oversight

Motor Carrier Safety: New Applicant Reviews Should Expand to Identify Freight Carriers Evading Detection

Published by the Government Accountability Office on 2012-03-22.

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

             United States Government Accountability Office

GAO          Report to Congressional Committees




March 2012
             MOTOR CARRIER
             SAFETY
             New Applicant
             Reviews Should
             Expand to Identify
             Freight Carriers
             Evading Detection




GAO-12-364
                                             March 2012

                                             MOTOR CARRIER SAFETY
                                             New Applicant Reviews Should Expand to Identify
                                             Freight Carriers Evading Detection
Highlights of GAO-12-364, a report to
congressional committees




Why GAO Did This Study                       What GAO Found
The Federal Motor Carrier Safety             FMCSA does not determine the total number of chameleon carriers within the motor
Administration’s (FMCSA) mission is to       carrier industry. Such a determination would require FMCSA to investigate each of
ensure motor carriers operate safely in      the tens of thousands of new applicants that register annually and then complete a
interstate commerce. FMCSA partners          legal process for some of these suspected chameleon carriers, an effort for which
with state agencies to conduct a             FMCSA does not have sufficient resources. Rather, FMCSA’s attempt to identify
variety of motor carrier oversight           chameleon carriers among new applicants, referred to as the vetting program, is
activities, which are carried out by         limited to bus companies (passenger carriers) and movers (household goods
certified auditors, inspectors, and          carriers). These two relatively small groups, representing only 2 percent of all new
investigators. Some motor carriers           applicants in 2010, were selected because they present consumer protection and
have registered under a new identity         relatively high safety risks. Through the vetting program, FMCSA conducts electronic
and begun to operate in interstate           matching of applicant registration data against data on existing carriers and
commerce, violating federal law in an        investigates each application from these two small groups, but does not determine
effort to disguise their former identity     whether all other new applicants, including freight carriers, may be attempting to
and evade detection by FMCSA. Such           assume a new identity. Federal internal control standards direct agencies to assess
carriers are known as chameleon              the risks they face to determine the most effective allocation of federal resources,
carriers.                                    including how best to distribute resources for activities such as investigations and
                                             enforcement. GAO demonstrated how analysis of registration data can be used to
GAO’s objectives were to examine
                                             assess risk by targeting all new applicant carriers that have attributes similar to those
(1) the prevalence of chameleon
                                             of chameleon carriers—for example, company registration data that match data for
carriers; (2) how well FMCSA’s
                                             another carrier with a history of safety violations. Using FMCSA data, GAO found an
investigative programs are designed to
                                             increasing number of carriers with chameleon attributes, from 759 in 2005 to 1,136 in
identify suspected chameleon carriers;
                                             2010. GAO also found that 18 percent of the applicants with chameleon attributes
and (3) what constraints, if any,
                                             were involved in severe crashes compared with 6 percent of new applicants without
FMCSA faces in pursuing enforcement
                                             chameleon attributes.
actions against suspected chameleon
carriers.                                    FMCSA’s investigative programs—the vetting and new entrant safety assurance
                                             programs—are not well designed to identify suspected chameleon carriers. The
To address these objectives, GAO
                                             vetting program assesses all passenger and household goods carriers applying for
analyzed data on new applicants;
                                             operating authority, but it does not cover other groups of carriers, including freight
reviewed investigative program
                                             truck carriers, which represented 98 percent of all new motor carrier applicants in
guidance, federal motor carrier laws
                                             2010 and were more likely to be involved in fatal crashes than passenger carriers.
and regulations, GAO and other
                                             The new entrant safety assurance program—which involves a safety audit for all new
reports, and selected state corporate
                                             entrants, including freight carriers—entails a brief assessment of whether a carrier
successor liability laws; observed two
                                             may be chameleon, but is primarily designed to educate new entrants about federal
new entrant safety audits; and
                                             motor carrier safety regulations. The safety audit includes questions to elicit
interviewed FMCSA headquarters and
                                             information on connections between new and previous carriers, but auditors lack
field officials, state officials—including
                                             necessary guidance on how to interpret the responses to distinguish chameleon
law enforcement agencies—and motor
                                             carriers from legitimate carriers.
carrier stakeholders.
                                             FMCSA faces several constraints in pursuing enforcement actions against suspected
What GAO Recommends                          chameleon carriers. For example, as a result of a 2010 decision by an FMCSA
FMCSA should expand the vetting              Assistant Administrator, it is unclear whether FMCSA should use a state or a federal
program using a data-driven approach;        legal standard to demonstrate that a carrier is a chameleon. Thus, evidence is
and provide guidance to improve the          gathered to meet both a state and federal legal standard, which can lead to differing
new entrant program. FMCSA                   enforcement actions across states and has increased the time necessary to pursue
generally concurred with our                 chameleon carrier cases. FMCSA is pursuing several options to achieve a single
recommendations.                             standard, including providing input to Congress on a legislative proposal, monitoring
                                             chameleon carrier cases that could clarify the 2010 decision, and pursuing a separate
View GAO-12-364. For more information,       rulemaking. Other constraints on FMCSA enforcement actions include a resource-
contact Susan A. Fleming at (202) 512-2834   intensive legal process, the inability to preclude carriers from obtaining multiple
or flemings@gao.gov.
                                             registration numbers, and low maximum fines.
                                                                                        United States Government Accountability Office
Contents


Letter                                                                                     1
               Background                                                                  4
               FMCSA Does Not Determine the Prevalence of Chameleon
                 Carriers; Our Analysis Found More than 1,100 New Applicant
                 Carriers with Chameleon Attributes in 2010                              11
               FMCSA’s Investigative Programs Are Not Well Designed to Identify
                 Chameleon Carriers across All New Applicants                            19
               FMCSA Faces Several Constraints in Pursuing Enforcement
                 Actions against Suspected Chameleon Carriers                            27
               Conclusions                                                               33
               Recommendations for Executive Action                                      35
               Agency Comments and Our Evaluation                                        36

Appendix I     Objectives, Scope, and Methodology                                        38



Appendix II    Additional Information on the Scope and Methodology of Our Data
               Analysis                                                                  42



Appendix III   Standards for Corporate Successor Liability                               50



Appendix IV    GAO Contact and Staff Acknowledgments                                     56



Tables
               Table 1: Number and Percentage of New Applicants with
                        Chameleon Attributes by Carrier Type, 2005 through 2010          15
               Table 2: New Applicant Carriers with and without Chameleon
                        Attributes That Were Involved in a Severe Crash, Assessed
                        a Fine, or Placed Out-of-Service, 2005 through 2010              18
               Table 3: Results of FMCSA’s Vetting of New For-Hire Passenger
                        and Household Goods Carrier Applicants from August 13,
                        2008, through May 18, 2011                                       21
               Table 4: State Agencies Interviewed                                       40
               Table 5: Steps Taken to Standardize Fields Prior to Matching              44




               Page i                                         GAO-12-364 Motor Carrier Safety
          Table 6: Match Rates for Carriers with and without Motive Based
                   on New Applicants in 2009                                                        47
          Table 7: Match Rates for Carriers with and without Motive Based
                   on New Applicants in 2010                                                        48
          Table 8: Ten Selected States’ Corporate Successor Liability Rules                         55


Figures
          Figure 1: Large Truck and Bus Fatalities and Estimated Fatality
                   Rate, 2000-2009                                                                   5
          Figure 2: Carriers with Chameleon Attributes as a Percentage of
                   New Applicants by Carrier Type, 2005 through 2010                                16
          Figure 3: Large Truck and Bus Fatalities Rates and Total Number
                   of Fatalities, 2009                                                              22
          Figure 4: Outline of the FMCSA Notice of Claim Process                                    30




          Abbreviations
          D&B          Dun & Bradstreet
          EIN          Employer Identification Number
          FMCSA        Federal Motor Carrier Safety Administration
          MCMIS        Motor Carrier Management Information System
          NOC          Notice of Claim
          NTSB         National Transportation Safety Board
          SSN          Social Security Number
          USDOT        U.S. Department of Transportation


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          Page ii                                                    GAO-12-364 Motor Carrier Safety
United States Government Accountability Office
Washington, DC 20548




                                   March 22, 2012

                                   The Honorable Patty Murray
                                   Chairman
                                   The Honorable Susan Collins
                                   Ranking Member
                                   Subcommittee on Transportation, Housing
                                     and Urban Development, and Related Agencies
                                   Committee on Appropriations
                                   United States Senate

                                   The Honorable Tom Latham
                                   Chairman
                                   The Honorable John W. Olver
                                   Ranking Member
                                   Subcommittee on Transportation, Housing
                                     and Urban Development, and Related Agencies
                                   Committee on Appropriations
                                   House of Representatives

                                   For years, some motor carriers have registered and been operating illegally
                                   in interstate commerce by using a new identity in an effort to disguise their
                                   former identity and evade enforcement actions issued against them by the
                                   Federal Motor Carrier Safety Administration (FMCSA)—the federal agency
                                   responsible for overseeing motor carrier safety. Such carriers are referred
                                   to as chameleon carriers and may include interstate passenger carriers
                                   (intercity and charter or tour bus operators), household goods carriers
                                   (hired by consumers to move personal property), or freight truck carriers
                                   (shippers of commercial goods). 1

                                   Chameleon carriers can pose risks to the public. For example, the carrier
                                   operating a bus involved in an August 2008 crash in Sherman, Texas, in
                                   which 17 passengers were killed and several others were injured, was
                                   found by the National Transportation Safety Board (NTSB) to be a



                                   1
                                    Using legal terminology, chameleon carriers are the corporate successor of a previous
                                   carrier that assumed a new identity in order to evade detection by FMCSA. However, not
                                   all motor carriers with a new identity are chameleons seeking to evade detection. Some
                                   motor carriers have legitimate reasons to transfer ownership, reincorporate, or both, such
                                   as divorce, death, relocation, or new business opportunities.




                                   Page 1                                                     GAO-12-364 Motor Carrier Safety
chameleon carrier that FMCSA had ordered out-of-service 2 months
earlier. Subsequent fatal bus crashes have intensified public scrutiny over
passenger carriers and led FMCSA to focus its oversight efforts on
passenger carriers that it suspects may be chameleons. FMCSA also
recognized the need to strengthen its oversight of household goods
carriers to protect consumers from unscrupulous operators. 2

In a July 2009 report on chameleon carriers, 3 we found evidence
suggesting that 20 passenger carriers were chameleons and referred
about 500 freight and household goods carriers to FMCSA for further
investigation. 4 These carriers had attempted to register with FMCSA in
fiscal year 2007 or 2008, and each had submitted registration data that
were similar to data submitted by another carrier that FMCSA had
ordered out-of-service. We noted that FMCSA had taken steps to improve
how it identified suspected chameleons among passenger and household
goods carriers, including initiating a vetting program to examine new
applications for operating authority, and was planning to expand its
actions to other types of carriers if it could obtain the resources to do so.

Recognizing that chameleon carriers are often difficult to catch because they
close down and reopen as new companies, you asked us to examine
FMCSA’s ongoing efforts to identify and pursue enforcement actions against
chameleon carriers, including freight carriers. To do so, we addressed the
following questions: (1) How prevalent are chameleon carriers? (2) How well
are FMCSA’s investigative programs designed to identify suspected
chameleon carriers? (3) What constraints, if any, does FMCSA face in
pursuing enforcement actions against suspected chameleon carriers?

To determine how prevalent chameleon carriers are, we analyzed
registration information on all motor carriers from FMCSA’s Motor Carrier


2
 As we previously reported, FMCSA investigates thousands of complaints against
interstate household goods carriers each year, including complaints about discrepancies
between estimates and final charges, problems with the pickup and delivery of goods, and
lost and damaged goods. See GAO, Household Goods Moving Industry: Progress Has
Been Made in Enforcement, but Increased Focus on Consumer Protection Is Needed,
GAO-10-38 (Washington, D.C.: Oct. 30, 2009).
3
 GAO, Motor Carrier Safety: Reincarnating Commercial Vehicle Companies Pose Safety
Threat to Motoring Public; Federal Safety Agency Has Initiated Efforts to Prevent Future
Occurrences, GAO-09-924 (Washington, D.C.: July 28, 2009).
4
FMCSA is currently investigating some of these carriers.




Page 2                                                     GAO-12-364 Motor Carrier Safety
Management Information System, enforcement actions taken against
carriers in its Enforcement Management Information System, and
insurance information from its Licensing and Insurance databases. We
used these databases to match registration data in key fields, such as
company names, addresses, and phone numbers, between new applicant
carriers and carriers with history in the industry. We analyzed data for
new applicants from January 1, 2005, through December 31, 2010,
against data for all carriers that had registered with FMCSA since June 1,
1974. To assess the reliability of these databases, we reviewed
documentation on data collection efforts and quality assurance
processes, talked with knowledgeable FMCSA officials about these data,
and checked the data for completeness and reasonableness. We
determined that the data were sufficiently reliable for describing this
population of motor carriers and performing our data-matching analysis.

To determine how well FMCSA’s investigative programs are designed to
identify chameleon carriers, we reviewed federal motor carrier laws and
safety regulations; federal internal control standards; related reports and
statements published by GAO, NTSB, and the U.S. Department of
Transportation’s Office of Inspector General; documentation about
FMCSA’s applicant review processes and procedures, which FMCSA
refers to as the vetting program; FMCSA policy memorandums on the
new entrant safety assurance program and the monitoring of potential
chameleon new entrant motor carriers; and FMCSA’s Field Operations
Training Manual. We also observed two new entrant safety audits—one in
California of a new passenger carrier and the other in Virginia of a new
freight carrier. Finally, to identify constraints FMCSA faces in pursuing
enforcement actions against chameleon carriers, we reviewed federal
motor carrier laws and regulations; GAO and other reports; FMCSA’s
summary and analysis of 50 states’ corporate successor liability laws,
which identified relevant case law and explained the legal standards
currently used to determine corporate successor liability; and FMCSA
decisions affecting FMCSA’s enforcement authority, among other things.
In addition, to address all of our objectives, we interviewed officials at
FMCSA headquarters in Washington, D.C.; 4 regional service centers;
and 10 selected division offices. We also interviewed law enforcement
agencies in the 10 states whose division offices we had selected to
understand how the agencies are involved in identifying or taking
enforcement actions against chameleon carriers. We selected the 10
division offices and states primarily because they were the ones with the
most registered interstate carriers. In addition, we interviewed NTSB
officials, industry associations, and safety advocacy groups. For further
details on our scope and methodology, see appendixes I and II.


Page 3                                          GAO-12-364 Motor Carrier Safety
             We conducted this performance audit from March 2011 to March 2012 in
             accordance with generally accepted government auditing standards.
             Those standards require that we plan and perform the audit to obtain
             sufficient, appropriate evidence to provide a reasonable basis for our
             findings and conclusions based on our audit objectives. We believe that
             the evidence obtained provides a reasonable basis for our findings and
             conclusions based on our audit objectives.


             FMCSA’s mission is to reduce injuries, fatalities, and the severity of crashes
Background   involving large commercial trucks and buses conducting interstate
             commerce. 5 With more than 1,000 staff members at headquarters, 4 regional
             service centers, and 52 division offices (one in each state, Washington, D.C.,
             and Puerto Rico), FMCSA carries out this mission by administering and
             enforcing federal motor carrier safety and hazardous materials regulations6
             and by gathering and analyzing data on motor carriers, drivers, and vehicles,
             among other things. Division offices partner with state agencies to conduct a
             variety of motor carrier oversight activities carried out by certified auditors,
             inspectors, and investigators.7 These oversight activities are funded by Motor
             Carrier Safety Assistance Program grants, which totaled about $165 million
             in fiscal year 2010. FMCSA’s total budget for fiscal year 2011 was
             approximately $550 million.

             The interstate commercial motor carrier industry is large and dynamic.
             According to Department of Transportation data, there were more than
             500,000 active interstate carriers and intrastate hazardous materials carriers
             in 2010, including about 66,000 new carriers that applied to enter the
             industry. 8 The vast majority of these carriers apply as freight carriers. While
             the largest motor carriers operate upwards of 50,000 vehicles, 80 percent of



             5
              Commercial motor vehicles include those with a gross vehicle weight of at least 10,001
             pounds, are designed or used to transport more than 8 passengers (including the driver)
             for compensation, are designed or used to transport more than 15 passengers (including
             the driver) and are not used to transport passengers for compensation, or are used in
             transporting hazardous material (see 49 U.S.C. § 31132).
             6
             49 C.F.R. § 397.
             7
              State agencies include state highway patrols, departments of transportation, and public
             utility commissions.
             8
              According to FMCSA, thousands of new applicants exit the industry for various reasons
             shortly after applying.




             Page 4                                                    GAO-12-364 Motor Carrier Safety
carriers are small—operating between 1 and 6 vehicles. Fatalities due to
accidents involving large trucks (including vehicles operated by both freight
and household goods carriers) and buses (operated by passenger carriers)
generally declined from 2000 through 2009. FMCSA officials attributed the
declines to actions taken by the federal government, the motor carrier
industry, and safety groups. Fatalities and the estimated fatality rate for large
trucks and buses are shown in figure 1. In 2009, more than 3,600 people
were killed in crashes involving large trucks and buses.

Figure 1: Large Truck and Bus Fatalities and Estimated Fatality Rate, 2000-2009




Notes: Vehicle miles traveled (VMT) is an estimate of the number of miles large trucks and buses
traveled. In 2007, the Federal Highway Administration updated its methodology for estimating VMT,
which increased the VMT for large trucks and buses. This change contributed to a lower estimated
fatality rate from 2007 to 2009 as compared to earlier years, but the estimated fatality rate was also
lower in 2007 and 2008 when calculated under the old methodology (data required for this calculation
were not available for 2009).
This figure includes data on all large trucks and buses, including interstate, intrastate and government
owned vehicles, some of which are not regulated by FMCSA. In addition, for the purposes of this
figure, buses are defined using a definition from the National Highway and Traffic Safety
Administration, which are those vehicles designed to carry more than 10 passengers, including the
driver (49 C.F.R. § 571.3).




Page 5                                                             GAO-12-364 Motor Carrier Safety
FMCSA oversees two main groups of interstate motor carriers: (1) private
carriers, who run an internal trucking operation to support a primary
business in another industry, such as a retail store chain, and (2) for-hire
carriers that sell their trucking services on the open market. Private and
for-hire motor carriers seeking to operate in interstate commerce must
register once with FMCSA, and thereby obtain a U.S. Department of
Transportation (USDOT) number—a unique identifier used for collecting
and monitoring safety information acquired during audits, compliance
reviews, inspections, and crash investigations. USDOT numbers are
issued after carriers submit information about their business, such as the
name of the business and the company’s officers, a mailing address,
business and cell phone numbers, the tax number (employer identification
number or social security number) used to identify the business entity,
and other information. 9 For private carriers, this submission completes the
registration process, and they can begin operating. In contrast, for-hire
carriers must also obtain operating authority, which dictates the type of
operation the carrier may run and the cargo it may carry. 10 In 2010,
36,209 private carriers registered and 29,421 for-hire carriers applied for
operating authority with FMCSA.

Before the August 2008 bus crash in Sherman, Texas, FMCSA had no
dedicated process to identify and prevent chameleon carriers from
applying for and receiving operating authority. At that time, a carrier could
take on a new identity by applying online for operating authority using the
same information (business name, address, phone number(s), and
company officer name(s), or other information) on file for the old carrier.
FMCSA did not have a process to identify these applications and thus
would have granted operating authority to an apparent new entrant after
the carrier submitted the appropriate data.

Immediately after the Sherman crash, FMCSA established the vetting
program to review each new application for operating authority submitted
by for-hire passenger carriers. Subsequently, in April 2009, FMCSA


9
 FMCSA is working to complete its Unified Registration System—an effort designed to
consolidate data on operating authority and USDOT numbers and thereby make it harder
for carriers to register for multiple USDOT numbers.
10
  Some for-hire carriers, called “exempt for-hire carriers,” are not required to obtain
operating authority if they ship exempt cargo (e.g., livestock, fish, and unmanufactured
agricultural commodities) or solely operate within a designated commercial zone, such as
the Virginia-Maryland-Washington, D.C., metropolitan area (49 C.F.R. § 372.219).




Page 6                                                   GAO-12-364 Motor Carrier Safety
began to apply the vetting program to household goods carriers. Under
this program, FMCSA conducts a two-step process:

•     First, FMCSA uses a new applicant screening algorithm to
      electronically compare and match information contained in the
      carrier’s application to data for poorly performing carriers dating back
      to 2003. 11 This match information is used by a dedicated team (called
      the vetting team) as indicators for further investigation.

•     Second, the vetting team reviews each new for-hire passenger and
      household goods carrier’s application for completeness and accuracy
      and takes additional steps to determine whether the applicant is a
      chameleon carrier. For example, the team compares information in
      the application to information available on the Internet, including a
      carrier’s address; phone number; public filings with the state (e.g.,
      articles of incorporation); and, if available, the company website. The
      vetting team also works with FMCSA division offices to take
      advantage of local officials’ knowledge of individual carriers.

FMCSA’s ability to vet for-hire motor carriers that apply for operating
authority stems from the Secretary’s statutory authority to withhold
registration for operating authority from a carrier that does not meet
federal safety fitness standards or is unwilling and unable to comply with
all applicable statutes and regulations. 12 It does not have this authority to
vet and, therefore, potentially reject the registrations of private carriers,
which may begin to operate as soon as they receive a USDOT number.

If the computer-matching process or FMCSA division office review
identifies a suspected chameleon carrier, FMCSA requests clarification



11
  FMCSA developed a prototype of this algorithm in 2006 that field staff used to identify
suspected household goods chameleon carriers. At the outset of the vetting program in
August 2008, FMCSA revised the algorithm and began to use it to examine passenger
chameleon carriers. In October 2011, FMCSA rolled out several revisions to this
algorithm. Among other changes, FMCSA plans to enlarge the list of carriers that new
applicants are matched against, from the 200,000 carriers that FMCSA believes have a
reason to evade oversight to all 2.2 million motor carriers currently in the Motor Carrier
Management Information System database. FMCSA also plans to expand the number of
new applicants that are entered into the algorithm to include freight and private carriers,
but does not plan to immediately expand the vetting program to systematically look at
these types of carriers, as it does with for-hire passenger and household goods carriers.
12
    49 USC 13902(a)(4).




Page 7                                                      GAO-12-364 Motor Carrier Safety
from the applicant. If the carrier does not respond or the response
indicates the applicant is attempting to become a chameleon carrier,
FMCSA rejects the application. The entire vetting process, including the
electronic matching and the application review, can take anywhere from a
few weeks to more than 2 months depending on several factors, including
how long it takes the applicant to respond to any FMCSA requests.

After a carrier registers for a USDOT number, FMCSA uses the new
entrant safety assurance program to examine all new entrants registered
to operate in interstate commerce—including all for-hire and private
passenger, household goods, and freight carriers—and intrastate
hazardous materials carriers. 13 Under this program, which began in 2003,
carriers are required to undergo a safety audit within 18 months of
obtaining a USDOT number and beginning interstate operations. The
purpose of this audit is to determine whether carriers are knowledgeable
about and compliant with applicable safety regulations. 14 In 2009, FMCSA
added a set of six, yes/no questions to the safety audit designed to elicit
information indicative of any connections with other carriers to help the
certified auditors and investigators that conduct these audits identify
potential chameleon carriers. At the end of the audit, a carrier may pass
or fail. If the carrier fails the audit, the carrier may continue to operate, but
must submit a plan for corrective action. Upon receiving written
confirmation that it has failed the audit, a carrier has between 45 and 60
days to provide an acceptable response or request an administrative
review of the safety audit findings before the new entrant registration is
revoked and the carrier is no longer permitted to operate in interstate
commerce.

FMCSA operates other programs that identify suspected chameleon
carriers. For example, officials may identify suspected chameleon carriers
during compliance reviews, which are in-depth examinations of carriers
identified as high crash risks, or during roadside inspections of vehicles
that include checks for compliance with driver and maintenance
requirements. 15 FMCSA has also implemented a new safety oversight
initiative—the Compliance, Safety, Accountability program—under which


13
 49 C.F.R. § 385.307.
14
 FMCSA and state officials conducted almost 33,000 safety audits in fiscal year 2010.
15
  In fiscal year 2010, FMCSA and state officials conducted about 15,000 compliance
reviews and 3.6 million roadside inspections.




Page 8                                                   GAO-12-364 Motor Carrier Safety
it plans to introduce several new investigative programs, including
targeted roadside inspections, off-site investigations, and on-site focused
investigations. 16 Like compliance reviews and roadside inspections, these
new oversight programs may identify a suspected chameleon carrier
during either a review or a follow-up review or inspection initiated to
gather additional evidence on the carrier. 17

Identifying a suspected chameleon carrier is the first step in determining
whether the carrier is attempting to conceal its identity. FMCSA and state
officials then conduct an investigation. When federal or state investigators
or auditors first suspects that a carrier may be a chameleon, they work
with officials in one of FMCSA’s 52 division offices and attorneys in four
regional service centers to gather evidence and assemble the
documentation needed to demonstrate that a new carrier is the same
entity as a prior carrier and is attempting to evade a prior FMCSA
enforcement action or a poor safety record. After gathering as much
information as possible, a division office provides the evidence to a
regional service center, where FMCSA attorneys decide whether to
initiate a legal process in order to prove that the new carrier is responsible
for the actions of the prior carrier (referred to as “corporate successor
liability”). 18 As part of their evaluation, the attorneys assess the strength of


16
  As of September 2011, FMCSA had partially implemented these new oversight
programs, but has delayed plans to implement off-site investigations and cooperative
safety plans nationwide. We recently reported on the Compliance, Safety, and
Accountability program and the extent to which FMCSA has implemented these new
oversight programs. See GAO, Motor Carrier Safety: More Assessment and Transparency
Could Enhance Benefits of New Oversight Program, GAO-11-858 (Washington, D.C.:
Sept. 29, 2011).
17
  In addition to these programs, FMCSA’s Performance and Registration Information
Systems Management program provides grants to states that allow state motor vehicle
departments to prevent out-of-service carriers from registering or reregistering vehicles
(49 USC 31106(b)). These grants enable the motor vehicle administration in the state
where a vehicle is registered to check the safety status of the motor carrier, using the
carrier’s USDOT number and the vehicle identification number, before issuing or renewing
the carrier’s vehicle registration. For more information on this program, see our recent
report on this program: GAO, Motor Carrier Safety: Commercial Vehicle Registration
Program Has Kept Unsafe Carriers from Operating, but Effectiveness Is Difficult to
Measure, GAO-09-495 (Washington, D.C.: May 12, 2009).
18
  From 2006 until 2009, FMCSA tried to apply a federal legal standard to demonstrate
corporate successor liability, but an administrative decision in 2010 created uncertainty
about whether a federal standard or a state standard should be used. This uncertainty led
to changes in FMCSA’s approach to enforcement against suspected chameleon carriers,
which we discuss later in this report.




Page 9                                                    GAO-12-364 Motor Carrier Safety
the evidence and give highest priority to those cases involving carriers
with serious safety violations. If the attorneys determine that the evidence
for a chameleon carrier case is insufficient, FMCSA does not pursue the
case and the carrier continues its operations. The carrier is only
recognized as a chameleon once FMCSA proves that the carrier is a
chameleon based on the applicable legal standard or a carrier admits it
created a new identity to evade detection.

Once FMCSA gathers the necessary evidence against a chameleon,
FMCSA issues a notice of claim to tie the history of the chameleon carrier
to that of its predecessor. The notice of claim may include several
enforcement actions, including ordering a carrier to cease operations—
called out-of-service orders—for safety violations and failure to pay civil
penalties. For example, one of the fines FMCSA assesses on chameleon
carriers is for evading regulations, which ranges from $200 to $500 for the
first violation and $250 to $2,000 for any subsequent violation, as
established by regulation. 19 FMCSA may assess higher civil penalties for
carriers that are proven chameleons and can assess any unpaid penalties
of the predecessor carrier to the successor carrier.




19
 49 C.F.R. Part 386, appendix B.




Page 10                                          GAO-12-364 Motor Carrier Safety
FMCSA Does Not
Determine the
Prevalence of
Chameleon Carriers;
Our Analysis Found
More than 1,100 New
Applicant Carriers
with Chameleon
Attributes in 2010

FMCSA Cannot Readily      FMCSA does not determine the prevalence of chameleon carriers
Determine the Number of   because doing so would require extensive investigation of the tens of
Chameleon Carriers        thousands of new applicants that register with FMCSA each year and, in
                          some cases, the completion of a legal process. However, FMCSA, state
                          enforcement officials, and industry and safety association representatives
                          we interviewed offered general, varying impressions of the number of
                          chameleon carriers in the motor carrier industry. For example, a number
                          of FMCSA and state officials with whom we spoke believed that while the
                          number of chameleon carriers is a relatively small proportion of new
                          entrant carriers, it is also a serious or growing problem. In addition,
                          groups of officials from Florida, Georgia, Illinois, and North Carolina
                          stated that chameleon carriers are either a serious or a growing problem
                          that they encounter regularly.

                          Given the volume of new applicants and the necessary resources to
                          investigate them, FMCSA uses the vetting program to focus its review of
                          new applicants on two groups of carriers—for-hire passenger and
                          household goods carriers. FMCSA has chosen to vet all applicants in
                          these groups for two reasons: (1) according to officials, these two groups
                          pose higher safety and consumer protection concerns than other carrier
                          groups and (2) it does not have the resources to vet all new carriers and
                          these two groups present a manageable number. As part of the vetting
                          program, FMCSA uses registration data to compare information for every
                          applicant in these two groups to information from previously registered
                          carriers to identify any matches. Officials use these results to inform
                          decisions about whether to grant operating authority to the applicants.




                          Page 11                                         GAO-12-364 Motor Carrier Safety
According to FMCSA, however, data analysis by itself cannot positively
identify chameleon carriers that are purposefully trying to evade
oversight; matches do not always signify an issue. For example, vehicle
data can match when new carriers legitimately have purchased and are
using vehicles that were once owned by other carriers. Company names
also can match when carriers independently selected the same name.
Therefore, while data analysis is a helpful tool, FMCSA must conduct
further investigation to determine the reasons for an apparent relationship
between carriers and, unless the carrier admits to being a chameleon,
undertake a legal process to determine whether the carrier is a
chameleon. (Our assessment of the processes used to demonstrate a
carrier is a chameleon is discussed later in this report.)

While FMCSA’s exclusive focus on passenger and household goods
carriers limits the vetting program to a manageable number, it does not
account for the risk presented by chameleon carriers in the other groups
that made up 98 percent of new applicants in 2010. In our view, data
analysis can be used to target other types of new applicants—including
freight carriers—that are more likely to be chameleons for further
investigation as they register or apply for operating authority. 20 While
FMCSA only has statutory authority to accept or reject applications of for-
hire motor carriers, examining all new applicant carriers, including private
carriers, as they register for a USDOT number with FMCSA is important
to provide officials with information about all carriers subject to their
oversight activities. FMCSA and other federal agencies use data analysis
to target entities or items with certain risk factors. Specifically, FMCSA
uses state inspection and other data to identify carriers with a poor safety
record for follow-up reviews. In addition, the Department of Homeland
Security uses a targeting strategy, which includes a computerized model,
to help select imported containers for additional review, inspection, or




20
  FMCSA has used data analysis to target which carriers to investigate as possible
chameleons, including carriers belonging to groups other than the two it currently focuses
on, but it does not do so regularly. Twice over the past few years, FMCSA has applied the
new applicant screening algorithm used during the vetting program to target a population
of possible chameleon carriers for further investigation. However, officials that use the
new applicant screening algorithm regularly told us the scoring method FMCSA officials
used in these two instances to target possible chameleon carriers is not reliable because
these scores would often incorrectly indicate a carrier was related to other carriers, or,
alternatively, not identify carriers that were related to other carriers. FMCSA removed this
scoring method from its algorithm in November 2011.




Page 12                                                    GAO-12-364 Motor Carrier Safety
both. 21 Regularly using data analysis for targeting new applicants would
allow FMCSA to expand its examinations of newly registered carriers to
include new applicants of all types using few or no additional staff
resources, as discussed in the next section of this report. As we have
previously reported, federal agencies need to assess the risks they face
to determine the most effective allocation of federal resources, including
how best to distribute resources for investigative and enforcement-related
activities. 22

To demonstrate that it is possible to use data analysis to target new
applicants for further investigation, we developed a method and applied it
to FMCSA data to identify carriers with chameleon attributes. We defined
such carriers as those that met two criteria:

1. They submitted registration information that matched information for a
   previously registered carrier. 23

2. The previously registered carrier had a motive for evading detection.
   We use the term “motive” to describe carriers that had a history of
   safety violations or filed for bankruptcy that might motivate a carrier to
   become a chameleon carrier. 24



21
  For more information on this model see our report, GAO, Homeland Security:
Preliminary Observations on Efforts to Target Security Inspections of Cargo Containers,
GAO-04-325T (Washington, D.C.: Dec. 16, 2003).
22
  GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1
(Washington, D.C.: November 1999). These standards, issued pursuant to the
requirements of the Federal Managers’ Financial Integrity Act of 1982 (31 USC 3512),
provide the overall framework for establishing and maintaining internal control in the
federal government. Office of Management and Budget Circular No. A-123 (revised),
Management’s Responsibility for Internal Control (Dec. 21, 2004). See also, GAO, Federal
Lands: Adopting a Formal, Risk-Based Approach Could Help Land Management Agencies
Better Manage Their Law Enforcement Resources, GAO-11-144 (Washington, D.C.,
Dec. 17, 2010).
23
  The degree of match between the two carriers’ registration information had to exceed a
defined threshold. For more information on how we identified motor carriers with attributes
of chameleon carriers, see appendix II.
24
  For our analysis, motive included at least one of the following: involved in a severe
crash, fined by FMCSA, or issued an out-of-service order, an imminent hazard order, or
an unsatisfactory or unfit rating by FMCSA. These data elements were selected based on
discussions with FMCSA officials indicating that they are possible reasons that a carrier
might decide to become a chameleon carrier and on data elements FMCSA used for
creating a list of poor performing carriers within its New Applicant Screening algorithm.




Page 13                                                    GAO-12-364 Motor Carrier Safety
                          These criteria are similar to those FMCSA uses during the electronic
                          matching step in the current vetting process for for-hire passenger and
                          household goods carriers. However, we applied our method to all carriers
                          and established a threshold for selecting new applicants for further
                          investigation, whereas FMCSA limits its electronic matching to for-hire
                          passenger and household goods carriers and does not have a
                          mechanism or threshold for determining which new applicants to
                          investigate further because it vets all the carriers in these two groups. An
                          example of a carrier that met our criteria was a 2009 new applicant that
                          had submitted registration information with the same company name,
                          company officer, and phone number as a previously registered carrier
                          that had been in a crash and ordered out-of-service by FMCSA. An
                          example of a carrier that did not meet our criteria was a 2008 new
                          applicant that matched a previously registered carrier on six different
                          pieces of information—address, company name, company officer, Dun &
                          Bradstreet number (a unique nine-digit number used to identify a
                          business location), employer identification number, and phone number—
                          but the previously registered carrier did not have a motive for evading
                          detection, as defined by our criteria for this analysis. Because we were
                          interested in demonstrating a method of targeting new applicants as they
                          registered or applied for operating authority, and not specifically in
                          counting the number of chameleons that might currently be operating, we
                          did not attempt to exclude carriers that never operated or ceased to
                          operate after they registered with FMCSA. This approach is consistent
                          with the purpose of our analysis, which was to provide an objective,
                          efficient means of identifying carriers that may warrant additional
                          investigation as they enter the motor carrier industry, not specifically to
                          identify chameleon carriers. For a detailed discussion of our data analysis
                          method, see appendix II.


Our Analysis Identified   Through our data analysis, we identified 1,136 new applicant carriers with
More than 1,100 New       chameleon attributes in 2010—an increase from 759 in 2005. During this
Applicant Carriers with   6-year period, carriers with chameleon attributes accounted for about 1.7
                          percent of the approximately 326,000 new applicants that registered and
Chameleon Attributes      were subject to FMCSA oversight activities. 25 Of the carriers with
in 2010                   chameleon attributes, freight carriers made up about 94 percent,



                          25
                            Our analysis only examined new applicants over which FMCSA has oversight
                          authority—interstate carriers and intrastate hazardous materials carriers.




                          Page 14                                               GAO-12-364 Motor Carrier Safety
passenger carriers about 3 percent, household goods carriers about 2
percent, and carriers with authority to operate multiple carrier types (any
combination of freight, passenger, and household goods) less than 1
percent. These percentages remained fairly stable over the 6-year period.
Because freight carriers represented the majority of carriers, they showed
the largest numerical increase of carriers with chameleon attributes, from
724 carriers with chameleon attributes in 2005 to 1,082 such carriers in
2010. (See table 1.)

Table 1: Number and Percentage of New Applicants with Chameleon Attributes by
Carrier Type, 2005 through 2010

                                                                        Year
                               a
    Type of motor carrier                     2005       2006       2007       2008     2009     2010
    Freight                                    724        834        836        907      946     1,082
    Passenger                                    19         24         36        27       37       27
    Household goods                              12         14         17        23       22       21
                                      b
    Multiple operating authorities                4          5          6         8        3        6
    Total                                      759        877        895        965     1,008    1,136
    Total number of all new                49,232      50,170     54,581      51,219   55,404   65,631
              c
    applicants
    Percentage with chameleon                1.5%        1.7%       1.6%       1.9%     1.8%     1.7%
    attributes
Source: GAO analysis of FMCSA data.
a
    Each type of motor carrier includes both for-hire and private carriers.
b
 These carriers had authority to conduct a combination of freight, passenger, and household goods
operations.
c
 Total number of new applicants includes those over which FMCSA has oversight authority—
interstate carriers and intrastate hazardous materials carriers.


Although freight carriers accounted for 94 percent of the carriers with
chameleon attributes that we identified, freight carriers also made up
about the same percentage of all new applicants (about 93 percent).
When we looked at the rates at which carriers of different types had
chameleon attributes, we found that passenger carriers were more likely
to have chameleon attributes than were carriers of other types.
Specifically, over the 6-year period from 2005 through 2010, the
percentage of new applicant passenger carriers with chameleon attributes
was higher in every year (ranging from 1.9 to 3.3 percent) than the
percentages for freight carriers (ranging from 1.6 to 1.9 percent) and
household goods carriers (ranging from 0.6 to 1.2 percent). (See fig. 2.)




Page 15                                                                GAO-12-364 Motor Carrier Safety
Figure 2: Carriers with Chameleon Attributes as a Percentage of New Applicants by
Carrier Type, 2005 through 2010




Note: We did not include carriers with multiple operating authorities in this figure.


One concern with our approach, which FMCSA raised in connection with our
data-matching efforts as well as its own, is that the matching may not give an
accurate picture of the total number of chameleon carriers for two reasons.
First, data matching could identify carriers that have legitimate business
reasons for registering a new company that appears to be related to an older
one, and second, similar or even identical registration information may
inadvertently or coincidentally be submitted by unrelated companies. We
were able to address this concern in part by analyzing data about whether an
older carrier had a motive to evade detection—information that we and
FMCSA believe indicates that a new carrier is more likely to be a chameleon.
In particular, we looked at the relative likelihood that an old carrier with and
without a motive would match a new applicant. If data matches were only the
result of carriers having legitimate business reasons for assuming a new
identity or coincidental similarities in registration information, then we would
expect old carriers with a motive to be no more likely to match new
applicants than old carriers without a motive. In fact, however, we found that
old carriers with a motive were roughly twice as likely to match a new


Page 16                                                              GAO-12-364 Motor Carrier Safety
                          applicant in 2009 or 2010 as were carriers without a motive.26 This suggests
                          that the data-matching component of our analysis was effective in detecting
                          carriers with chameleon attributes and not just carriers with legitimate
                          reasons to assume new identities or coincidental similarities to previously
                          registered carriers.

                          While this test demonstrates that our method identified carriers with a
                          motive to evade detection, further investigation would be needed to
                          confirm whether any of the carriers on our list of carriers with chameleon
                          attributes actually are chameleons. We believe using the two criteria of
                          matching registration information and a motive to evade detection
                          provides a sound basis for targeting. Using a risk-based, data-driven
                          approach such as the one we outline would allow FMCSA to use
                          available resources to target all types of carriers, including freight, and
                          then periodically evaluate the effectiveness of the methodology and
                          adjust its method based on the outcomes of follow-up investigations.
                          Without such a method, FMCSA cannot target a manageable group of
                          new applicant carriers of all types for investigation and possible
                          enforcement action, an important caveat given FMCSA’s staffing levels.


Carriers with Chameleon   The carriers we identified as having chameleon attributes presented high
Attributes Present High   safety risks relative to new applicants without these attributes. Through
Safety Risks              our analysis, we found that crashes involving carriers with chameleon
                          attributes resulted in 217 fatalities and 3,561 injuries from 2005 through
                          2010. 27 Moreover, 2005 through 2010 new applicants with chameleon
                          attributes were three times more likely than all other new applicant
                          carriers to later be involved in a severe crash—one in which there was a
                          fatality or injury. As table 2 shows, 18 percent of carriers with chameleon
                          attributes were involved in a severe crash at some point between their
                          time of registration and the end of 2010, compared with 6 percent of new
                          applicant carriers without these attributes. In addition, carriers with
                          chameleon attributes were three times more likely than all other new


                          26
                            This difference in likelihood between carriers with a motive and those without depended
                          on the particular threshold match score that was used. We tested a range of match score
                          thresholds, identifying matches with new applicant in 2009 and 2010, and results were
                          statistically significant in all cases. For more detail on the methods used in this matching
                          analysis, see appendix II.
                          27
                            The goal of our analysis was not to assess the effectiveness of FMCSA actions to
                          reduce safety risks over this 6-year period.




                          Page 17                                                     GAO-12-364 Motor Carrier Safety
                                        applicant carriers to be assessed a fine by FMCSA for violating safety
                                        regulations. Specifically, 6 percent of carriers with chameleon attributes
                                        were assessed a fine at some point between their time of registration and
                                        the end of 2010, compared with 2 percent of the rest of the new applicant
                                        population. However, carriers with chameleon attributes were less likely
                                        than all other new applicants to be placed out-of-service for safety
                                        violations by FMCSA during this same period.

Table 2: New Applicant Carriers with and without Chameleon Attributes That Were Involved in a Severe Crash, Assessed a
Fine, or Placed Out-of-Service, 2005 through 2010

                                             Involved in a severe crash              Assessed a fine             Placed out-of-service
Number of new applicant carriers     Total           Number             Percent     Number      Percent             Number          Percent
With chameleon attributes            5,640                  996               18%      349           6%                  415             7%
Without chameleon attributes       320,597              18,838                  6     7,257             2             33,760              11
                                        Source: GAO analysis of FMCSA data.

                                        Note: The numbers in this table represent carriers that registered as new applicants in the years 2005
                                        through 2010. We assessed whether, after registering, the carrier was involved in a severe crash,
                                        assessed a fine, or placed out-of-service. A single carrier could have been involved in a crash,
                                        assessed a fine, and placed out-of-service.




                                        Page 18                                                             GAO-12-364 Motor Carrier Safety
FMCSA’s Investigative
Programs Are Not
Well Designed to
Identify Chameleon
Carriers across All
New Applicants

Vetting Program Is          FMCSA’s vetting program, established in August 2008 immediately
Designed to Identify        following the Sherman, Texas, bus crash, is designed to assess the ability
Chameleon Carriers but Is   of an applicant for new operating authority to comply with FMCSA motor
                            carrier safety regulations and, in part, to determine whether the new
Neither Comprehensive       applicant may be a chameleon carrier. 28 The program—which is FMCSA’s
nor Risk-Based              primary effort to identify chameleon carriers—is labor-intensive, according
                            to officials, requiring detailed reviews of each application, national
                            consumer complaint database queries, and outreach to division offices to
                            obtain additional information about new applicants. Carriers that make it
                            through the vetting process having met FMCSA’s standards for fitness,
                            willingness, and ability to comply with all applicable federal statutes and
                            regulations are granted operating authority. Reasons for denying operating
                            authority include an assessment that a new applicant may be a chameleon
                            carrier.

                            Although the vetting program is labor-intensive, it is effective because it
                            allows FMCSA to evaluate a carrier’s potential for compliance, including
                            any indicators that the carrier may be a chameleon, before the carrier
                            obtains operating authority. At this time the burden is on the carrier to
                            provide FMCSA with any information it needs to evaluate the carrier’s
                            application, and FMCSA can withhold operating authority from a carrier
                            that it suspects of being chameleon. After a carrier obtains operating
                            authority, however, FMCSA is required to gather evidence and prove that
                            the carrier is a chameleon—a process that calls for significantly more
                            resources, as discussed later in this report. Therefore, as FMCSA officials
                            and safety advocates have observed, it is more effective for FMCSA to




                            28
                             49 U.S.C. § 13902.




                            Page 19                                          GAO-12-364 Motor Carrier Safety
identify chameleon carriers up front through vetting than it is to pursue
them after they have obtained operating authority.

FMCSA recognizes the benefits of identifying chameleon carriers early,
before they obtain operating authority. However, FMCSA officials stated
they do not have the resources to vet all for-hire carriers that apply for new
operating authority. Therefore, as noted, FMCSA focuses the vetting
program on for-hire passenger and household goods carriers, which
together account for about 2 percent of the approximately 66,000 new
applicant carriers in 2010. FMCSA has selected these two types of carriers
because it sees the chameleons among them as presenting risks to
consumers. Specifically, crashes involving unsafe passenger carriers, such
as the Sherman bus crash, may have multiple fatalities. In addition,
passenger carriers with safety violations have a motive to become
chameleon carriers to conceal their history of violations from consumers, as
well as from FMCSA. Similarly, unscrupulous household goods carriers
that have defrauded consumers, such as by holding their property hostage
until they have paid more than agreed to have their property delivered,
have a reason to become chameleon carriers to avoid association with
complaints from defrauded consumers. Having a statutory consumer
protection responsibility 29, FMCSA vets every for-hire passenger and
household goods carrier so that consumers will have greater assurance
when they buy bus tickets or contract with movers that the carriers they are
dealing with are safe, honest, and comply with FMCSA regulations.

From August 2008 through May 2011, FMCSA vetted 5,777 for-hire
passenger and household goods carriers. Table 3 shows the results of
FMCSA’s vetting program, including the number of carriers that were
approved or rejected, withdrew, or switched their application to operate as
a freight carrier rather than a household goods carrier. FMCSA officials
believe, but cannot be certain, that some of these carriers withdrew or
switched their application to avoid the vetting program.




29
 Pub.L. No. 104-88, Sec.101.




Page 20                                           GAO-12-364 Motor Carrier Safety
Table 3: Results of FMCSA’s Vetting of New For-Hire Passenger and Household
Goods Carrier Applicants from August 13, 2008, through May 18, 2011

                                                                                Switched to freight
                                                              a
    Type of carrier          Total Approved Rejected              Withdrew       carrier application
    Passenger                2,775         2,075           657            43           Not applicable
    Household goods          3,002         1,173           751           551                       527
    Total                    5,777         3,248        1,408            594                       527
Source: FMCSA.
a
 FMCSA may reject an application because a carrier failed to respond to an information request or
investigative inquiry. FMCSA may also reject an application because after evaluating all of the
evidence submitted by a carrier, it has determined that the carrier is unfit, unwilling, and unable to
comply with all applicable statutes and regulations. This type of rejection could be based on a
determination that the applicant may be a chameleon carrier, or it could be based on the applicant’s
safety record, including evidence that the carrier has been operating without authority.


FMCSA officials credit the vetting program with helping to prevent and
deter unsafe for-hire passenger and household goods carriers, which can
include potential chameleon carriers, from obtaining operating authority.
However our analysis found that the vast majority of passenger and
household goods carriers do not have chameleon attributes and therefore
FMCSA is using the majority of its program resources to vet carriers that
may not represent a higher risk of being chameleons. At the same time, the
current vetting program excludes 98 percent of all new applicants, such as
all freight carriers as well as private passenger carriers. 30 Moreover,
according to our analysis, freight carriers present safety risks that are as
great as or greater than those presented by passenger carriers. As
discussed, freight carriers made up 94 percent of the carriers we identified
with chameleon attributes from 2005 through 2010, 31 and carriers with
chameleon attributes were about three times more likely than all other new
applicants to be involved in a severe crash or to be assessed a fine by
FMCSA for a safety violation. In addition, according to 2009 Department of
Transportation crash data, the number of fatalities per fatal crash is nearly
the same for large trucks (1.13) as for buses (1.15), even though buses
have more occupants. Furthermore, the number of people who died in


30
  As previously mentioned, according to FMCSA, it does not have the statutory authority
to vet private carriers.
31
  For-hire freight carriers comprise 65 percent of carriers with chameleon attributes and
private freight carriers comprise 29 percent of carriers with chameleon attributes, over this
same time period. According to FMCSA, it does not have the authority to vet private
carriers.




Page 21                                                            GAO-12-364 Motor Carrier Safety
truck crashes in 2009 (3,380) is more than 13 times greater than the
number who died in bus crashes (254). (See fig. 3).

Figure 3: Large Truck and Bus Fatalities Rates and Total Number of Fatalities, 2009




As previously noted, federal agencies must assess the risks they face to
determine the most effective allocation of federal resources, including the
best distribution of resources for enforcement-related activities. Other
federal organizations have reviewed the vetting program and
recommended that FMCSA (1) show the program is effective and (2) use
a risk-based approach to target its limited resources before expanding the
program to all new freight carrier applicants. First, NTSB recommended
that FMCSA add a performance evaluation component to the vetting
program to show whether the new applicant screening algorithm is
effectively preventing carriers with a history of evading safety
requirements from continuing to operate. 32 FMCSA agreed with this
recommendation and is working to implement it. The results of the vetting


32
  National Transportation Safety Board, Safety Recommendation H-09-21, November 19,
2009.




Page 22                                               GAO-12-364 Motor Carrier Safety
program appear to indicate that it has value in preventing many carriers
from obtaining operating authority, but its effectiveness remains to be
determined. As our presentation of FMCSA’s data in table 3 shows, 1,408
of the 5,777 applicants for new operating authority were rejected and
another 594 withdrew their applications.

Second, the Department of Transportation’s Inspector General reported
that expanding the vetting program to include freight carriers would
require a risk-based approach, since FMCSA has limited resources to
examine all new applicants. 33 Our analysis suggests that a risk-based
approach would allow such an expansion with few or no additional staff
resources. Specifically, with six dedicated specialists, FMCSA vetted, on
average, 175 for-hire passenger and household goods carriers per month
from August 13, 2008, through May 18, 2011 (5,777 carriers divided by
33 months). Expanding the program to include all the freight carriers with
chameleon attributes that we identified using our data-driven, risk-based
approach would require FMCSA to vet, on average, an additional 74
freight carriers per month (5,329 freight carriers divided by 72 months), or
a total of 249 carriers per month. If, for example, six specialists can vet an
average of 175 carriers per month, or about 29 carriers per specialist,
then eight to nine specialists (or two to three more specialists) should
reasonably be expected to vet 249 carriers per month, on average,
including all the passenger and household goods carriers that FMCSA
currently vets, plus the freight carriers we identified with chameleon
attributes. Alternatively, if FMCSA were to modify its current program and
vet only carriers with chameleon attributes identified through data
analysis, it could vet all passenger, household goods, and freight carriers
with chameleon attributes using fewer specialists than it now uses.
FMCSA officials stated that, given the safety risks associated with
passenger carriers, they would be unwilling to exclude any of them from
the vetting program. Yet no matter which approach FMCSA takes to
vetting passenger carriers, the use of data analysis would allow it to
expand the vetting program to include freight carriers with chameleon




33
  The Department of Transportation, Office of Inspector General. FMCSA Is
Strengthening Motor Carrier Safety Oversight, But Further Action and Attention Are
Needed, Statement for the Record: Hearing before the Committee on Commerce, Science
and Transportation, Subcommittee on Surface Transportation and Merchant Marine
Infrastructure, Safety and Security, United States Senate (Washington, D.C., July 21,
2011).




Page 23                                                GAO-12-364 Motor Carrier Safety
                            attributes and give FMCSA an early opportunity to detect and deny
                            operating authority to freight carriers that pose safety risks.


New Entrant Safety          Newly registered motor carriers, including those that were vetted, are
Assurance Program Audit     required to enter the new entrant safety assurance program and undergo
Includes Questions          a safety audit. This audit is mainly designed to educate new entrant
                            carriers about federal motor carrier safety regulations, ensure they are
Designed to Help Identify   able to comply with these regulations, and require them correct any
Chameleon Carriers but      deficiencies before continuing to operate. 34 The audit now includes a set
Does Not Provide Related    of six, yes/no questions that FMCSA added to the audit in 2009 to help
Guidance                    auditors elicit information from new entrants about connections they may
                            have with other carriers—a characteristic of chameleon carriers. 35 These
                            questions provide a cursory review of new entrants with regards to
                            whether they may be chameleon carriers.

                            The new entrant safety assurance program provides the first opportunity
                            for FMCSA to assess freight and private passenger carriers, which are
                            not currently vetted. The program does not, however, allow FMCSA to
                            deny the new entrant registration of a carrier simply because it suspects
                            that the carrier may be a chameleon. Instead, freight and private
                            passenger carriers acquire provisional registration when they submit new
                            entrant applications to FMCSA, often months before they undergo a
                            safety audit, and it is not as easy for FMCSA to prevent them from
                            operating as it is to deny operating authority to for-hire passenger and
                            household goods carriers through the vetting program. 36 FMCSA can
                            place new entrant carriers out-of-service for at least 1 of 16 safety
                            violations, but not because it suspects the carrier of being a chameleon. 37

                            According to representatives responsible for safety audits in the states we
                            contacted, the set of six, yes/no questions added to the safety audit helps
                            raise new staff awareness of chameleon carriers and reminds more


                            34
                              At a minimum, the safety audit covers driver qualifications, driver duty status, vehicle
                            maintenance, accident register, and controlled substances and alcohol use and testing
                            requirements.
                            35
                              These questions are law enforcement sensitive and not available for public release.
                            36
                             All new entrants operating in interstate commerce must undergo a safety audit within 18
                            months.
                            37
                              49 C.F.R. § 385.321.




                            Page 24                                                     GAO-12-364 Motor Carrier Safety
experienced staff to watch for them. Yet, they said the questions may not
help them identify chameleon carriers because there is little guidance on
how to use the questions. Specifically, FMCSA’s electronic Field
Operations Training Manual—a guide that helps to standardize audits
across all states and includes law enforcement best practices—provides
instructions for staff to follow when conducting the safety audit, but
contains no guidance for these questions, even though it includes
guidance for all other questions asked during the audit. According to
FMCSA, the computer application used during the safety audit—called
SENTRI—provides some guidance on what constitutes an affiliation with
another carrier and how to document responses to these questions.
However, this guidance does little to help staff distinguish legitimate
carriers from chameleons, does not provide follow-up questions that could
help them make this distinction, and does not require them to collect any
evidence that could be used during the enforcement process at a later
date. As a result, staff lack direction on how to use the yes/no questions
to distinguish a chameleon from a legitimate carrier, what follow-up
questions to ask when carriers provide information, what documents to
request from a suspected chameleon carrier, and how to document
suspicions in the safety audit report that a carrier may be chameleon. The
representatives told us the lack of guidance on how to use the questions
made it difficult to distinguish chameleon from legitimate carriers. For
example, according to representatives of Pennsylvania’s Bureau of
Transportation and Safety, an auditor could mistakenly flag one carrier as
a suspected chameleon for leasing vehicles from another carrier when
the leasing can be a legitimate business transaction between the two
companies. Florida Highway Patrol officers commented that a question
about whether a carrier was affiliated with another was not useful
because corporate officers may have legitimate professional associations
with other corporate officers of other carriers. According to federal internal
control standards, federal agencies, such as FMCSA, are to develop and
clearly communicate guidance that flows from agency priorities. 38 Without
guidance for staff on how to use the six yes/no questions related to
identifying chameleon carriers, FMCSA cannot ensure that the new
entrant program will effectively identify such carriers. In commenting on



38
  See GAO/AIMD-00-21.3.1. These standards, issued pursuant to the requirements of the
Federal Managers’ Financial Integrity Act of 1982, provide the overall framework for
establishing and maintaining internal control in the federal government. Office of
Management and Budget Circular No. A-123 (revised), incorporated the GAO internal
control requirements.




Page 25                                                GAO-12-364 Motor Carrier Safety
                            our findings, FMCSA stated that as part of a larger effort to improve the
                            new entrant program, it is reviewing the questions used to detect
                            chameleon carriers during the safety audit process, which is where
                            FMCSA believes the best impact can be made. In addition, FMCSA plans
                            to ensure that all the questions are clear, including those used to identify
                            chameleon carriers, and auditors understand how to answer them
                            properly in order to obtain the best information. According to FMCSA,
                            these efforts are to be completed by summer 2012, and will include
                            associated guidance and training for all new entrant auditors.


Other Investigative         Once a motor carrier passes FMCSA’s new entrant safety audit, no other
Programs May Incidentally   federal investigative program is specifically designed to identify
Identify Chameleon          chameleon carriers, including compliance reviews and roadside
                            inspections, which are typically used to examine high-risk carriers.
Carriers                    Compliance reviews examine carriers that have been identified as high
                            crash risks through an assessment of accident reports or safety
                            performance records. Roadside inspections check carriers for compliance
                            with driver and vehicle maintenance requirements. Neither of these
                            investigations is designed to identify chameleon carriers, but can
                            incidentally lead to identifying such carriers. For example, safety
                            investigators conducting compliance reviews or roadside inspectors have
                            identified chameleon carriers because they happened to see
                            documentation (e.g., a driver’s hours-of-service logbook or vehicle
                            maintenance records) labeled with another carrier’s name, noticed the
                            vehicle marked with another carrier’s name or USDOT number under a
                            coat of fresh paint, or recognized a suspected chameleon carrier in the
                            local area. During one roadside inspection in Florida, an inspector noticed
                            a freight truck displaying a makeshift cardboard sign with the carrier’s
                            name written in magic marker. The crude sign, along with the driver’s
                            suspicious behavior, led the inspector to notify FMCSA, which determined
                            the carrier was a suspected chameleon carrier. While such evidence may
                            alert investigators to possible chameleon carriers, New York officers said
                            that it is difficult to identify potential chameleon carriers during roadside
                            inspections because drivers may not carry the documentation inspectors
                            need to evaluate a carrier’s legitimacy.




                            Page 26                                          GAO-12-364 Motor Carrier Safety
                             FMCSA faces several constraints in pursuing enforcement actions
FMCSA Faces Several          against suspected chameleon carriers. As a result of a 2010 decision by
Constraints in               an FMCSA Assistant Administrator, it is not clear whether a state or a
                             federal legal standard should be used by FMCSA to demonstrate that a
Pursuing                     carrier is a chameleon. This uncertainty can lead to differing enforcement
Enforcement Actions          actions across states and has increased the time necessary to pursue
against Suspected            chameleon carrier cases. Other constraints include a resource-intensive
                             legal process and limitations in FMCSA’s enforcement authorities.
Chameleon Carriers           FMCSA is pursuing options to address these constraints.


FMCSA Is Constrained by      The lack of a single standard for demonstrating that a carrier is a
the Lack of a Single Legal   chameleon—or, in legal terminology, the corporate successor of a
Standard for                 previous carrier that assumed a new identity to evade detection—
                             constrains FMCSA’s ability to take enforcement actions. The legal
Demonstrating a Carrier Is   standard for determining corporate successor liability varies among
a Chameleon                  states, and until 2006, FMCSA used the applicable state standard to
                             determine liability. In a 2006 decision, an Administrative Law Judge
                             applied a federal legal standard rather than a state standard to
                             demonstrate corporate successor liability. However, a 2010 decision by
                             an FMCSA Assistant Administrator left an open question as to which
                             standard—federal or state—FMCSA should use to determine motor
                             carrier successor liability. For a more detailed discussion of state
                             corporate successor liability within the motor carrier industry, see
                             appendix III. Absent a single federal legal standard, FMCSA attempts to
                             gather evidence to meet both the federal standard and the state
                             standards that could be applicable in a case. Applying multiple standards
                             may lead to enforcement actions that differ from state to state and,
                             according to FMCSA officials, gathering evidence to meet both the federal
                             and the applicable state standard has increased the amount of time
                             necessary to pursue enforcement actions against chameleon carriers. For
                             example, FMCSA officials in the Southern Service Center told us that
                             before the 2010 decision they spent 3 to 6 weeks pursuing several
                             enforcement actions against chameleon carriers, but now spend between
                             6 to 12 months pursuing similar actions.

                             The following illustrates how corporate successor liability laws vary
                             among the states, resulting in enforcement actions that differ from state to
                             state as some carriers may choose to incorporate in states where
                             demonstrating corporate successorship is relatively difficult.

                             •   Under Texas law, an acquiring entity may not be held responsible or
                                 liable for any liabilities of the transferring entity unless the acquirer


                             Page 27                                            GAO-12-364 Motor Carrier Safety
                                clearly assumes responsibility for the liabilities. 39 FMCSA officials
                                recognize that it is difficult to pursue enforcement cases in Texas,
                                unless the carrier admits to being a chameleon.

                          •     It is also difficult to demonstrate corporate successorship in New York,
                                according to FMCSA and state officials. For FMCSA to pursue a
                                chameleon carrier case in New York, the prior carrier must have
                                stopped operating before the new carrier started operating. If the two
                                carriers operated concurrently at any point, FMCSA could have
                                difficulty in pursuing the case under the New York standard. 40

                          •     In Florida, the same people (officers, directors, and stockholders)
                                must be involved in both the former and the current business for the
                                carrier to be considered a chameleon. 41 Suspected chameleon
                                carriers may identify another person, such as a spouse or other
                                relative, as the officer of the new company, making it difficult for
                                FMCSA to pursue the case.

                          However, FMCSA officials in the Midwestern and Eastern Service
                          Centers stated that the 2010 decision by the Assistant Administrator did
                          not greatly affect their pursuit of chameleon carrier cases because some
                          of the state standards within their region (e.g., Pennsylvania, Illinois, and
                          Michigan) generally mirror the federal standard. Therefore, collecting
                          evidence to meet both the federal and applicable state standard only
                          slightly increased the amount of evidence needed and had a minimal
                          effect on the amount of work required to pursue chameleon carrier cases.


FMCSA’s Enforcement       FMCSA’s enforcement actions are also constrained by the Notice of
Actions Are Constrained   Claim (NOC) process, which is a resource-intensive legal process that
by a Resource-Intensive   can take months or even years to complete, limiting the number of
                          chameleon cases FMCSA can pursue. Given its staff, time, and other
Legal Process             responsibilities, FMCSA officials said they are able to address only the
                          highest-priority chameleon carrier cases—those with serious safety
                          violations. While these carriers may present the greatest safety risks,


                          39
                              TEX. BUS. ORGS. CODE ANN. §10.254(b).
                          40
                            Mitchell v. Suburban Propane Gas Corp., 581 N.Y.S.2d 927 (1992); Morales v. City of
                          New York, 849 N.Y.S.2d 406 (2007).
                          41
                              Amjad Munim, M.D. v. Azar, 648 So.2d 145 (Fla. 4th DCA 1994).




                          Page 28                                                  GAO-12-364 Motor Carrier Safety
other suspected chameleon carriers may also pose risks and continue to
operate because FMCSA does not have the resources to pursue
enforcement actions against them.

Specifically, FMCSA issues a NOC charging the suspected chameleon
carriers with violating a federal regulation in effect against the carrier’s
presumed predecessor, as shown in figure 4. 42 The carrier can decide to
pay the fine, contest the NOC, or fail to respond to the NOC. If the carrier
fails to respond to the NOC, FMCSA orders the carrier out-of-service after
90 days. 43 If the carrier contests the NOC, the process provides four
alternative routes, each with a number of steps. If FMCSA is able to
demonstrate that the suspected chameleon carrier and its presumed
predecessor are the same entity, the process concludes with a final
agency order, which allows FMCSA to take the enforcement actions
identified in the order. 44 For example, a final agency order may require
the successor carrier to pay the fines owed by the predecessor carrier,
adjust the successor carrier’s rating to reflect the entire history of the
company, or order the successor carrier to cease operations. However, if
at any point during the investigation or the NOC process the carrier
admits to being a chameleon carrier, pays any penalties associated with
violations, and comes into compliance, FMCSA can merge the carrier’s
histories and records without going through the entire NOC process. 45
Merging the carriers’ safety records helps ensure that FMCSA has an
accurate account of the carrier’s safety record under one USDOT number
for monitoring the carrier in the future.




42
  If the successor company is found to have serious safety violations, FMCSA can take
separate enforcement actions outside of the NOC process against the successor
company, such as issuing an imminent hazard order.
43
 49 C. F. R. § 386.83(a)(1).
44
  The final agency order is considered the final agency action against a carrier. It can
include a number of actions, such as penalties or an out-of-service order, among others.
45
  Besides being closed with a final agency order, chameleon carrier cases can be closed
with a settlement agreement, a notarized letter, or payment of civil penalty.




Page 29                                                   GAO-12-364 Motor Carrier Safety
Figure 4: Outline of the FMCSA Notice of Claim Process




                                        As figure 4 shows, several steps in the NOC process have time frames
                                        set for completion while others do not. The required time frames alone
                                        add up to several weeks or months, and the additional time that may be
                                        needed for the remaining steps, such as a formal hearing, can further
                                        prolong the process. The time taken to complete the NOC process varies
                                        widely. FMCSA officials said cases usually take weeks—from the NOC to
                                        the final agency order—but can take anywhere from months to years.


                                        Page 30                                      GAO-12-364 Motor Carrier Safety
Limited Enforcement   According to state officials, as well as industry association and safety
Authorities Further   advocate groups, FMCSA has limitations on its authority that have
Hamper FMCSA’s        hampered the effectiveness of its enforcement actions. Specifically,
                      FMCSA cannot preclude carriers, including suspected chameleon
Enforcement Efforts   carriers, from acquiring a new USDOT number. A new number allows a
                      carrier to operate under a new identity and thus avoid any association
                      with its history operating under another USDOT number, including any
                      fines or out-of-service orders incurred under its former identity. FMCSA
                      officials have stated that it is not illegal for a carrier to apply for multiple
                      USDOT numbers because carriers may have legitimate business reasons
                      for needing more than one number. For example, carriers that operate in
                      different locations may want to separate their business practices across
                      multiple routes or businesses. However, carriers that apply for multiple
                      USDOT numbers may also do so to prevent or avoid subsequent
                      detection as chameleon carriers. To strengthen its enforcement efforts
                      against chameleon carriers, FMCSA stated that it is drafting a rule in
                      response to a congressional mandate 46 that would enable it to deny an
                      application for operating authority of a for-hire motor carrier if any of the
                      company’s officers has engaged in a pattern or practice of avoiding
                      compliance, or concealing noncompliance with such regulations. It also
                      stated that a recently issued Notice of Proposed Rulemaking would adopt
                      new procedures for issuing orders to cease operations and consolidating
                      safety records against chameleon carriers. 47 FMCSA anticipates finalizing
                      both rules later this year.

                      In addition, the maximum fines that FMCSA is legally permitted to impose
                      on motor carriers, including chameleon carriers, are low, which constrains
                      the agency’s ability to take enforcement actions. According to a recent
                      NTSB report, the fines imposed on carriers for violations are low and do
                      not serve as an effective deterrent. 48 NTSB further concluded that the
                      fines for serious violations are so low that some carriers, especially
                      passenger carriers, may treat them as a cost of doing business. FMCSA
                      and state officials, as well as industry association representatives, have
                      also expressed concerns about the deterrent value of FMCSA’s fines. For


                      46
                       Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users,
                      Pub. L. No. 109-59. §4113(c), 119 Stat. 1144, 1725 (2005).
                      47
                       76 Fed. Reg. 77458, December 13, 2011.
                      48
                       National Transportation Safety Board, Report on Curbside Motorcoach Safety, Special
                      Report, NTSB/SR-11/01, PB2011-917002.




                      Page 31                                                   GAO-12-364 Motor Carrier Safety
                             example, a civil penalty that can be assessed against chameleon carriers,
                             such as for evasion of regulations, ranges from $200 to $500 for the first
                             violation and $250 to $2,000 for any subsequent violation. 49 This penalty
                             is potentially less than the cost to apply for operating authority, which is
                             set at $300. FMCSA officials acknowledged that setting fines at the
                             appropriate levels is a delicate balancing act. 50 The fines must be high
                             enough for carriers to view them as a deterrent and not simply as a cost
                             of doing business, but not so high that carriers choose to become
                             chameleons to avoid payment. Nonetheless, FMCSA is seeking
                             legislation to increase the statutory fines, as discussed in the following
                             section.


FMCSA Has Provided           To address constraints on its enforcement efforts and make it easier to
Input to Congress on a       identify chameleon carriers, FMCSA provided input to congressional
Legislative Proposal to      committees on a legislative proposal. 51 This proposal included language
                             establishing a federal legal standard for determining corporate
Address Constraints on Its
                             successorship that would set a single standard nationwide. This standard
Enforcement Efforts          would expressly preempt state corporation successor laws applying only
                             to federal motor carrier safety. According to FMCSA officials, the federal
                             standard would be consistent with FMCSA’s mission to ensure motor
                             carrier safety and would establish FMCSA’s authority over the chameleon
                             carrier corporate succesorship issues. The federal standard would include
                             specific criteria for determining what constitutes a successor carrier and
                             would eliminate the need for FMCSA to apply various state laws in its
                             chameleon carrier cases. Furthermore, a single nationwide standard
                             would provide uniformity in FMCSA’s enforcement actions against
                             chameleon carriers. In addition, such a standard could discourage
                             carriers from incorporating their business in states where corporate
                             successorship is difficult to demonstrate—a phenomenon that FMCSA


                             49
                              49 U.S.C. § 524 and 49 U.S.C. § 14906.
                             50
                               To calculate its civil penalties, FMCSA uses an automated policy tool called the Uniform
                             Fine Assessment, whose methodology FMCSA is currently updating. The Uniform Fine
                             Assessment uses an algorithm that takes statutory penalties factors into account, such as
                             the carrier’s ability to pay and the extent and gravity of the violation committed, among
                             others. 76 Fed. Reg. 71431, November 17, 2011. Department of Transportation, Federal
                             Motor Carrier Safety Administration, Civil Penalty Calculation Methodology.
                             51
                               Legislation recently passed in the Senate, the Commercial Motor Vehicle Safety
                             Enhancement Act of 2012, would establish a single federal standard for motor carrier
                             corporate successor liability. S. 1813, § 32101, 112th Cong., (2012).




                             Page 32                                                   GAO-12-364 Motor Carrier Safety
              officials suspect takes place now. For example, corporate successor
              liability is generally more difficult to prove in New York than it is in New
              Jersey and Pennsylvania, which may encourage carriers that understand
              the legalities of corporate successorship to consider reincorporating in
              New York. In addition, FMCSA is pursuing two other means to achieve a
              single federal legal standard. First, officials are monitoring chameleon
              carrier cases to identify one that could be used to clarify the 2010
              Assistant Administrator’s decision. An Administrative decision indicating
              FMCSA should use a single federal standard would have a similar effect
              to congressional action included in FMCSA’s legislative proposal.
              Second, FMCSA is also pursuing a separate rulemaking effort to modify
              its enforcement regulations by codifying a single standard into regulation
              and by adopting expedited procedures for administrative adjudication of
              chameleon carrier cases. This rulemaking would articulate a standard that
              would be refined based on subsequent FMCSA decisions. 52

              The legislative proposal also includes changes that would increase the
              fines and penalties FMCSA is legally permitted to give carriers for
              noncompliance so that the penalties are not so low as to be viewed
              simply as a cost of doing business. For example, current law sets the
              minimum fine for evasion of regulation, which ranges from $200 to $500,
              would be increased to $2,000 to $5,000, and the maximum fine, which
              now ranges from $250 to $2,000, would be increased to $2,500 to
              $7,500. Other penalties associated with serious safety violations would
              also be increased. 53


              Preventing chameleon motor carriers from operating under a new identity
Conclusions   is important because they present significant safety risks to the motoring
              public and, in the case of for-hire carriers, FMCSA faces constraints in
              removing them from the road after they have obtained operating authority.
              FMCSA has made strides toward protecting consumers from some of
              these unscrupulous carriers by vetting for-hire passenger and household


              52
                Amendment to Agency Rules of Practice, 76 Fed. Reg. 77458, 77463-77464 (Dec. 13,
              2011).
              53
                 We did not evaluate how FMCSA’s proposals would affect the motor carrier industry.
              Determining what penalty levels are appropriate will involve assessing the burden higher
              fines would impose on the motor carrier industry. As part of this analysis, it will be
              important to determine what penalty levels will promote compliance without creating an
              incentive for carriers to become chameleons in order to avoid payment.




              Page 33                                                   GAO-12-364 Motor Carrier Safety
goods carriers to identify and deny operating authority to those that may
be chameleon carriers. However, these two types of carriers together
accounted for only about 2 percent of the new motor carrier population in
2010, leaving the remaining 98 percent unvetted and free to operate
before they undergo a new entrant safety audit—a program that provides
some opportunity for auditors to identify potential chameleon carriers, but
is not primarily designed to do so. Our analysis of FMCSA data found that
of the more than 1,100 new motor carrier applicants in 2010 that had
chameleon attributes, the vast majority were freight carriers. Given that
the number of fatalities is far greater for freight carriers than for
passenger carriers, we believe that FMCSA should not exclude freight
carriers from its vetting program. Even with the large number of new
applicant carriers and constraints on its resources, FMCSA could target
the carriers that present the highest risk of becoming chameleons by
using a data-driven, risk-based approach. Targeting could reduce the
population of carriers to be vetted to a manageable number. FMCSA
could choose to apply a data-driven, risk-based approach to all types of
carriers, or could limit its use to freight carriers while continuing its current
practice of vetting all for-hire passenger and household goods carriers.
We believe that our targeting method, which considers both matching on
registration information and having a motive to evade detection, provides
a sound basis for FMCSA to select new applicant carriers for further
investigation. Yet we also recognize that FMCSA will need to periodically
evaluate the effectiveness of this approach as officials investigate carriers
and learn more about the attributes of chameleon carriers. By applying a
risk-based approach and expanding the vetting program to include freight
carriers, FMCSA would help keep unsafe carriers off the road and reduce
the amount of time, effort, and money necessary to investigate and
prosecute chameleon carriers at a later date.

In addition, FMCSA is not taking full advantage of the new entrant safety
assurance program audit to identify potential chameleon carriers,
including those that slipped through the vetting program and those that
are freight carriers undergoing scrutiny for the first time. While the audit
includes a set of questions designed to help auditors identify chameleon
carriers, FMCSA’s electronic Field Operations Training Manual lacks
guidance on how to use the questions during the audit to distinguish
chameleons from legitimate carriers. For example, the guidance should
prompt auditors on what types of follow-up questions to ask and what
further evidence should be collected based on carrier’s responses.
FMCSA is reviewing the new entrant audit questions, but unless the
guidance contains such aspects, FMCSA lacks assurance that the new
entrant auditors can effectively identify chameleon carriers.


Page 34                                             GAO-12-364 Motor Carrier Safety
                      Absent a single standard for determining corporate successor liability,
                      FMCSA can take months to develop a case to meet both a federal and the
                      applicable state standard in order to prove that the carrier is a chameleon,
                      and subsequently carry out enforcement actions. A federal standard would
                      make the enforcement process parallel across all states, especially in
                      states where FMCSA currently faces difficulties demonstrating corporate
                      successor liability. A federal standard would also discourage carriers from
                      incorporating across state lines to evade detection. FMCSA is currently
                      exploring three different avenues for establishing a federal standard: (1)
                      congressional action, (2) monitoring a case that could lead to the
                      establishment of a single federal legal standard for chameleon carrier
                      cases in all states, and (3) rulemaking. We support these efforts and
                      believe establishing a federal standard is important to ensure a more
                      efficient, consistent, and uniform enforcement process.


                      To help FMCSA better identify chameleon carriers through its vetting
Recommendations for   program, the Secretary of Transportation should direct the FMCSA
Executive Action      Administrator to take the following three actions:

                      •   Develop a data-driven, risk-based vetting methodology that
                          incorporates matching and motive components for targeting carriers
                          with chameleon attributes.

                      •   Using this new methodology, expand the vetting program as soon as
                          possible to examine all motor carriers with chameleon attributes,
                          including freight carriers.

                      •   Periodically evaluate the effectiveness of this methodology using the
                          results of investigations and refine as necessary.

                      In addition, to help FMCSA identify chameleon carriers that present safety
                      risks, FMCSA should strengthen the new entrant safety assurance
                      program audit by developing guidance to the questions contained in the
                      electronic Field Operations Training Manual designed to help the new
                      entrant auditor identify chameleon carriers, including (1) how to use the
                      questions to distinguish chameleon from legitimate carriers, (2) what
                      types of follow-up questions to ask, and (3) what evidence to collect.




                      Page 35                                          GAO-12-364 Motor Carrier Safety
                     We provided a draft of this report to the Department of Transportation for
Agency Comments      its review and comment. FMCSA generally concurred with our
and Our Evaluation   recommendations. In commenting on a draft of this report, officials
                     provided additional information on how they plan to implement these
                     recommendations, including developing plans to expand the vetting
                     program to include for-hire freight carriers, but did not indicate when they
                     would do so.

                     FMCSA had several comments on our methodology for identifying
                     carriers with chameleon attributes. Specifically, officials questioned the
                     inclusion of currently inactive carriers—carriers that never operated or
                     eventually ceased to operate in the motor carrier industry. The purpose of
                     our analysis was to identify carriers that may warrant additional
                     investigation as they apply to enter the motor carrier industry, not to
                     identify the number of chameleon carriers that currently exist. Therefore,
                     it would have been inappropriate to remove inactive carriers from our
                     analysis. Officials also had methodological concerns about (1) using
                     motive to select carriers with chameleon attributes, which could allow
                     some chameleon carriers to go undetected, including those carriers that
                     have consistently evaded FMCSA enforcement actions (i.e. carriers that
                     take on new identities before FMCSA has an opportunity to document
                     safety violations), and (2) including bankruptcy, which is not a safety
                     violation, as one of our six motive criteria. However, as our report
                     indicates, we believe that a risk-based targeting method that includes
                     motives, such as bankruptcy, provides a sound basis for FMCSA to
                     examine those carriers that are more likely than others to be chameleons.
                     Yet we also recognize that FMCSA will need to evaluate the effectiveness
                     of its approach and alter it, as necessary.

                     In its comments, FMCSA agreed with us that using a risk-based approach
                     to expand vetting to freight carriers, such as the one recommended,
                     would require additional staffing resources. However, they indicated that
                     such an approach would require more resources than the 2-3 staff we
                     mentioned in the report. We believe that developing a risk-based
                     approach to vetting is the first step FMCSA must take before determining
                     the level of resources that may be needed for the vetting team.

                     FMCSA also provided technical corrections, which we have incorporated
                     throughout the report.




                     Page 36                                          GAO-12-364 Motor Carrier Safety
We are sending copies of this report to congressional committees
interested in motor carrier safety issues; the Secretary of Transportation;
the Administrator of FMCSA; and the Director of the Office of
Management and Budget. In addition, the report will be available at no
charge on the GAO website at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact
me at (202) 512-2834 or flemings@gao.gov. Contact points for Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. Staff who made key contributions to this report are listed in
appendix IV.




Susan A. Fleming
Director
Physical Infrastructure Issues




Page 37                                          GAO-12-364 Motor Carrier Safety
Appendix I: Objectives, Scope, and
                    Appendix I: Objectives, Scope, and
                    Methodology



Methodology

                    Our objectives were to determine the prevalence of chameleon carriers,
                    how well the Federal Motor Carrier Safety Administration’s (FMCSA)
                    investigative programs are designed to identify suspected chameleon
                    carriers, and what constraints, if any, FMCSA faces in pursuing
                    enforcement actions against suspected chameleon carriers.


                    To identify new applicant carriers with chameleon attributes, we
Data Analysis       conducted a data analysis that involved two basic steps: (1) comparing
                    registration information submitted by new applicants against that provided
                    by all existing motor carriers and (2) determining whether carriers had a
                    motive for concealing their histories. We obtained this information from
                    several U.S. Department of Transportation databases: the Motor Carrier
                    Management Information System (MCMIS), the Licensing & Insurance
                    system, and the Enforcement Management Information System, as of
                    May 2011. To assess the reliability of these databases, we reviewed
                    documentation on data collection efforts and quality assurance
                    processes, talked with knowledgeable FMCSA officials about these data,
                    and checked the data for completeness and reasonableness. We
                    determined that the data were sufficiently reliable for the purpose of our
                    data analysis. We analyzed data for new applicants from January 1,
                    2005, through December 31, 2010, against data for all carriers that had
                    registered with FMCSA since June 1, 1974. For a detailed technical
                    discussion of the scope and methodology for our data analysis, see
                    appendix II.


                    To determine how FMCSA’s investigative programs are designed to
Assessing FMCSA’s   identify chameleon carriers, we reviewed federal motor carrier laws and
Investigative       safety regulations; federal internal control standards; related reports and
                    statements published by GAO, the National Transportation Safety Board
Programs            (NTSB), and the Department of Transportation’s Office of Inspector
                    General; documentation about FMCSA’s vetting processes and
                    procedures, which FMCSA refers to as the vetting program; FMCSA
                    policy memorandums on the new entrant safety assurance program and
                    the monitoring of potential chameleon new entrant motor carriers; and the
                    Field Operations Training Manual. We also conducted a content analysis
                    of all our interviews to obtain views from federal and states officials on the
                    effectiveness of the vetting and new entrant safety assurance programs.
                    In June 2011, we observed two new entrant safety audits—one in Los
                    Angeles, California, of a new passenger carrier, and the other in Triangle,
                    Virginia, of a new freight carrier.



                    Page 38                                           GAO-12-364 Motor Carrier Safety
                        Appendix I: Objectives, Scope, and
                        Methodology




                        To identify the constraints FMCSA faces in pursuing enforcement action
Identifying             against suspected chameleon carriers and how it is addressing them, we
Constraints on Taking   reviewed federal motor carrier safety laws and regulations related to
                        FMCSA enforcement actions (Notice of Claims and Notice of Violations);
Enforcement Action      an FMCSA summary of State Successor Liability Case Law (July 2010),
                        which describes corporate successor liability law for all 50 states; two key
                        decisions related to corporate successor liability—the Williamson
                        Transport decisions of January 2009 and July 2010; a multipage,
                        corporate successor liability worksheet used to gather evidence against a
                        suspected chameleon carrier; and a legislative proposal provided to
                        congressional reauthorization committees in 2011 that is intended to help
                        address FMCSA constraints. We performed a legal analysis of select
                        case law to determine current FMCSA enforcement constraints. We also
                        interviewed FMCSA counsel to determine how the legislative proposal
                        would help alleviate those constraints. In addition, we reviewed other
                        documentation, including publications and testimonies, to assess how
                        FMCSA is addressing the constraints.


                        To address these objectives, we interviewed FMCSA officials (data
Interviews              analysts, program managers, and counsel) in Washington, D.C.; Field
                        Administrators, attorneys, managers and enforcement staff in all four
                        regional service centers (Eastern, Southern, Midwestern, and Western);
                        and Division Administrators in 10 of FMCSA’s division offices. In the
                        same 10 states where we interviewed FMCSA division officials, we also
                        interviewed law enforcement officials who were directly involved in
                        attempting to identify or in taking enforcement actions against chameleon
                        carriers. We selected these 10 states primarily because they had the
                        largest total number of interstate and hazardous materials intrastate
                        carriers identified in FMCSA’s Analysis and Information Resources
                        database as of May 2011. In addition, we considered other factors in
                        selecting these states, including the number of new entrant audits and
                        roadside inspections conducted in fiscal year 2010, the estimated fatality
                        rates per 100 million miles traveled in 2008, the level of participation in
                        the Performance and Registration Information Systems Management and
                        the new entrant safety assurance programs, suggestions made by
                        FMCSA and by industry and safety organizations, and the legal
                        requirements for determining corporate successor liability. Table 4 lists
                        the 10 state agencies we interviewed.




                        Page 39                                          GAO-12-364 Motor Carrier Safety
Appendix I: Objectives, Scope, and
Methodology




Table 4: State Agencies Interviewed

State                                Agency
California                           California Highway Patrol
Florida                              Florida Highway Patrol
Georgia                              Georgia Department of Public Safety
Illinois                             Illinois Department of Transportation
Michigan                             Michigan State Police
New Jersey                           New Jersey State Police
New York                             New York Department of Transportation
North Carolina                       North Carolina Highway Patrol
Pennsylvania                         Pennsylvania State Police
Texas                                Texas Highway Patrol
Source: GAO.



To address all three of our reporting objectives, we also interviewed
representatives of the following organizations:

•    Advocates for Highway and Auto Safety

•    American Bus Association

•    American Trucking Association

•    American Automobile Association

•    Commercial Vehicle Safety Alliance

•    International Registration Plan

•    Motor Carriers Safety Advisory Council

•    National Private Truck Council

•    National Transportation Safety Board

•    Owner-Operator Independent Drivers Association

•    Truck Safety Coalition

•    United Motorcoach Association



Page 40                                                       GAO-12-364 Motor Carrier Safety
Appendix I: Objectives, Scope, and
Methodology




We conducted this performance audit from March 2011 to March 2012 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.




Page 41                                       GAO-12-364 Motor Carrier Safety
Appendix II: Additional Information on the
                         Appendix II: Additional Information on the
                         Scope and Methodology of Our Data Analysis



Scope and Methodology of Our Data Analysis

                         This appendix contains additional information on our analysis of data on
                         carriers with chameleon attributes. The method presented here is used to
                         demonstrate the feasibility of using data to target carriers with chameleon
                         attributes. We did not conduct additional work to investigate the carriers
                         we identified and determine whether our approach is the most effective
                         means to target chameleon carriers. FMCSA may wish to consider
                         adjusting several elements of this approach, including our standardization
                         techniques, our match score formula, and the way we assessed motive to
                         become a chameleon carrier.


                         We defined a carrier with chameleon attributes as one that met the
Criteria for             following two criteria:
Determining That a
                         1. Match criterion. The new applicant carrier submitted registration
Carrier Had Attributes      information that matched information for a previously registered
Consistent with Those       carrier.
of a Chameleon           2. Motive criterion. The old carrier had a motive to become a chameleon,
Carrier                     which we defined as a history of safety violations or filed for
                            bankruptcy that might motivate a carrier to become a chameleon.


                         To identify new applicants 1 with chameleon carrier attributes, we took two
Data Sources             basic steps: (1) compared registration information submitted by new
                         applicants against that provided by all previously registered motor carriers
                         (match criterion) and (2) determined whether the previously registered
                         carriers had a motive for concealing their histories (motive criterion). We
                         used information from the following Department of Transportation
                         databases: MCMIS, the Licensing and Insurance system, and the
                         Enforcement Management Information System, as of May 2011. To
                         create our population of motor carriers that had submitted registration
                         information to the department, we used data from MCMIS to generate a
                         list of all unique U.S. Department of Transportation (USDOT) numbers
                         (i.e., motor carriers) that had ever registered with the Department of
                         Transportation, including the date that these USDOT numbers were
                         added to the database (add date) and the most recent date that the



                         1
                          Our analysis only examined new applicants over which FMCSA has oversight authority—
                         interstate carriers and intrastate hazardous materials carriers.




                         Page 42                                               GAO-12-364 Motor Carrier Safety
           Appendix II: Additional Information on the
           Scope and Methodology of Our Data Analysis




           carrier entered the new entrant program (new entry date). Because we
           were interested in demonstrating a method of targeting new applicant
           carriers as they registered or applied for operating authority, and not
           specifically in counting the number of chameleon carriers that might
           currently be operating, we did not attempt to exclude carriers that might
           be inactive or might have ceased to operate. Therefore, our list of carriers
           with chameleon attributes likely includes carriers that are no longer
           operating.


           We selected a number of data fields on which to compare new carriers to
Matching   all previously registered carriers. Initially we considered the following
           fields: carrier name, company officer name, employer identification
           number (EIN), social security number (SSN), Dun & Bradstreet (D&B)
           number, 2 phone number (includes all possible comparisons among cell,
           fax, and main numbers), address (includes physical and mailing), vehicle
           identification number, vehicle license plate, driver license number, and
           driver name. Based on conversations with FMCSA officials and an initial
           analysis of the frequency of matches across these different fields, we
           selected seven fields that we believe can be used to identify carriers with
           chameleon attributes: carrier name, company officer name, EIN, SSN,
           D&B number, phone number, and address.

           We took several steps to improve the validity of our matches. We
           standardized values in some fields, including addresses and names. We
           also excluded records with missing or unusable values on key variables.
           For example, we excluded records with missing values on any of our
           match variables (listed earlier). For a number of the variables, we also
           excluded records consisting of a single character or digit, records with
           values consisting entirely of zeros or nines, and records with values that
           would result in matches unrelated to chameleon attributes (e.g., used
           terms like “unknown,” “none,” and “n/a”). Table 5 provides more details on
           the standardization and cleaning we conducted.




           2
           D&B number is a unique nine-digit number used to identify a business location.




           Page 43                                                 GAO-12-364 Motor Carrier Safety
                                              Appendix II: Additional Information on the
                                              Scope and Methodology of Our Data Analysis




Table 5: Steps Taken to Standardize Fields Prior to Matching

                                                                       Phone              EIN, SSN, and                 Carrier      Company
Standardization step                                                  numbers             D&B numbers         Address   name          officer
Excluded records with missing values                                       •                       •            •          •              •
Excluded records with a single character or digit                                                  •
Excluded records that were not 7 or 10 characters or digits
long (there were no parenthesis)
                                                                           •
Excluded records with values consisting entirely of zeros
or nines
                                                                           •                       •
Excluded records with no number                                                                    •
Excluded records with garbage values. Specifically if the
values were: “, *, -, n/a, na, unknown, owner, c/o, none,
test, and same. Also, records where the length of the value                                                     •          •              •
was less than 3 or where the value was only numbers (no
alphabetical characters).
Standardize values (correct for spelling variations,
differences in abbreviations, etc.).
                                                                                                                •          •
                                              Source: GAO summary of steps taken to standardize FMCSA data.



                                              If two carriers had an exact match on at least one of these data fields, we
                                              then added them to our list of “carrier match pairs.” Within the pairs, we
                                              coded each USDOT number as either a new carrier or an old carrier
                                              based on the date that the USDOT number was added to the database. 3
                                              In a number of instances, a new carrier matched more than one old
                                              carrier. Because we were interested in identifying new carriers with
                                              chameleon attributes, and not in counting the number of older carriers to
                                              which they matched, we took just the strongest match for each new
                                              carrier and discarded the others. 4

                                              We calculated the strength of each match using a weighting formula
                                              through which we assigned different weights to different fields. Our
                                              weighting formula was based on (1) conversations with FMCSA and state



                                              3
                                               For matching purposes, we used the date a carrier was added to the system (“add date”)
                                              rather than the date a carrier entered the new entrant program (“new entry date”)
                                              because, according to FMCSA officials, the add date is a more accurate reflection of when
                                              registration information was provided by a new carrier. In contrast, because carriers can
                                              exit and enter the new entrant program several times, the new entry date might not show
                                              when a carrier submitted its registration information.
                                              4
                                               In cases where a new carrier had multiple equally strong matches to different older
                                              carriers, we selected one at random.




                                              Page 44                                                               GAO-12-364 Motor Carrier Safety
         Appendix II: Additional Information on the
         Scope and Methodology of Our Data Analysis




         officials who indicated that certain data field matches were more likely to
         indicate that a carrier was potentially a chameleon and (2) an evaluation
         of data fields that carriers matched on. 5 Based on these sources of
         information, we derived a formula in which the seven data fields were
         weighted and combined in the following way:

         Match score = (carrier name x company officer name) + 2(SSN) + 2 (EIN)
                         + 2 (D&B number) + phone + 0.5(address)

         In this formula, each of the variables is coded 1 if the two carriers match
         on the corresponding data field and 0 otherwise. Thus, for example, if a
         new carrier matched an old carrier on company officer, company name,
         SSN, and phone, the new carrier would receive a match score of (1 × 1) +
         2 + 1 = 4. Alternatively, if a new carrier matched an old carrier on carrier
         name and address, but not on company officer name (or any other fields),
         the new carrier would receive a score of (1 × 0) + 0.5 = 0.5. Note that
         because of how carrier name and company officer name are combined in
         the formula, neither of these fields counts toward a match unless matches
         on both fields are present.


         After completing our match of registration information, we coded each
Motive   carrier in the MCMIS universe according to whether it might have a
         motive to evade detection, which meant having at least one of the
         following attributes: filed for bankruptcy; involved in a severe crash; fined
         by FMCSA; or issued an out-of-service order, an imminent hazard order,
         or an unsatisfactory or unfit rating by FMCSA. We selected these
         attributes based on discussions with FMCSA officials indicating that they
         are possible reasons that a carrier might attempt to become a chameleon
         and are attributes that FMCSA used for creating a list of poorly
         performing carriers within its new applicant screening algorithm. Because



         5
          Specifically, our data showed that address matches were very common (10,032,429 pair
         matches), which indicated that these matches are less helpful in identifying the carriers at
         the highest risk of being chameleons. In addition, we expect EIN, SSN, and D&B matches
         to be a strong indication that the new carrier is associated with a prior carrier because
         these numbers are universal, unique identifiers. This is supported by our data, which show
         far fewer matches across SSN (201 pair matches), EIN (231 pair matches), and Dun &
         Bradstreet (909 pair matches). We also linked carrier name and company officer matches
         because the data indicated that matches on each of these fields alone were not
         uncommon (3,073,264 pair matches for carrier name and 251,337 pair matches for
         company officer name).




         Page 45                                                    GAO-12-364 Motor Carrier Safety
                            Appendix II: Additional Information on the
                            Scope and Methodology of Our Data Analysis




                            we did not have evidence indicating that any one motive was more likely
                            to result in a carrier becoming a chameleon we weighted all motives
                            equally. That is, the motive criterion was binary—a carrier either had a
                            motive or did not have a motive. In addition, we counted a carrier as
                            having a motive only if the first appearance of the motive predated the
                            new carrier’s registration with FMCSA. For example, a filing for
                            bankruptcy was counted as motive only if the old carrier filed for
                            bankruptcy before the new carrier registered. However, we were unable
                            to determine whether a motive, having initially appeared, was still present
                            at just the time when the new carrier registered. For example, FMCSA
                            may have rescinded an out-of-service order on an old carrier before the
                            new carrier attempted to register, and our data analysis did not
                            specifically exclude these types of cases.


                            We incorporated motive to evade detection into our analysis in three
Combining Matching          distinct ways. First, we used motive to assess whether the matching
and Motive                  component of our analysis was identifying carriers with a reason to be a
                            chameleon, as opposed to carriers with legitimate reasons to reincarnate
                            and carriers with registration information accidentally resembling an older
                            carrier’s. Second, we used motive to select a particular match score
                            threshold to be used in our definition of a carrier with chameleon
                            attributes—that is, a match score (calculated according to the above
                            formula) beyond which we classify a carrier as meeting the match
                            criterion. Finally, as noted earlier, motive was a component, separate
                            from matching, of our definition of a carrier with chameleon attributes. In
                            the following sections, we discuss these three uses of motive.


Using Motive to Assess      One concern with our approach is that data matching may not give an
Whether the Matching        accurate picture of the total number of chameleon carriers for two
Component of Our            reasons. First, data matching could identify carriers that have legitimate
                            business reasons for registering a new company that appears to be
Analysis Was Identifying    related to an older one. Second, similar or even identical registration
Carriers with a Reason to   information may inadvertently be submitted by unrelated companies. In
be Chameleons               order to address this issue, we used information about whether an older
                            carrier had a motive to evade detection—a feature that we and FMCSA
                            believe indicates that a new carrier is more likely to be a chameleon than
                            a carrier without such a feature. In particular, we looked at the likelihood
                            that an older carrier with a motive would match a new applicant, as
                            compared to the likelihood that an older carrier without a motive would
                            match a new applicant. If the only causes of data matches were carriers
                            that had legitimate business reasons for assuming a new identity and


                            Page 46                                          GAO-12-364 Motor Carrier Safety
                                          Appendix II: Additional Information on the
                                          Scope and Methodology of Our Data Analysis




                                          accidental similarities in registration information, then we would expect
                                          older carriers with a motive to be no more likely to match new applicants
                                          than older carriers without a motive. However, if matches do occur
                                          because of chameleons registering, then we would expect older carriers
                                          with a motive to be more likely to match new applicants than older
                                          carriers without a motive. We formalize this reasoning as follows:

                                                                  Number of old carriers with motive that match a new applicant
                      Match rate for carriers with motive =
                                                                           Total number of old carriers with motive

                                                                     Number of old carriers without motive that match a new applicant
                      Match rate for carriers without motive =
                                                                              Total number of old carriers without motive

                                                    Match rate for carriers with motive
                                           R=
                                                 Match rate for carriers without motive

                                          Using these formulas in conjunction with several different match score
                                          thresholds, we found that a difference in the likelihood of a match for
                                          carriers with a motive and those without depended on the particular
                                          match score threshold that was used (see tables 6 and 7).

Table 6: Match Rates for Carriers with and without Motive Based on New Applicants in 2009

                      Old carriers                                      Old carriers
                     with a motive                                        without a                Old carriers
                   that matched a     Old carriers   Match rate for      motive that              prior to 2009    Match rate for
Match score              2009 new    prior to 2009 old carriers with matched a 2009                   without a      old carriers
threshold                applicant   with a motive         a motive   new applicant                      motive without a motive      R
1.0                          2,598         207,146                  0.012542             5,318          910,160          0.005843    2.1
1.5                          1,198                                  0.005783             2,064                           0.002268    2.6
2.0                             79                                  0.000381               139                           0.000153    2.5
2.5                             54                                  0.000261               105                           0.000115    2.3
                                          Source: GAO analysis.



                                          In table 6, the number in the final column, R, can be interpreted as
                                          follows: when we used a match score threshold of 1.0 (see the first row of
                                          the table), pre-2009 carriers with a motive were 2.1 times more likely to
                                          match a new applicant in 2009 than were pre-2009 carriers without a
                                          motive. Similarly, when we used a threshold of 1.5, pre-2009 carriers with
                                          a motive were 2.6 times more likely to match a new applicant in 2009
                                          than were pre-2009 carriers without a motive.




                                          Page 47                                                         GAO-12-364 Motor Carrier Safety
                                        Appendix II: Additional Information on the
                                        Scope and Methodology of Our Data Analysis




                                        As shown in table 7, we conducted a similar analysis for 2010:

Table 7: Match Rates for Carriers with and without Motive Based on New Applicants in 2010

                                                                            Old carriers
                                                                              without a
                Old carriers with                                           motive that     Old carriers   Match rate for
                   a motive that     Old carriers         Match rate for     matched a     prior to 2009     old carriers
Match score      matched a 2010     prior to 2010       old carriers with     2009 new         without a       without a
threshold         new applicant     with a motive               a motive      applicant           motive          motive     R
1.0                        3,010         218,769                0.013759          7,148          95,941         0.007493    1.8
1.5                        1,331                                0.006084          2,685                         0.002815    2.2
2.0                           62                                0.000283             183                        0.000192    1.5
2.5                           39                                0.000178             112                        0.000117    1.5
                                        Source: GAO analysis.



                                        As the tables show, the difference in likelihood between carriers with a
                                        motive and those without depended on the particular match score
                                        threshold that we used. For both 2009 and 2010, we tested a range of
                                        match score thresholds (from 1.0 to 2.5), and in all cases carriers with
                                        motive were statistically significantly more likely to match a new applicant
                                        than were carriers without motive.

                                        These results suggest that the matching component of our analysis did
                                        not merely detect accidental or benign matches, such as carriers that
                                        registered a new company for legitimate business reasons, but rather
                                        identified carriers seeking to evade detection. Specifically, if matches
                                        occurred only for benign or accidental reasons, then we would expect
                                        matching to be no more likely among carriers with a motive than among
                                        carriers without. That is, we would expect R to be near 1.0. In fact, we
                                        found that older carriers with a motive were roughly twice as likely to
                                        match a new applicant in 2009 or 2010 as were older carriers without a
                                        motive. This suggests that the data-matching component of our analysis
                                        was effective in detecting carriers with chameleon attributes and not just
                                        carriers with legitimate reasons to assume new identities or accidental
                                        similarities to previously registered carriers. While this test demonstrates
                                        that our method identified carriers with a motive to evade detection,
                                        further investigation would be needed to confirm whether any of the
                                        carriers on our list of carriers with chameleon attributes actually are
                                        chameleons.




                                        Page 48                                                  GAO-12-364 Motor Carrier Safety
                              Appendix II: Additional Information on the
                              Scope and Methodology of Our Data Analysis




Using Motive to Select a      Having verified that data matching, as defined in our analysis, was related
Match Score Threshold         to motive, we then used motive to select a match score threshold. Our
                              goal was to identify a match score threshold that was high enough to
                              avoid capturing many “false alarms”—that is, matches that occur for
                              accidental or benign reasons—and yet low enough so that our matching
                              criterion was not overly restrictive. To identify such a match score
                              threshold, we tested several different thresholds to identify the one with
                              the strongest relationship between whether an older carrier had a motive
                              and whether it matched a new applicant in 2009 or 2010. As the tables
                              above show, the highest value of R occurred at a threshold of 1.5 for both
                              2009 and 2010. Based on this analysis, we selected a 1.5 match score as
                              the optimal threshold. That is, the degree of match between the two
                              carriers’ registration information had to exceed the defined threshold of
                              1.5 for the new carrier to be classified as having chameleon attributes.


Using Motive as One           Having used motive to refine the matching component of our definition,
Component of Our              we also used motive as a second component, in its own right, of a carrier
Definition of Carriers with   with chameleon attributes. Only if a carrier met both the match criterion
                              and the motive criterion was it classified as a carrier with chameleon
Chameleon Attributes          attributes.


                              To determine carrier type—freight, passenger, household goods, or
Categorizing Carriers         multiple—we requested guidance from FMCSA officials. Following this
by Carrier Type               guidance, we took the following steps: (1) identified carrier types (freight,
                              passenger, household goods, and multiple operating authorities) for for-
                              hire carriers using the demo carrier summary table in the Licensing and
                              Insurance database; (2) identified private carriers with passenger and
                              household goods operating authorities using the operation classification,
                              cargo classification, and carrier equipment tables in the MCMIS database;
                              and (3) classified the remaining carriers as private freight carriers. For
                              some part of our analysis, we combined for-hire and private carriers to
                              yield four categories: passenger, household goods, freight, and multiple
                              (where “multiple” included any combination of passenger, household
                              goods, and freight).




                              Page 49                                          GAO-12-364 Motor Carrier Safety
Appendix III: Standards for Corporate
              Appendix III: Standards for Corporate
              Successor Liability



Successor Liability

              FMCSA takes a series of steps to investigate whether a new carrier is a
              chameleon—or in legal terminology, the corporate successor of a
              previous carrier that assumed a new identity to evade detection by the
              agency. Once FMCSA identifies a carrier as a potential chameleon carrier
              that was either ordered out-of-service or had enforcement action taken
              against it, FMCSA must demonstrate, by law, that the new carrier is the
              “corporate successor” of the old carrier in order for the liability of the old
              entity to attach to the new carrier. 1 This linkage allows FMCSA to deny or
              revoke operating authority or take enforcement action against the new
              carrier. 2

              The traditional common law rule of corporate successor liability states
              that a corporation that acquires all or part of the assets of another
              corporation does not acquire the liabilities and debts of the predecessor. 3
              However, there are four traditional and widely accepted exceptions to this
              rule. The majority of states follow the traditional rule for successor liability,
              subject to the four traditional exceptions. There is also a federal rule used
              to determine corporate successorship.

              Currently, the applicable standard FMCSA is required to follow to
              demonstrate corporate successorship is unclear. Laws pertaining to
              corporate successor liability vary among the states, and until 2006, U.S.
              Department of Transportation Administrative Law Judges applied the law
              of the state in which the action arose. In 2006, however, an Administrative
              Law Judge issued a decision—Williamson Transport Co., Inc.—holding
              that FMCSA should be using a federal standard to determine successor
              liability rather than the rule of a particular state. 4 Upon review, in 2009, an
              FMCSA Assistant Administrator issued a final order overruling this
              decision. 5 The Assistant Administrator determined that the federal


              1
               See Upholsterers’ Int’l Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d
              1323, 1325-1326 (7th Cir. 1990); In the matter of: Williamson Transport Co., Inc., Final
              Order: Decision on Review, Docket No. FMCSA-2004-17247 (Jan. 2009). See also 63
              Am. Jur. 2d. Products Liability § 119 (2011).
              2
               49 U.S.C. § 31144.
              3
               See, e.g., Bud Antle v. Eastern Foods, 758 F.2d 1451, 1456 (11th Cir. 1985); Mozingo v.
              Correct Mfg. Co., 752 F. 2d 168, 174 (5th Cir. 1985).
              4
               Williamson Transport Co., Inc., Docket No. FMCSA-2004-17247 (March 2006).
              5
               In the matter of: Williamson Transport Co., Inc., Final Order: Decision on Review, Docket
              No. FMCSA-2004-17247 (Jan. 2009).




              Page 50                                                    GAO-12-364 Motor Carrier Safety
                      Appendix III: Standards for Corporate
                      Successor Liability




                      standard was not the proper test for determining motor carrier successor
                      liability, and that state law should have been used instead. However, in
                      response to a petition for reconsideration, the Assistant Administrator
                      found that “it is not necessary in this case to determine whether the
                      standard…should be the traditional common law, the particular state law,
                      or the federal doctrine of ‘substantial continuity,’” because the claimant
                      (FMCSA) did not succeed under any standard. 6 This decision left an open
                      question as to which standard FMCSA should use to determine motor
                      carrier successor liability.


                      The Federal Standard. The federal doctrine of “substantial continuity” is
Standards for         an eight-pronged, judicially created test that attaches liability to a
Successor Liability   successor company if it (1) retains the same employees, (2) retains the
                      same supervisory panel, (3) retains the same production facilities in the
                      same location, (4) continues producing the same products, (5) retains the
                      same name, (6) maintains continuity of assets, (7) maintains continuity of
                      general business operations, or (8) holds itself out the public as a
                      continuation of the previous corporation. 7 FMCSA officials have stated
                      that not all of these prongs need to apply in a given case, but rather that
                      these are the different factors that are weighed equally in determining
                      whether “substantial continuity” is established.

                      State Standards. State corporate successor liability laws vary from state
                      to state, based either on case law within the state or, in some instances,
                      state legislation. 8 Most jurisdictions recognize the traditional rule for
                      successor liability, also referred to as the common law rule, as their state




                      6
                       In the matter of: Williamson Transport Co., Inc., Order Denying Petition for
                      Reconsideration, Docket No. FMCSA-2004-17247 (July 2010).
                      7
                       In the matter of: Williamson Transport Co., Inc., Final Order: Decision on Review, Docket
                      No. FMCSA-2004-17247 (January 2009) (citing United States v. Carolina Transformer
                      Company, 978 F.2d. 838 (4th Cir. 1992)).
                      8
                       Successor liability is a concept derived by courts from the common law. The general rule
                      was developed within the framework of corporate and tax law, but courts have routinely
                      applied it to commercial cases, torts, and products liability cases. Tim Orr, Not Just for
                      Contracts Anymore: Successor Liability, 17 S. Carolina Lawyer 32, 35 (2006). Additionally,
                      corporate successor laws apply in many different contexts, including, but not limited to,
                      corporate mergers, products liability, and negligence.




                      Page 51                                                    GAO-12-364 Motor Carrier Safety
Appendix III: Standards for Corporate
Successor Liability




standard. 9 This rule states that a corporation that acquires all or part of
the assets of another corporation does not acquire the liabilities and debts
of the predecessor, subject to several exceptions. 10 Most jurisdictions
also recognize four traditional exceptions:

1. The purchasing company explicitly or implicitly agrees to assume the
   debts or liabilities of the seller.

2. The transaction amounts to a consolidation or merger (or “de facto
   merger”).

3. The successor entity is a mere continuation of the predecessor entity
   (“mere continuation”). In most states, the key elements of mere
   continuation are a common identity of the officers, directors, and
   stockholders between the predecessor and successor. 11 This
   exception is aimed at owners or directors who may dissolve one
   company and begin another to avoid debts and liabilities. 12

4. The transaction was entered into fraudulently in order to escape
   liability. 13

When this state standard is applied, if an exception is met, the liability of
the predecessor will attach to the new corporation. For a suspected
chameleon, FMCSA must demonstrate that one of the exceptions is met
in order to attach the liabilities of the prior carrier to the new carrier,
including, for example, revoking the carrier’s operating authority or taking




9
 See Amjad Munim, M.D., P.A. v. Azar, 648 So.2d 145, 151 (Fla. Dist. Ct. App. 1994)
(recognizing that Florida follows the vast majority of jurisdictions in honoring the traditional
rule of corporate successor liability); Vernon v. Schuster, 179 Ill.2d 338, 345 (Ill.
1977)(stating that the traditional rule, along with the four exceptions, is recognized in the
majority of American jurisdictions).
10
    See Bud Antle v. Eastern Foods, 758 F.2d 1451, 1456 (11th Cir. 1985).
11
  Tim Orr, Not Just for Contracts Anymore: Successor Liability, 17 S. Carolina Lawyer 32,
36 (2006).
12
    Id.
13
  See, e.g., Bud Antle, Inc., 758 F.2d at 1456; Travis v. Harris Corp. 565 F.2d 443, 447
(7th Cir. 1977); Leannais v. Cincinnati, Inc. 565 F.2d 437, 439 (7th Cir. 1977); Ray v. Alad
Corporation, 560 P. 2d 3, at 7 (Cal. 1977).




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Appendix III: Standards for Corporate
Successor Liability




enforcement actions. 14 These exceptions delineate elements that must be
met in order for the exception to apply and for liability to attach to the new
corporation. FMCSA officials have told us that the agency typically uses
the “mere continuation” theory to attach liability to the successor carrier,
but other theories (such as “de facto merger” or “fraud”) may be used.

As noted previously, most jurisdictions follow the traditional principle of
successor liability along with the four traditional exceptions. 15 For
example, Florida, 16 Georgia, 17 Illinois, 18 New York, 19 and North Carolina 20
have adopted the traditional rule of successor liability and the four
traditional exceptions. In addition, a limited number of states have
adopted a nontraditional exception, the “continuity of enterprise”
exception. 21



14
  There are additional claims that FMCSA may pursue in an action against a reincarnated
carrier; for example, evasion of FMCSA regulations (49 U.S.C. § 14906).
15
  See, e.g., Amjad Munim, 648 So.2d at 151 (recognizing that Florida follows the vast
majority of jurisdictions in honoring the traditional rule of corporate successor liability);
Vernon v .Schuster, 179 Ill.2d 338, 345 (Ill. 1977) (stating that the traditional rule, along
with the four exceptions, is recognized in the majority of American jurisdictions).
16
  See, e.g., Amjad Munim, 648 So.2d 145 at 151; Patin v. Thoroughbred Motor Boats, 24
F.3d 640, 650-651 (5th Cir. 2002).
17
  See, e.g., Bullington v. Union Tool Corp., 328 S.E.2d 726 (Ga. 1985); Perimeter Realty
v. GAPI, Inc., 533 S.E.2d 136, 145-146 (Ga. Ct. App. 2000) (applying traditional definition
to a corporation’s acquisition of a partnership and rejecting its application to the facts of
the case). See also Bridge Capital Investors II v. Small, 144 Fed. Appx. 762, 764 (11th
Cir. 2005) (not for publication).
18
  Vernon v .Schuster, 179 Ill.2d 338 (Ill. 1977) (applying the traditional successor liability
rules in Illinois). See also Pielet v. Pielet, 942 N.E.2d 606, 636-640 (Ill. App. Ct. 2010)
(applying the traditional rule in Illinois).
19
  Schumacher v. Richards Shear Co., 451 N.E.2d 195 (N.Y. 1983)(applying traditional
rule and exceptions and refusing the invitation to adopt the “product line” or “continuity of
enterprise” exceptions). Meadows v. Amsted Industries, Inc., 760 N.Y.S.2d 604 (N.Y. App.
Div 2003) (applying traditional rules and exceptions to products liability and negligence
action); Mitchell v. Suburban Propane Gas Corp., 581 NY.S.2d 927 (N.Y. App. Div. 1992)
(applying traditional rule and two traditional exceptions); Morales v. City of New York, 849
N.Y.S.2d 406 (N.Y. Sup. Ct. 2007).
20
  G.P. Publications, Inc. v. Quebecor Printing, 481 S.E.2d 674 (N.C. Ct. App. 1997)
(applying traditional rules); Budd Tire Corp. v. Pierce Tire Corp., 370 S.E.2d 267 (N.C. Ct.
App. 1988).
21
   States have also applied a “product line” exception, but this only applies to product
liability actions, and therefore, is not applicable to FMCSA motor carrier successor liability.




Page 53                                                       GAO-12-364 Motor Carrier Safety
Appendix III: Standards for Corporate
Successor Liability




The “continuity of enterprise” exception uses factors similar to those used
in the federal “substantial continuity” standard. Factors other than the
traditional ones that are typically taken into account under this exception
are (1) retention of the same employees, (2) retention of the same
supervisory personnel, (3) retention of the same production facilities in
the same physical location, (4) production of the same product, (5)
retention of the same name, (6) continuity of assets, (7) continuity of
general business operations, and (8) whether the successor holds itself
out as the continuation of the previous enterprise. 22

In addition, there are states that have enacted legislation in place of
traditional common law rules and exceptions. For example, Texas has
enacted a statutory provision overriding the traditional rules and
exceptions. Under Texas law, an acquiring entity may not be held
responsible or liable for any obligations or liabilities of the transferring
domestic entity unless they are expressly assumed by the person. 23 Table
8 provides a list of the successor liability laws in the 10 states we
examined.




22
 Mozingo, 752 F. 2d at 175.
23
  Tex. Bus. Orgs. Code Ann. § 10.254(b). See Ford Bacon & Davis, L.L.C. v. Travelers
Insurance Co., 635 F.3d 734 (5th Cir. 2011)(applying revised Texas statute in refusing to
adopt product line exception). See also C.M. Asfahl Agency v. Tensor, Inc., 135 S.W.3d
768 (Tex. App. 2004) (applying statute and finding no liability because it was not expressly
assumed by the successor).




Page 54                                                    GAO-12-364 Motor Carrier Safety
Appendix III: Standards for Corporate
Successor Liability




Table 8: Ten Selected States’ Corporate Successor Liability Rules

                         Follows traditional Follows traditional rules      Applies
                              rules and        and exceptions plus       “continuity of
 State                    exceptions only    nontraditional exceptions enterprise” theory
 California                                                   •
 Florida                         •
 Georgia                         •
 Illinois                        •
 Michigan                                                     •                            •
 New Jersey                                                   •
 New York                        •
 North Carolina                  •
 Pennsylvania                                                 •
         a
 Texas
Source: GAO and FMCSA.
a
 As stated previously, Texas has adopted a statute that only holds an acquiring entity liable for any
obligations or liabilities of the transferring domestic entity when they are expressly assumed by the
person. Tex. Bus. Orgs. Code Ann. § 10.254(b).




Page 55                                                            GAO-12-364 Motor Carrier Safety
Appendix IV: GAO Contact and Staff
                  Appendix IV: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Susan A. Fleming, (202) 512-2834 or flemings@gao.gov
GAO Contact
                  In addition to the individual named above, H. Brandon Haller (Assistant
Staff             Director), Russ Burnett, Lauren Calhoun, Matt Cook, Bess Eisenstadt,
Acknowledgments   Colin Fallon, David Hooper, Cathy Hurley, Steve Martinez, Anh Nguyen,
                  and Josh Ormond made key contributions to this report.




(541079)
                  Page 56                                        GAO-12-364 Motor Carrier Safety
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