data Problems Involving Headquarters Rulings, GAO/GGD-00-181
(Washington, D.C.: Sept. 7, 2000).
5
 Classification rulings involve the classification of goods within the U.S. Harmonized Tariff
Schedule (which provides duty rates for goods); valuation rulings involve the valuations of
goods; and rulings on marking are those concerning country-of-origin issues, such as the
clarity of the marking of goods so that buyers can determine where products are made.




Page 2                                                    GAO-03-828 U.S. Customs Service
                   imported goods.6 We interviewed OR&R management officials and
                   reviewed and collected other pertinent information, such as procedures
                   established to ensure the consistent recording of data on ruling cases in
                   the Legal Case Inventory System (LCIS). We also interviewed the chair of
                   COAC’s Subcommittee on OR&R, representatives of the American Bar
                   Association Customs Law Committee7 and five selected trade associations
                   (e.g., American Association of Exporters and Importers) identified as
                   being knowledgeable about OR&R headquarters prospective rulings, and
                   selected importer representatives.8 Appendix I discusses our scope and
                   methodology in greater detail and provides information about our
                   sampling of cases. We conducted our work between October 2002 and
                   June 2003 in accordance with generally accepted government auditing
                   standards.


                   OR&R headquarters improved its response time for issuing prospective
Results in Brief   rulings. Our review of a sample of prospective ruling request cases opened
                   and closed from February through October 2002 showed that OR&R
                   headquarters completed about 75 percent of these cases within its prior
                   timeliness goal of 120 days, and about 64 percent were completed within
                   OR&R’s current goal of 90 days. For cases in the latter part of our sample
                   (i.e., cases opened and closed from July through October 2002, after OR&R
                   made significant progress in reducing the size of its ruling request case
                   backlog), OR&R completed an estimated 94 percent of the cases within
                   90 days. We previously reported, in September 2000, that OR&R
                   headquarters did not meet the goal of 120 days for most of the cases we
                   reviewed. Representatives of COAC’s Subcommittee on OR&R, the
                   American Bar Association Customs Law Committee, and five trade
                   associations that we contacted agreed that OR&R headquarters had



                   6
                    We attempted to review a random sample of 344 OR&R case files, representing 387 cases
                   categorized as prospective rulings, but OR&R staff could not locate 19 of the files.
                   7
                    The American Bar Association Customs Law Committee is concerned with the full range
                   of laws and regulations administered by the Customs Service in connection with the
                   importation and exportation of merchandise. The Committee provides information,
                   educational programs and materials, and a forum for reviewing, advising, commenting on,
                   and participating in the development of Customs laws, regulations, and practices.
                   8
                     We attempted to conduct structured telephone interviews with a judgmental sample of
                   76 importer representatives. We successfully interviewed 35 of these importer
                   representatives; the remaining 41 either did not return our messages, did not answer our
                   questions, or could not be contacted at the telephone number we obtained from OR&R
                   files.




                   Page 3                                                  GAO-03-828 U.S. Customs Service
improved the timeliness of its rulings. In addition, OR&R headquarters
reported that it was successful in its efforts started in February 2002 to
eliminate the backlog of 757 ruling requests that were open (i.e., had not
been completed) for 90 days or more.

Since the Customs Commissioner’s January 2002 mandate to issue rulings
within 90 days, OR&R headquarters managers and attorneys have given
ruling requests the highest priority, with increased attention to balancing
workloads and increased management oversight so that the
Commissioner’s mandate is met and delays are prevented. Prior to
2002, OR&R attorneys spent most of their time on tasks and
responsibilities other than ruling requests, such as providing training,
participating in trade negotiations, and providing advice to other Customs
offices. According to OR&R management, other actions were also taken to
help improve the timeliness of rulings. For example, OR&R rejects ruling
requests more frequently than in the past when needed information is not
provided by importers, and OR&R attorneys started using teleconferences
instead of in-person meetings to discuss ruling requests with importer
representatives. Continuing to give priority to rulings should help
institutionalize and sustain the progress OR&R has made in improving the
timeliness of headquarters prospective rulings.

Our review of prospective ruling request cases showed that LCIS, OR&R’s
automated database, continued to face data reliability challenges
potentially hindering its effectiveness as a management tool for tracking
and monitoring the progress and history of cases and measuring
timeliness. For example, our comparison of LCIS data to case files showed
that 88 of the 325 cases we reviewed were inaccurately coded as rulings in
LCIS. In response to recommendations made in our September
2000 report, and to data errors we found during this review, OR&R has
taken corrective actions to improve the accuracy and reliability of LCIS
data, such as developing uniform procedures for recording cases in LCIS.
However, these corrective actions may not resolve the LCIS data reliability
challenges. Although the corrective actions include goals, such as
correctly coding cases and entering timely and accurate information into
the database, some of the actions lack specific procedures for their
effective implementation. For example, OR&R did not provide specific
guidance as to how, when, and by whom the coding of information letters
is to be done. This report contains a recommendation to the OR&R
Assistant Commissioner regarding continued assessment of LCIS data
reliability to determine whether the corrective actions taken are sufficient.




Page 4                                         GAO-03-828 U.S. Customs Service
             We provided Customs with a draft of this report for comment. On July 21,
             2003, we received written comments from Customs’ Acting Director,
             Office of Policy and Planning. Customs generally agreed with our findings
             and recommendations. However, Customs said that while the report
             acknowledges the improvement that OR&R has made in the timeliness of
             its rulings, it does not recognize the dramatic turnaround that OR&R
             accomplished in eliminating the February 2002 backlog of ruling requests
             and issuing nearly every prospective ruling request received since July
             2002 within 90 days. Customs also commented on the steps OR&R has
             taken to improve LCIS data reliability, including issuing a policy requiring
             that OR&R managers verify the accuracy of LCIS data for each case as it is
             closed, as recommended in our draft report. Accordingly, we eliminated
             this recommendation. Customs also agreed to continue to assess LCIS’
             data reliability to determine whether recent improvements sufficiently
             corrected past problems. Customs’ written comments are contained in
             appendix II of this report.


             Customs enforces the nation’s trade laws and policies, including collecting
Background   duties on imported merchandise. OR&R plays an important role in
             carrying out Customs’ trade mission by (1) drafting regulations
             implementing U.S. trade laws; (2) issuing rulings on the proper
             classification, valuation, marking, and entry of imported goods, as well as
             the application of drawback laws (drawbacks involve refunds on duties of
             imported merchandise when they are exported from the United States)
             and navigation laws (these laws govern the movement of vessels in
             international trade), in response to requests from importers and others;
             and (3) providing guidance to the trade community and other Customs
             offices on their compliance duties under Customs laws, and other laws
             enforced by Customs, as well as related regulations. OR&R provides
             compliance information to the trade community through various
             mechanisms, including issuing regulations, publications, and rulings,
             which establish the duty an importer will owe. These rulings advise
             importers on how they can stay in compliance with Customs laws and help
             them and importers of similar goods make marketing and pricing
             decisions by providing information on the cost of importing their goods.
             For example, OR&R’s prospective classification rulings give both the
             requesting importer and importers of similar goods vital information to
             help them determine the amounts of the duties and fees they will be
             charged when they import their goods. Customs uses its Web site to
             disseminate information on completed rulings to the trade community and
             communicate other information, such as U.S. import requirements and



             Page 5                                         GAO-03-828 U.S. Customs Service
how to request a ruling from OR&R. Customs reported collecting about
$19.8 billion in duties in fiscal year 2002.9

OR&R is headed by an Assistant Commissioner and has offices in
Washington, D.C., and New York. OR&R reported 9,053 prospective ruling
request cases closed in fiscal year 2002, most of which were processed by
its New York office in 30 days or less, according to OR&R officials. Most of
the rulings issued by the New York office concern the classification of
imported goods and generally provide a brief description the merchandise
along with the classification and the duty rate. OR&R’s headquarters office
in Washington, D.C., processes cases that are expected to take longer than
30 days to complete. OR&R headquarters rulings contain much more
elaboration, including a detailed explanation of the legal basis for the
conclusion reached by OR&R. Ruling requests received in OR&R’s
New York office that are considered highly complex or highly sensitive, or
that involve novel issues never presented to Customs before, are referred
to OR&R headquarters for a decision. OR&R reported 815 headquarters
prospective ruling request cases closed in fiscal year 2002, or about 9
percent of all prospective ruling requests. OR&R had 232 total staff as of
October 2002: 117 headquarters staff, including 90 attorneys; and 115 staff
in the New York office, including 93 import specialists (about 45 of which
are national commodity specialists) who classify imported merchandise.
For fiscal year 2002, OR&R’s budget was over $23 million.

In January 2002, the Customs Commissioner, in a memorandum to the
Assistant Commissioner for OR&R, set a requirement that rulings were to
be issued within 90 days. The Commissioner noted that timeliness of the
guidance contained in rulings is essential in ensuring compliance with the
law. The Commissioner further instructed the OR&R Assistant
Commissioner to take appropriate measures to eliminate the backlog of
ruling requests that existed. The backlog was to be eliminated by
December 31, 2002, but the Customs Commissioner later changed this
deadline to September 30, 2002.




9
 Performance and Annual Report, Fiscal Year 2002, U.S. Customs Service. This report
contains Customs Fiscal Year 2002 Financial Statements, unaudited, which includes total
duties collected.




Page 6                                                 GAO-03-828 U.S. Customs Service
                      OR&R uses its automated database, LCIS, to internally track cases,
                      including rulings, pending before OR&R.10 This system was designed as a
                      management tool and was to serve as the principal means for recording
                      and monitoring the progress and history of individual cases. According to
                      OR&R officials, LCIS became OR&R’s principal case tracking system in
                      1983 and is used to help ensure that ruling request cases are closed within
                      90 days. In our September 2000 report, however, we concluded that LCIS
                      was not an effective tool for measuring the timeliness of headquarters
                      rulings because it did not contain accurate and reliable data, and we
                      recommended actions to address the LCIS data problems.


                      Our review of a sample of prospective ruling request cases showed that in
OR&R Headquarters     response to the Customs Commissioner’s January 2002 mandate, OR&R
Improved Response     headquarters improved its response time for issuing prospective rulings.
                      We previously concluded in September 2000 that OR&R headquarters did
Time for Issuing      not issue the majority of its prospective rulings in a timely manner (i.e.,
Prospective Rulings   within OR&R’s 120-day goal). Our work for this report, on the other hand,
                      demonstrated that OR&R headquarters completed the majority of its
                      prospective ruling request cases opened and closed from February
                      through October 2002 within the newly established goal of 90 days.11
                      Further, OR&R reported that, with a few exceptions beyond Customs’
                      control, it had eliminated its February 2002 backlog of prospective ruling
                      requests that were still open after 90 days or more. Representatives of
                      COAC’s Subcommittee on OR&R, the American Bar Association Customs
                      Law Committee, and five trade associations that we contacted agreed that
                      OR&R headquarters had improved the timeliness of its rulings.



                      10
                       OR&R processes other types of cases in addition to prospective rulings, such as internal
                      advice decisions, protest reviews, and ruling revocation and modification decisions. OR&R
                      uses LCIS to track all such cases.
                      11
                        OR&R headquarters improvement in its response time for issuing prospective rulings
                      (i.e., the improvement in the percentage of cases that met OR&R’s 120-day goal) cannot be
                      quantified by comparing the percentage for the OR&R headquarters cases included in this
                      review to the percentages for the cases included in our March 1997 testimony and
                      September 2000 report. The percentages are not directly comparable because the samples
                      and populations covered differ for each of the three reviews we conducted. For example,
                      our March 1997 testimony discussed the percentage of classification cases (and not
                      valuation or marking cases) that met the 120-day goal, while our September 2000 report
                      included drawbacks (not considered by OR&R to be prospective cases) along with
                      classification, valuation, and marking cases. While we cannot directly compare
                      percentages, we compared the conclusions reached in our prior work, to arrive at our
                      current conclusion that OR&R improved the timeliness of its prospective rulings.




                      Page 7                                                 GAO-03-828 U.S. Customs Service
Before 2002, OR&R headquarters had a 120-day goal for processing and
issuing rulings from the date a ruling request was assigned to an OR&R
attorney.12 In March 1997, we testified that OR&R had not consistently met
its 120-day timeliness goal. Specifically, OR&R did not meet this
requirement for 53 percent of the 81 classification cases closed in
1996 that we reviewed. Later, in September 2000, we reported that our
review of a random sample of 70 case files, representing approximately
610 prospective rulings, showed that about two-thirds of the rulings that
were requested and issued between January 1, 1997, and October 26, 1999,
were not completed within OR&R’s 120-day goal. At the time, OR&R
acknowledged having problems issuing headquarters rulings on a timely
basis and attributed the problems to staffing shortages and competing
workload demands.

To determine the amount of time taken by OR&R headquarters to issue
prospective rulings after the Customs Commissioner established the
90-day timeliness goal in January 2002, we reviewed files for 124
prospective ruling request cases opened and closed from February 1, 2002,
through October 31, 2002.13 Our review showed that about 75 percent of
the cases were completed in 120 days or less, the old goal, and about 64
percent were completed within 90 days, the new goal. Table 1 shows the
number and percent of cases that took 90 days or less, from 91 to 120 days,
and more than 120 days to complete from the date they were assigned to
OR&R attorneys for processing. As also shown in table 1, most of the
cases resulted in rulings being issued by OR&R, while some cases resulted




12
  A 1989 Customs directive, which applied solely to classification rulings, stated that rulings
that were referred to OR&R headquarters—i.e., those deemed to be the most complex and
sensitive—were to be issued within 120 days of the date of receipt by Customs. According
to OR&R officials, ruling requests are typically assigned to attorneys within a few days of
receipt at headquarters, and the date of assignment (referred to as the “date assigned” in
LCIS) has been used to start the 120-day clock for all types of rulings since about 1996.
13
  In our sample of 325 cases categorized by OR&R as prospective rulings, 150 cases were
opened and closed from February 1, 2002, though October 31, 2002 (the remaining 175
cases were opened before February 1, 2002). We attempted to review all of the 150 cases.
However, 26 of these 150 cases did not meet our criteria (i.e., these cases were not ruling
requests but were miscoded in LCIS). The 124 ruling request cases we reviewed allow us to
make estimates to the entire population of prospective ruling cases opened and closed
from February 1, 2002, though October 31, 2002. We determined the amount of time that
OR&R took to process each of the cases using data we collected from OR&R’s hard-copy
case files.




Page 8                                                    GAO-03-828 U.S. Customs Service
in information letters sent to the requesters and other cases were
administratively closed.14

Table 1: Timeliness of Prospective Ruling Request Cases Opened and Closed from
February 1, 2002, through October 31, 2002

                                                 Number of days taken to complete casesa
                                                                       91–120        121 days or
    Action taken                                90 days or less          days              more
    Ruling issued                                            58              13                    28
    Information letter sent                                   5               0                      1
    Administratively closed                                  17               1                      1
    Total                                             80 (64%)        14 (11%)           30 (25%)
Source: GAO review of OR&R headquarters data.

Note: We adjusted the percentages to account for cases that were missing and that did not meet our
criteria (i.e., inaccurately coded as rulings in LCIS).
a
 Our analysis covers time from the date each ruling request was assigned to an OR&R attorney for
processing to the date OR&R completed and closed the case.


Our review of the 124 prospective ruling request case files also indicates
that OR&R improved its response time during the latter part of the
February through October 2002 time period, after OR&R had made
significant progress in reducing the size of the backlog. For the 93 cases in
our sample that were opened during the 5-month period from February
through June 2002, OR&R completed an estimated 55 percent of the cases
within 90 days. In contrast, OR&R completed an estimated 94 percent of
the 31 cases in the latter part of our sample, cases opened and closed




14
  Some cases in our review resulted in an information letter while other cases were closed
administratively. An information letter may be sent to an importer instead of a ruling letter
if the importer’s request lacks needed information or is insufficiently detailed to permit a
ruling but OR&R can provide other helpful information. According to federal regulation
(19 C.F.R. Part 177.1(d)(2)), an information letter is “a written statement issued by the
Customs Service that does no more than call attention to a well-established interpretation
or principle of Customs law, without applying it to a specific set of facts.” According to
OR&R officials, an information letter often takes less time to process than a ruling. OR&R
may administratively close a ruling request case for various reasons, such as if needed
information is missing that cannot be quickly obtained or the ruling request involves a
current transaction that is not prospective in nature and a ruling would be inappropriate.
OR&R sends a letter notifying the importer of the administrative closure and the reason the
ruling request cannot be processed.




Page 9                                                       GAO-03-828 U.S. Customs Service
during the 4-month period from July through October 2002, within
90 days.15

Figure 1 summarizes the findings regarding the timeliness of OR&R
headquarters prospective ruling request cases in our March 1997
testimony, September 2000 report, and work for this report. Specifically,
figure 1 shows the percent of cases we examined during each of those
reviews that were completed within OR&R’s stated goals. As noted earlier,
these percentages are not directly comparable because the samples and
populations covered differ for each of the three reviews we conducted.

Figure 1: Findings of Three GAO Reviews of the Timeliness of Prospective Ruling
Request Cases


Percent of cases completed            Percent of cases completed    Percent of cases completed within prior
within 120-day goal                   within 120-day goal           120-day goal and current 90-day goal
100                                   100                           100
                                                                            75
    75                                  75                           75             64
    50      47                          50                           50
                                                 33
    25                                  25                           25

     0                                   0                            0
            GAO                                GAO                             GAO
         testimony,                           report,                         report,
           1997a                              2000b                           2003c

                      120 days               90 days

Source: GAO reviews of OR&R headquarters data.

aOR&R
             headquarters classification cases closed in 1996.
bOR&R
       headquarters classification, valuation, marking, and drawback cases opened and closed
between January 1, 1997 and October 26, 1999.
c
 OR&R headquarters classification, valuation, and marking cases opened and closed from
February 1, 2002 through October 31, 2002.


OR&R reported that its efforts to eliminate the backlog of 757
headquarters ruling request cases open 90 days or more as of February 1,
2002, were successful. Table 2 shows the size of the ruling backlog as


15
  Our analysis of prospective ruling request cases opened and closed from July 1, 2002,
through October 31, 2002, is limited because our sample does not include cases closed after
October 31, 2002. However, OR&R data, which we did not independently verify, suggest
that OR&R continued to issue most of its rulings within 90 days after October 31, 2002, as
shown in table 2.




Page 10                                                            GAO-03-828 U.S. Customs Service
reported by OR&R for each month from February 2002 though April 2003.
OR&R reported having two prospective ruling request cases that were
open 90 days or more as of October 31, 2002, the last date of the cases
included in our case file review, and the backlog did not substantially
increase through April 30, 2003, when there were 6 such cases. According
to OR&R, these cases took more than 90 days for reasons beyond
Customs’ control, such as being held at the request of the Department of
the Treasury.

Table 2: OR&R Headquarters Ruling Request Backlog, February 1, 2002, through
April 30, 2003

                                           Number of ruling requests Number of ruling requests
    Date                                      open 90 days or more     open less than 90 days
    February 1, 2002                                            757                             187
    March 1, 2002                                               672                             228
    April 1, 2002                                               565                             254
    May 1, 2002                                                 509                             277
    June 1, 2002                                                442                             262
    July 1, 2002                                                448                             261
    August 1, 2002                                              298                             217
    September 1, 2002                                           185                             191
                                                                   a
    October 1, 2002                                             14                              208
    October 31, 2002                                              2                                  75
    November 30, 2002                                             3                                  86
    December 31, 2002                                             5                                  65
    January 31, 2003                                              4                                  66
    February 28, 2003                                             6                                  62
    March 31, 2003                                                5                                  72
    April 30, 2003                                                6                                  91
Source: Developed by GAO from OR&R data.

Note: OR&R initially reported the number of all administrative ruling requests that were open,
including cases other than prospective rulings, such as protest review decisions, decisions on
revocations and modifications to rulings, and internal advice decisions. For October 31, 2002, and
later, OR&R reported only the number of open prospective ruling requests.
a
According to OR&R, these 14 cases were not yet closed on October 1, 2002, for reasons beyond
Customs’ control. For example, OR&R officials said cases were being held at the request of the
Treasury Department because of its involvement with the North American Free Trade Agreement
Working Group on Rules of Origin and at the request of the Committee for the Implementation of
Textile Agreements (an interagency group chaired by the Department of Commerce).


To determine how long some of the headquarters ruling request backlog
cases were open before they were completed, we examined case files for


Page 11                                                         GAO-03-828 U.S. Customs Service
                           157 prospective ruling request cases opened before February 1, 2002, and
                           closed from February 1, 2002, through October 31, 2002.16 We determined
                           that 131 of these cases were part of OR&R’s backlog of ruling request
                           cases open 90 days or more as of February 1, 2002. According to OR&R,
                           these 131 cases were among the oldest cases in LCIS at that time. We
                           determined that the 131 backlog cases took an average of 581 days to
                           complete, from the date each case was assigned to an OR&R attorney
                           (before OR&R started its efforts in 2002 to eliminate the ruling request
                           backlog) until the date each case was closed. The amount of time taken to
                           complete each of these 131 backlog cases ranged from 136 to 1,586 days,17
                           with 501 days as the median.


Trade Community Agreed     The chair of COAC’s Subcommittee on OR&R, as well as representatives of
OR&R Improved the          the American Bar Association Customs Law Committee and five trade
Timeliness of              associations we contacted, told us that OR&R started issuing prospective
                           rulings in 2002 more quickly than in the past. In April 2003, the chair of the
Headquarters Prospective   COAC subcommittee told us that OR&R’s efforts since February 2002 to
Rulings                    eliminate the backlog of rulings and issue rulings within 90 days of receipt
                           had been “outstanding.” All of the association representatives said that
                           OR&R headquarters had improved the timeliness of its rulings. One
                           association’s representative said OR&R’s new policy of responding to all
                           ruling requests within 90 days of receipt is a very positive development
                           that should improve OR&R’s responsiveness to the trade community.




                           16
                             In our sample of 325 cases categorized by OR&R as prospective rulings, 175 cases were
                           opened before February 1, 2002, and closed from February 1, 2002, though October 31, 2002
                           (the remaining 150 cases were opened and closed from February 1, 2002, through October
                           31, 2002). We attempted to review all of the 175 cases. However, 18 of these cases did not
                           meet our criteria (i.e., these cases were not ruling requests but were miscoded in LCIS),
                           and we reviewed 157 cases. We determined the amount of time that OR&R took to process
                           each of the cases using data we collected from OR&R’s hard-copy case files.
                           17
                            This range of days is for only those cases for which we could identify the days in progress
                           and does not include cases that had missing data.




                           Page 12                                                  GAO-03-828 U.S. Customs Service
                        Since the Customs Commissioner required in January 2002 that OR&R
Actions Taken by        issue rulings within 90 days and the existing backlog of ruling requests be
OR&R Headquarters       eliminated, OR&R has given ruling requests its highest priority, according
                        to OR&R officials. OR&R first concentrated its efforts starting in February
to Improve the          2002 primarily on eliminating the ruling backlog. Then, starting in July
Timeliness of Rulings   2002 when significant progress had been made in reducing the size of the
                        backlog, OR&R intensified its focus on issuing rulings within 90 days.
and Eliminate the       According to OR&R officials and documentation we reviewed, OR&R
Backlog                 increased the amount of attorney time spent on rulings to carry out these
                        efforts. OR&R managers also provided increased oversight to the
                        processing of rulings. In addition, OR&R took other actions to help
                        address the backlog and issue rulings within 90 days, such as rejecting
                        ruling requests when needed information could not be quickly obtained
                        and holding teleconferences instead of face-to-face meetings with
                        importers and their attorneys to discuss their requests and obtain further
                        information or clarification. OR&R officials said OR&R will permanently
                        maintain the high-priority status for rulings and will continue efforts to
                        issue rulings within 90 days. We believe continuing to give priority to
                        rulings, and continuing to streamline the processing of rulings, should help
                        institutionalize and sustain the progress OR&R has made in improving the
                        timeliness of headquarters prospective rulings.

                        OR&R reported that nine OR&R attorneys, who had been dividing their
                        time between OR&R units, were reassigned in February 2002 to work full-
                        time on rulings within the units that had the largest number of overdue
                        ruling requests. Also, in July 2002, after the Customs Commissioner
                        changed the deadline for eliminating the ruling request backlog to
                        September 30, 2002, ruling cases were assigned to nine additional
                        attorneys working in OR&R units that did not process rulings. Each of
                        these nine attorneys had prior experience with rulings, according to an
                        OR&R report, and they continued to handle their normal workload in
                        addition to assisting with the elimination of the backlog. In addition,
                        OR&R delayed the rotation of attorneys among its units while efforts were
                        being taken to eliminate the ruling request backlog in 2002.18 According to


                        18
                          OR&R has a rotation policy in which, approximately every 18 months, attorneys are asked
                        to specify whether they wish to rotate to a new OR&R unit in order to learn and master the
                        various substantive legal areas within the office. Rotation also satisfies the diversity
                        criterion in the current OR&R Attorneys GS-14 Promotion Plan. OR&R management noted
                        that the policy of rotating attorneys is contingent on OR&R’s staffing needs and that it was
                        decided not to rotate attorneys while efforts were being taken to eliminate the ruling
                        request backlog in 2002. According to OR&R, with the successful elimination of the ruling
                        backlog, an attorney rotation took place in April 2003.




                        Page 13                                                 GAO-03-828 U.S. Customs Service
OR&R officials, OR&R managers have continued to provide sustained
attention to balancing attorney workloads so that rulings are issued within
90 days.

OR&R managers explained to the attorneys that rulings were to be their
highest priority. Previously, the attorneys would likely carry out other
responsibilities and tasks before turning their attention to processing
ruling requests. According to OR&R officials, prior to 2002, on the basis of
priorities established by Customs management, OR&R attorneys spent a
far greater percentage of their time on tasks and responsibilities other
than ruling requests, such as providing domestic and international training,
participating in trade negotiations, providing advice to other Customs
offices, commenting on pending legislation, and assisting in Customs
litigation. OR&R officials told us that OR&R is fully committed in its
strategic planning to maintaining this high-priority status for rulings on a
permanent basis in order to facilitate legitimate trade and informed
compliance by the trade community.

According to OR&R officials, OR&R managers started giving increased
attention and review to rulings because of their high priority, including
interacting more often with attorneys regarding the processing of rulings,
as well as providing additional oversight and monitoring of the entire
effort, to help ensure that ruling requests are issued within 90 days. OR&R
officials told us that OR&R managers will continue to give increased
attention and review to the rulings process, and this responsibility is
emphasized in OR&R management staff meetings and in the evaluation of
each manager’s performance.

OR&R also started providing monthly reports to the Customs
Commissioner regarding the status of its efforts to implement procedural
changes to issue rulings within 90 days and eliminate the backlog,
indicative of the high priority the Commissioner placed on rulings. OR&R
officials said the monthly reports on the status of its work on rulings will
continue to be provided to the Commissioner.

In addition, as part of its efforts in 2002, OR&R drafted procedures to
provide a standardized approach for reviewing, researching, and finalizing
rulings within OR&R. According to OR&R officials, each OR&R unit
previously used its own procedures for processing rulings. OR&R officials
said they believe use of the draft Standard Operating Procedure (SOP),




Page 14                                        GAO-03-828 U.S. Customs Service
starting in February 2002, has streamlined their processes for issuing
rulings, helped OR&R’s efforts to issue rulings within 90 days, and will
help sustain the elimination of the ruling backlog.19 In July 2002, OR&R
also issued a SOP on the use of the LCIS. According to OR&R officials, this
SOP contains valuable guidance for attorneys with respect to the
processing of ruling requests, including, for example, specifying that ruling
requests are to be carefully reviewed for completeness when received.

During 2002, OR&R also revised its policy regarding the type of meetings
scheduled with importer representatives if it is considered that
discussions would be helpful in deciding ruling issues or a decision
contrary to that advocated in a ruling request is contemplated. OR&R
officials told us that, previously, such meetings were typically held in
person; but to help meet the 90-day benchmark for issuing rulings, OR&R
attorneys started primarily holding teleconferences for the discussions.
Using teleconferences is consistent with the federal regulation providing
for these conferences,20 and, according to OR&R officials, saves time and is
as effective as in-person meetings. According to OR&R officials, in-person
meetings are almost always held at OR&R’s office, are logistically harder
and more time-consuming to schedule and hold than teleconferences, and
tend to take longer than teleconferences. OR&R officials noted that in-
person meetings used to be scheduled as a matter of course, and while
they have not been entirely eliminated, OR&R attorneys now have fewer
such meetings.

OR&R also took actions intended to reduce the amount of time spent
writing ruling letters that are sent to importers, according to OR&R
officials. Where appropriate, OR&R started using more standardized
language in rulings, often using the same language that was used in
previously issued rulings for similar products. Also, efforts were made to
curtail the length of ruling letters. OR&R officials said that attorneys were
told to be succinct and write only what is needed to rule on the matter at
hand.


19
 According OR&R officials, the SOP was being used by OR&R but was still in draft form as
of June 2003. The OR&R officials noted that the latest version of the draft SOP was dated
June 2003, and the final version was expected to be issued by August 2003.
20
 This regulation provides that: “A person submitting a request for a ruling and desiring an
opportunity to orally discuss the issue or issues involved should indicate that desire in
writing at the time the ruling request is filed.” 19 C.F.R. 177.4(a). “If a request for a
conference is granted, the person making the request will be notified of the time and place
of the conference.” 19 C.F.R. 177.4(b).




Page 15                                                  GAO-03-828 U.S. Customs Service
                          OR&R officials said that another change made to help eliminate the ruling
                          backlog and issue rulings within 90 days was that OR&R started holding
                          importers making ruling requests to a more rigorous standard for
                          submitting information. Some ruling requests did not contain all the
                          information needed, or were insufficiently detailed, for OR&R to issue a
                          ruling. Previously, OR&R attorneys would generally spend whatever
                          amount of time it took to communicate with importers and obtain the
                          needed information, according to OR&R officials. In 2002, however, rather
                          than keeping cases open while waiting for more information, OR&R
                          started administratively closing cases or sending information letters,
                          which provide some information that may be helpful and often take less
                          time to process than rulings, when missing information could not be
                          quickly obtained. For administrative closures, OR&R sends a letter
                          advising the importer that the ruling request case is being administratively
                          closed and providing the importer with the reason the ruling request
                          cannot be processed. OR&R also started generally closing ruling request
                          cases administratively when they are contingent on other pending
                          decisions, such as decisions for related rulings, litigation, legislation, or
                          regulations, rather than keeping such cases open and postponing activity
                          on them.


Trade Community           Fourteen of 35 importer representatives we interviewed who had
Expressed Some Concerns   requested prospective rulings, but either did not receive a ruling or
about OR&R Headquarters   received one that took longer than 120 days to issue,21 were critical of
                          OR&R’s actions in handling their requests. We interviewed these
Actions                   representatives to obtain their views on how OR&R handled their requests.

                          Seven importer representatives we interviewed noted that they disagreed
                          with reasons generally given by OR&R to administratively close ruling
                          request cases. In the sample of cases we reviewed, OR&R administratively
                          closed cases because either the requests involved current transactions that




                          21
                            For the interviews, we selected importer representatives who were involved with ruling
                          request cases in our sample that were either untimely, administratively closed, or resulted
                          in an information letter. The 35 representatives we interviewed were involved with
                          41 ruling requests that were in the sample of 325 cases we reviewed.




                          Page 16                                                  GAO-03-828 U.S. Customs Service
were not prospective in nature22 or information needed to issue rulings
was missing and could not be quickly obtained. Four of the 7 importer
representatives said that OR&R administratively closing cases because
importation transactions are no longer prospective is unfair, primarily
because OR&R had, in the past, loosely defined prospective transactions,
such as either transactions that had not yet begun or that had begun and
were still in progress. One representative said that OR&R now seems to
define prospective importation transactions only as those that have not yet
begun, but did not officially alert importers to this change.23 In addition,
4 of the 7 importer representatives said that OR&R’s closing of cases
almost immediately because information is missing is an inefficient
practice. They said that it takes more time for OR&R to close a case and
later receive a resubmitted request with complete information than it does
for OR&R to allow importers to submit additional information while a case
remains open. In response, OR&R officials said that one of the factors that
lead to substantial delays in issuing rulings prior to 2002 was the
willingness of OR&R to hold cases open while awaiting additional
information from importers. OR&R management decided that it is a more
efficient process to administratively close such cases.

Ten of the 35 importer representatives we interviewed disagreed with
OR&R’s decision in 2002 to have telephone discussions instead of in-
person meetings with importers and/or their attorneys to discuss ruling
requests.24 Two of the 10 representatives said they believed that in the long
run, this practice will be more time-consuming for OR&R than granting in-
person meetings. Six of the importer representatives said that the
discussions and the information presented at in-person meetings have, in


22
  For 8 of 31 prospective ruling request cases we reviewed that OR&R had administratively
closed, OR&R explained to the importers that the importation transactions were current
and not prospective and advised them to seek internal advice. Similarly, for 3 of 13
prospective ruling request cases we reviewed that resulted in an information letter, OR&R
advised the importers to seek internal advice. Internal advice is a type of OR&R
headquarters decision which has the same effect as a ruling, but it is given for current
transactions (i.e., goods are at a Customs port or have already entered the country) when
an importer disputes a decision made at a port and asks OR&R headquarters for a decision.
OR&R’s 90-day goal for issuing rulings does not apply to its issuance of internal advice.
23
  Federal regulation defines a prospective transaction as “…one that is contemplated or is
currently being undertaken and has not resulted in any arrival or the filing of any entry or
other document, or in any other act to bring the transaction, or any part of it, under the
jurisdiction of any Customs office.” 19 C.F.R. 177.1(d)(3).
24
 Three of these 10 importer representatives also disagreed with reasons given by OR&R to
administratively close ruling request cases.




Page 17                                                  GAO-03-828 U.S. Customs Service
                         their experience, often led OR&R attorneys to change their contemplated
                         ruling decisions. The representatives also believe that by having telephone
                         discussions instead of in-person meetings, OR&R will likely make less
                         informed ruling decisions, resulting in additional importer protests and
                         requests for revocations of rulings. In response, OR&R officials said that
                         OR&R has found conference calls to be a very effective means of obtaining
                         needed information from importers in addition to informal contacts
                         between staff attorneys and importers and their representatives. OR&R
                         officials noted that where the nature of an issue suggests that an in-person
                         meeting is needed to clarify the matter, OR&R may still schedule such a
                         meeting.


                         Our review of a sample of 325 OR&R headquarters cases, from a random
OR&R Has Taken           sample of 344 cases, closed from February 1, 2002, through October 31,
Actions to Improve       2002, showed that LCIS continued to face data reliability challenges
                         potentially hindering its effectiveness as a tool for monitoring cases and
LCIS Data Reliability,   measuring the timeliness of rulings.25 In response to recommendations we
but Challenges           made in our September 2000 report,26 OR&R completed certain actions by
                         February 2003 to improve the accuracy and reliability of LCIS data. OR&R
Remain                   also initiated additional corrective actions based on data errors we found
                         in our case file review. However, these actions may not sufficiently correct
                         problems with LCIS because some of the actions lack specific procedures
                         for their effective implementation. According to our internal control
                         standards, for an agency to run and control its operations, it must have
                         relevant, reliable information relating to internal events.27 That information
                         should be recorded and communicated to management and others within
                         the agency who need it to carry out their responsibilities.




                         25
                          We attempted to review a random sample of 344 OR&R headquarters case files,
                         representing 387 cases categorized as prospective rulings, but OR&R staff could not locate
                         19 of the files. The 387 cases were categorized in LCIS as prospective rulings involving the
                         classification, valuation, and marking of imported goods.
                         26
                          Our case file review for our September 2000 report showed that most of the cases had
                         missing or incorrect data in LCIS.
                         27
                            U.S. General Accounting Office, Standards for Internal Control in the Federal
                         Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1999); Internal Control
                         Management and Evaluation Tool, GAO-01-1008G (Washington, D.C.: Aug. 2001).




                         Page 18                                                  GAO-03-828 U.S. Customs Service
LCIS Data Often   Our comparison of LCIS data to 325 case files showed that LCIS data were
Inaccurate and    often inaccurate, did not match the case files, or could not be easily
Unreliable        verified. A total of 88 cases were inaccurately coded in LCIS as rulings. In
                  addition, LCIS data for 153 of the 281 prospective ruling request cases in
                  the sample either did not match data in the case files or could not be easily
                  verified because case file data were missing for at least one of four key
                  data elements (i.e., the “type of case code,” “case category code,” “date
                  assigned,” and “date closed”).28 Although OR&R uses LCIS to track the
                  progress of its headquarters rulings, LCIS is not an effective tool for
                  measuring the timeliness of rulings when it does not contain accurate and
                  reliable dates.29

                  In our review of the 325 OR&R headquarters case files, we found that 44 of
                  the cases did not involve prospective ruling requests and were
                  inaccurately coded in LCIS as rulings. These 44 inaccurately coded cases
                  were internal advice decisions, protest reviews, and ruling revocation and
                  modification decisions. Such cases have different codes to be entered into
                  LCIS.

                  Separately, we found that OR&R had not issued rulings for an additional
                  44 of the remaining 281 prospective ruling request cases. The cases
                  originated with letters requesting rulings, but OR&R administratively
                  closed 31 of the cases and issued information letters for the other 13 cases.
                  However, the cases remained inaccurately coded in LCIS as rulings. We
                  brought the cases to the attention of OR&R management while reviewing
                  OR&R’s case files. OR&R agreed that when the cases were closed they
                  should no longer have been coded in LCIS as rulings because rulings were
                  not issued (i.e., the codes should have been changed after OR&R decided


                  28
                    Our comparison of data from the case files with corresponding data in LCIS focused on
                  four pieces of information that are required data elements in LCIS and that are key to
                  tracking OR&R cases and determining the number of days each case has been in progress:
                  (1) type of case code—a numeric code used to define each type of case received and
                  recorded in LCIS, such as a ruling case or an internal advice case; (2) case category code—
                  a numeric code used in LCIS to further define the unique circumstances regarding an
                  individual case, such as further defining a ruling as a valuation case; (3) date assigned—the
                  actual date a case is assigned to an OR&R attorney, starting the clock used for the 90-day
                  turnaround benchmark; and (4) date closed—the actual date a case is closed, which may
                  involve actions such as issuing a ruling, administratively closing a case, or issuing an
                  information letter.
                  29
                   In our calculations of the amount of time that OR&R took to process ruling request cases,
                  we used data that we collected from OR&R’s hard-copy case files containing documents
                  showing the dates cases were assigned to attorneys and the dates cases were closed. We
                  did not use LCIS data for these calculations.




                  Page 19                                                  GAO-03-828 U.S. Customs Service
not to issue rulings for these cases). Consequently, OR&R officials advised
us that they had decided to establish a uniform approach to the coding of
such cases, including the identification of specific codes to be entered into
LCIS, and had taken corrective action on the 44 cases we brought to their
attention.

In reviewing the 281 prospective ruling request cases, we also found that
153 cases had LCIS data for at least one of four key data elements which
either did not match data in the case files or we could not verify because
case file data were missing. Table 3 shows our estimates of the extent to
which these key data elements in LCIS matched, did not match, or could
not be easily verified with data in individual case files for the 281
prospective ruling requests.30

Table 3: Comparison of LCIS and Case File Data for 281 Prospective Ruling
Request Cases Closed from February 1, 2002, through October 31, 2002

                                    Number of cases     Number of cases            Number of cases
                                     where LCIS data     where LCIS data           where LCIS data
                                    matched case file did not match case               could not be
                                                    a
    Data element                               data             file dataa           easily verifiedb
    Type of case code                            203                         20                      58
    Case category code                           210                         12                      59
    Date assigned                                190                         64                      27
    Date closed                                  264                         12                       5
Source: GAO review of OR&R files.
a
 We defined a match as any numeric code or date for which the data recorded in LCIS matched the
numeric code or date in the ruling request case file. For the type of case code and case category
code, we compared LCIS data to the codes written on the Case Assignment sheet in each case file.
For the date assigned and date closed, we compared LCIS data to all documentation in each case
file, including the Case Assignment sheet, ruling, and Case History form.
b
 “Could not be easily verified” means that the data were missing from the case files. According to
OR&R management, it is possible to verify the type of case codes and case category codes by
examining documentation in case files, including rulings, that does not specifically state these codes.
We do not have the expertise to make such determinations and relied on the Case Assignment
sheets in the case files to verify these codes.




30
  Because our review focused on prospective rulings, the 44 OR&R headquarters cases (of
the 325 cases in our sample) that were not ruling requests, but were incorrectly coded in
LCIS as rulings, did not meet our sample criteria. Therefore, we did not review the case
files of these 44 cases as thoroughly as the 281 prospective ruling request cases, and we did
not compare their case category codes, dates assigned, and dates closed.




Page 20                                                         GAO-03-828 U.S. Customs Service
                            OR&R’s ability to measure the timeliness of rulings is hindered when
                            either the date a case is assigned to an attorney for processing or the date
                            a case is closed is inaccurate in LCIS. These two dates are used by LCIS to
                            automatically calculate and record the number of days in progress for
                            each case.31 OR&R managers monitor the timeliness of rulings using each
                            case’s days in progress from the date a case is assigned. However, LCIS
                            errors with the date assigned and date closed can be substantial. For
                            example, documents in one case file we reviewed showed that the case
                            took 157 days from the date assigned to the date closed, but LCIS showed
                            35 days in progress for the case. In another case, we determined from the
                            case file that it took 1,225 days from the date assigned to the date closed,
                            but LCIS showed 587 days in progress.


It Is Uncertain Whether     In our September 2000 report, we concluded that LCIS was not an
OR&R’s Corrective Actions   effective tool for measuring the timeliness of OR&R headquarters
Will Improve LCIS Data      prospective rulings because it did not contain accurate and reliable data.
                            We recommended that the OR&R Assistant Commissioner take steps to
Reliability
                            •    modify LCIS to enable the system to record and retain key data so that
                                 managers can more readily monitor and track the history of cases;

                            •    provide clear and complete guidance to ensure that staff that use LCIS
                                 understand and consistently interpret the guidance, as well as train
                                 staff on any modifications to LCIS; and

                            •    establish an ongoing LCIS monitoring system to ensure the quality and
                                 integrity of the data entered and maintained in the system.

                            In response to our recommendations, OR&R took corrective actions that
                            were completed by February 13, 2003. Specifically, OR&R developed and
                            issued a new SOP for LCIS.32 The purpose of the LCIS SOP is to ensure a
                            consistent process for receiving, acknowledging, assigning, recording,
                            tracking, updating, signing, and closing ruling cases in LCIS. For example,



                            31
                             Days in progress is the number of calendar days from the date a case is assigned to an
                            OR&R attorney for processing to the date the case is closed. Days in progress is
                            automatically determined by LCIS.
                            32
                             U.S. Customs Service Office of Regulations and Rulings, Standard Operating Procedure,
                            Subject: Using the Legal Case Inventory System (LCIS) to Control & Track Rulings, Date:
                            July 10, 2002.




                            Page 21                                                 GAO-03-828 U.S. Customs Service
the SOP explains how a Case Assignment sheet is to be used to enter,
review, and update data in LCIS.

OR&R also began producing monthly LCIS reports of open and closed
cases and reports for cases nearing or over the 90-day ruling issuance
turnaround benchmark. OR&R managers are to use these reports to
determine case status and resolve barriers to completion. At the same
time, the OR&R managers are to review the monthly reports to help ensure
the accuracy of the information entered into LCIS for these cases.

Another corrective action taken by OR&R was to conduct training of
employees to ensure that they are familiar with LCIS requirements and
capabilities. A training session was conducted in November 2002, and two
more sessions were planned for fiscal year 2003. In addition, according to
OR&R officials, informal training of employees, such as new employees
and employees transferring among OR&R units, has taken place on a one-
on-one basis.

OR&R initiated additional corrective actions based on LCIS data errors we
found and discussed with an OR&R official as we conducted our case file
review for this report. As discussed earlier, OR&R decided to establish a
uniform approach to the coding of ruling requests that result in
administrative closures or the issuance of information letters, including
the identification of specific codes to be entered into LCIS. In addition,
OR&R units responsible for processing prospective rulings were
instructed to check the accuracy of the LCIS “type of case code” for all
cases closed between October 1, 2002, and March 3, 2003. The OR&R units
compared hard copy documentation to LCIS data and made the necessary
corrections to LCIS. In the future, the OR&R units are to perform a similar
check of a selected percentage of LCIS data on a quarterly basis.

OR&R’s corrective actions to improve the accuracy and reliability of LCIS
data are steps in the right direction, but they do not provide assurance that
LCIS data reliability challenges have been resolved. Although the
corrective actions include goals, some actions lack specific procedures
indicating how the goals will be met. For example, OR&R’s recent decision
to establish a uniform approach to the coding of administrative closures
and information letters did not include any specific guidance as to how
and when the coding is to be done and by whom. According to OR&R
management, as of June 2003, the OR&R Assistant Commissioner was
drafting a memorandum to provide such guidance.




Page 22                                        GAO-03-828 U.S. Customs Service
                     In addition, the LCIS SOP does not provide specific and thorough guidance
                     to ensure consistent recording, updating, and verification of LCIS data.
                     The SOP directs administrative staff to enter timely and accurate
                     information into LCIS, but it does not provide detailed guidance for the
                     verification of LCIS data during the life of a case. Although the LCIS SOP
                     instructs OR&R attorneys to compare LCIS data hard-copy summaries to
                     Case Assignment sheets in case files to ensure that the information
                     matches, the SOP appears to suggest that attorneys carry out this task
                     before conducting research and other work on cases. The SOP does not
                     specifically require the verification of LCIS data for individual cases at
                     other times, such as when each case is closed. After we discussed this
                     with OR&R officials, the OR&R Assistant Commissioner issued a
                     memorandum on July 8, 2003, requiring OR&R managers to verify the
                     accuracy of LCIS data for each case as it is closed.


                     OR&R headquarters improved the timeliness of its prospective rulings
Conclusions          since we issued our September 2000 report concluding that most rulings
                     were untimely. Starting in February 2002, OR&R gave ruling requests its
                     highest priority and took other actions to help issue rulings within 90 days
                     and eliminate the backlog of ruling requests that existed. By continuing to
                     give priority to rulings and continuing to streamline the processing of
                     rulings, OR&R headquarters may be able to institutionalize and sustain the
                     progress it has made in improving timeliness. This would benefit the trade
                     community and help ensure compliance with U.S. trade law.

                     LCIS, OR&R’s automated database, continued to face data reliability
                     challenges. OR&R has taken corrective actions to improve the accuracy
                     and reliability of LCIS data. However, these actions do not provide
                     assurance that OR&R has resolved its LCIS data reliability challenges
                     because some of the actions lack specific procedures for their effective
                     implementation. LCIS needs accurate and reliable data so that it can
                     effectively serve as an OR&R management tool for recording and
                     monitoring the progress and history of individual prospective ruling
                     requests and measuring timeliness. To achieve this, additional corrective
                     actions may be necessary.


                     To help ensure that LCIS data are accurate and that OR&R can reliably use
Recommendation for   the database as a management tool to record and monitor prospective
Executive Action     rulings and measure timeliness, we recommend that the OR&R Assistant
                     Commissioner take steps to continue to assess LCIS data reliability to



                     Page 23                                        GAO-03-828 U.S. Customs Service
                     determine whether recent improvements sufficiently correct past
                     problems.

                     Customs provided written comments on a draft of this report and
Agency Comments      generally agreed with our findings and recommendations. Customs’
and Our Evaluation   comments are contained in appendix II.

                     While Customs said that the report acknowledges OR&R’s improvement in
                     the timeliness of its rulings, Customs believed the report did not convey
                     that OR&R has dramatically improved the timeliness of its rulings and
                     eliminated timeliness as a problem. Customs also said that the report did
                     not recognize the dramatic turnaround that OR&R accomplished,
                     including the elimination of the backlog of 757 ruling requests that existed
                     on February 1, 2002; the issuance of nearly every prospective ruling
                     request received since July 2002 within 90 days; and the issuance of nearly
                     every prospective ruling request received since September 2002 within
                     70 days. Customs also said that the report did not sufficiently emphasize
                     that OR&R has maintained its record of issuing rulings well within the
                     90-day time frame in the months since September 30, 2002, when the
                     backlog was eliminated.

                     We believe that the report appropriately reflects the improvements OR&R
                     has made in the timeliness of its prospective rulings. Regarding OR&R’s
                     issuance of prospective rulings since September 2002, we did not assess
                     OR&R’s timeliness for cases closed after October 31, 2002. Rather, we
                     assessed OR&R’s timeliness by reviewing the files for prospective ruling
                     request cases opened and closed from February 2002, when OR&R started
                     its efforts to issue rulings within 90 days, through October 2002, when we
                     initiated our review. In addition, our report identifies that OR&R improved
                     its response time for cases in the latter part of our sample (i.e., cases
                     opened and closed from July through October 2002, after OR&R had made
                     significant progress in reducing the size of its ruling request backlog), with
                     an estimated 94 percent of these cases completed within 90 days.

                     Regarding whether OR&R has eliminated timeliness as a problem, the
                     scope of our work and the possibility of OR&R changing its priorities does
                     not allow us to reach this conclusion. We identified, however, that OR&R
                     continuing to give priority to rulings should help institutionalize and
                     sustain the progress made in improving the timeliness of headquarters
                     prospective rulings. In addition, although Customs said that the report did
                     not recognize the elimination of the February 2002 backlog of cases open
                     90 days or more, the report clearly identified that OR&R reported it had



                     Page 24                                         GAO-03-828 U.S. Customs Service
eliminated the backlog, with a few exceptions that were beyond Customs’
control.

Customs also commented on recent steps OR&R has taken to improve
LCIS data reliability, as outlined in a July 8, 2003, memorandum from the
OR&R Assistant Commissioner to OR&R managers. The memorandum
formally establishes and communicates two corrective actions taken by
OR&R to address LCIS data errors that we identified in the report:
verifying the accuracy of LCIS data on a quarterly basis, and establishing a
uniform approach to coding ruling requests that result in administrative
closures or the issuance of information letters. The memorandum also
requires OR&R managers to verify the accuracy of LCIS data for each case
as it is closed and note their review on the Case Assignment sheet, which
is now to be retained in each case file. We agree with Customs that this
action sufficiently addresses a second recommendation made in our draft
report. Accordingly, we removed this recommendation. In addition to
implementing this recommendation, Customs also concurred with our
remaining recommendation to continue to assess LCIS data reliability
issues and is taking actions to address it. We believe OR&R’s recent
actions demonstrate a willingness to continue to assess and improve data
reliability for LCIS.


We are sending copies of this report to the Commissioner of Customs and
interested congressional committees. We will also make copies available
to others upon request. In addition, the report will be available on GAO’s
Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please contact
Seto J. Bagdoyan, Assistant Director, at 202-512-8658, or me at 202-512-
8777. Other staff are acknowledged in appendix III.




Cathleen A. Berrick, Acting Director
Homeland Security and Justice Issues




Page 25                                        GAO-03-828 U.S. Customs Service
                    Appendix I: Scope and Methodology
Appendix I: Scope and Methodology


                    Our scope and methodology for responding to our three objectives,
                    presented earlier in the report, and carrying out related work is described
                    in the next sections.


                    To determine whether the Office of Regulations and Rulings (OR&R)
Response Time for   headquarters improved its response time for issuing prospective rulings on
OR&R Headquarters   the classification, valuation, and marking of imported goods since our
                    September 2000 report, we reviewed hard-copy files for a sample of
Rulings             325 headquarters cases. OR&R had categorized these cases as prospective
                    rulings involving requests for the classification, valuation, and marking of
                    imported goods, and they were closed from February 1, 2002, through
                    October 31, 2002. We attempted to review a random sample of 344 case
                    files, representing 387 cases categorized in OR&R’s Legal Case Inventory
                    system (LCIS) database as prospective rulings, but OR&R staff could not
                    locate 19 of the files. We grouped the cases into three categories: those
                    cases that were assigned to OR&R attorneys for processing before
                    February 1, 2002; cases assigned from February 1, 2002, through June 30,
                    2002; and cases assigned from July 1, 2002, through October 31, 2002; with
                    all cases in each of the three categories closed from February 1, 2002,
                    through October 31, 2002. We were primarily interested in whether or not
                    the days in progress for prospective rulings has decreased if they were
                    assigned after February 1, 2002. Days in progress, as defined by OR&R, is
                    measured as the number of calendar days from the date a case was
                    assigned to an OR&R attorney for processing (date assigned) until the date
                    that same case was closed (date closed). We determined the days in
                    progress with data we collected from OR&R’s hard-copy case files and
                    recorded using an electronic data collection instrument.

                    We obtained from OR&R a listing of cases categorized as prospective
                    rulings, which OR&R extracted from its LCIS database and put on an
                    electronic spreadsheet. We narrowed down this population so that it
                    consisted of only cases categorized as prospective rulings that were closed
                    from February 1, 2002, through October 31, 2002. These prospective ruling
                    cases involved the classification, valuation, and marking of imported
                    goods and were from OR&R’s Textile Branch, General Classification
                    Branch, Value Branch, and Special Classification and Marking Branch. We
                    excluded other prospective ruling cases that the Trade Act of 2002 did not
                    require us to study. Our sampling units are each individual prospective
                    ruling request case. There were a total of 387 cases categorized in the LCIS
                    database as prospective rulings covering the classification, valuation, and
                    marking of imported goods that were from these four OR&R branches and
                    were closed between February 1, 2002, and October 31, 2002.


                    Page 26                                        GAO-03-828 U.S. Customs Service
Appendix I: Scope and Methodology




In conducting the file review, we used a random list of the 387 cases to
ensure a random sample regardless of whether or not we would be able to
review all of the cases, and we reviewed 325 of the 387 cases (as noted
earlier, we attempted to review a random sample of 344 of the 387 cases,
but OR&R staff could not locate files for 19 cases). Table 4 provides details
of the strata samples and population.

Table 4: File Review Strata for OR&R Headquarters Cases Categorized as
Prospective Rulings and Closed from February 1, 2002, through October 31, 2002

                                                            Cases
                                                 Total   randomly          Cases
 Strata     Time period                         cases     selected      reviewed
 1          Cases assigned before February 1,     229          186           175
            2002
 2          Cases assigned between February       125          125           117
            1, 2002, and June 30, 2002
 3          Cases assigned between July 1,         33           33               33
            2002, and October 31, 2002
 Total                                            387          344           325
Source: GAO data.



Our probability samples allow us to make estimates to the populations of
total cases for each of the three time periods. Because we used random
sampling, the results obtained are subject to some uncertainty or sampling
error. The sampling error can be expressed in terms of confidence levels
and ranges. The confidence level indicates the degree of confidence that
can be placed in the estimates derived from the samples. The range is a
pair of values derived from the sample data, an upper and lower limit,
between which the actual population values might be found. Our samples
were designed so that the sampling error around the estimates of
percentages would not be greater than 5 percentage points at the
95-percent confidence level. Thus, if all cases in our populations had been
examined, the chances are 95 out of 100 that the results obtained would be
included in the range formed by adding or subtracting no more than
5 percentage points from the sample estimates. Table 5 provides the
95-percent confidence intervals for each of the estimates to the
populations of total cases that we made in this report.




Page 27                                          GAO-03-828 U.S. Customs Service
                        Appendix I: Scope and Methodology




                        Table 5: 95-Percent Confidence Intervals for Estimates to Populations of Total
                        Cases

                            Estimate                            Confidence interval        Report page number
                            75%                                       66.9% - 82.7%                             3
                            64%                                       60.1% - 68.0%                             3
                            94%                                       79.8% - 99.3%                             3
                            75%                                       66.9% - 82.7%                             8
                            64%                                       60.1% - 68.0%                             8
                            64%                                       60.1% - 68.0%                             9
                            11%                                        6.4% - 18.3%                             9
                            25%                                       17.3% - 33.1%                             9
                            55%                                       49.7% - 60.0%                             9
                            94%                                       79.8% - 99.3%                             9
                            581 days average                          553 - 609 days                           11
                            501 days median                           463 - 540 days                           11
                        Source: GAO data.



                        To determine what actions OR&R headquarters took to improve the
OR&R Headquarters       timeliness of its prospective rulings and eliminate its backlog of ruling
Actions on Rulings      request cases, we interviewed OR&R management officials and collected
                        and reviewed pertinent documentation (e.g., OR&R reports to the
                        Commissioner regarding the status of efforts to implement procedural
                        changes to issue rulings within 90 days and eliminate the backlog; the July
                        2002 draft Standard Operating Procedure intended to provide a
                        standardized approach for processing and issuing rulings1).


                        To determine whether OR&R resolved the data reliability challenges it
OR&R Data Reliability   faced with LCIS, we interviewed OR&R management officials; reviewed
Challenges              case file information for our sample of 325 OR&R headquarters cases
                        categorized in LCIS as prospective rulings; and collected and reviewed
                        other available information, such as the July 2002 Standard Operating
                        Procedure intended to ensure a consistent process for receiving,
                        acknowledging, assigning, recording, tracking, updating, signing, and
                        closing ruling cases in LCIS.


                        1
                         According OR&R officials, the SOP was being used by OR&R but was still in draft form as
                        of June 2003. The OR&R officials noted that the latest version of the draft SOP was dated
                        June 2003, and the final version was expected to be issued by August 2003.




                        Page 28                                                GAO-03-828 U.S. Customs Service
                       Appendix I: Scope and Methodology




                       In reviewing OR&R’s case files for our sample of cases and noting
                       discrepancies with LCIS data for “type of case code,” “case category code,”
                       “date assigned,” and “date closed,” we did not discuss each case with
                       OR&R officials to determine the reasons that case file data did not match
                       LCIS data or data were missing from case files. To do so would have been
                       a time-consuming and complex task, for us as well as OR&R, with little
                       likelihood of determining the reason for each discrepancy. In carrying out
                       the work for our September 2000 report on OR&R headquarters rulings,
                       we asked OR&R officials to explain the reasons for discrepancies as part
                       of our methodology. However, we reported that we could not always
                       identify the reasons why LCIS data were inaccurate for the cases we
                       reviewed.


                       We also obtained the trade community’s perspective on OR&R
Trade Community        headquarters’ prospective rulings. We interviewed the chair of the
Perspective on OR&R    Subcommittee on OR&R of the Treasury Advisory Committee on
                       Commercial Operations of the U.S. Customs Service (COAC),
Headquarters Rulings   representatives of selected associations, and selected importer
                       representatives. The trade representatives we interviewed are not a
                       representative, national sample from which we can make estimates to the
                       entire trade community. We did not independently validate or verify the
                       accuracy or reliability of information they provided.

                       We conducted a telephone interview with the chair of COAC’s
                       Subcommittee on OR&R. We also conducted telephone interviews with
                       representatives of the American Bar Association Customs Law Committee2
                       and five trade associations suggested to us by congressional staff and
                       identified by the media and other sources as being knowledgeable about
                       OR&R headquarters’ prospective rulings: the American Association of
                       Exporters & Importers; Business Alliance for Customs Modernization;
                       International Mass Retail Association; Joint Industry Group Import
                       Committee; and National Customs Brokers & Forwarders Association of
                       America.




                       2
                        The American Bar Association is not a trade association. However, the association’s
                       Customs Law Committee is concerned with the full range of laws and regulations
                       administered by the Customs Service in connection with the importation and exportation
                       of merchandise. The Committee provides information, educational programs and materials,
                       and a forum for reviewing, advising, commenting on, and participating in the development
                       of Customs laws, regulations, and practices.




                       Page 29                                               GAO-03-828 U.S. Customs Service
Appendix I: Scope and Methodology




We attempted to conduct structured telephone interviews with a
judgmental sample of 76 importer representatives who had requested
rulings from OR&R to obtain their views on how OR&R handled their
requests and to ask whether OR&R’s response had adversely affected the
importers. We successfully interviewed 35 of these importer
representatives; the remaining 41 either did not return our messages, did
not answer our questions, or could not be contacted at the telephone
number we obtained from OR&R files. For the interviews, we selected
importer representatives who were involved with ruling request cases in
our sample that were either untimely, administratively closed, or resulted
in an information letter.

We conducted our work between October 2002 and June 2003 in
accordance with generally accepted government auditing standards.




Page 30                                       GAO-03-828 U.S. Customs Service
              Appendix II: Comments from the Bureau of Customs and Border Protection
Appendix II: Comments from the Bureau of
Customs and Border Protection




              Page 31                                              GAO-03-828 U.S. Customs Service
Appendix II: Comments from the Bureau of Customs and Border Protection




Page 32                                              GAO-03-828 U.S. Customs Service
Appendix II: Comments from the Bureau of Customs and Border Protection




Page 33                                              GAO-03-828 U.S. Customs Service
Appendix II: Comments from the Bureau of Customs and Border Protection




Page 34                                              GAO-03-828 U.S. Customs Service
Appendix II: Comments from the Bureau of Customs and Border Protection




Page 35                                              GAO-03-828 U.S. Customs Service
                             Appendix III: GAO Contacts and Staff Acknowledgments
Appendix III: GAO Contacts and Staff
Acknowledgments

                  Cathleen A. Berrick 202-512-8777
GAO Contacts      Seto J. Bagdoyan 202-512-8658


                  In addition to those named above, Ronald G. Viereck, Brian J. Lipman,
Staff             Kristy N. Brown, Elizabeth Neidert, Michele C. Fejfar, Kriti Bhandari,
Acknowledgments   Nathan A. Morris, Elizabeth A. Laffoon, and Ann H. Finley made key
                  contributions to this report.




(440166)
                  Page 36                                           GAO-03-828 U.S. Customs Service
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