oversight

Customs Service Modernization: Impact of New Trade Compliance Strategy Needs to Be Assessed

Published by the Government Accountability Office on 1999-12-15.

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

                United States General Accounting Office

GAO             Report to the Chairman, Subcommittee
                on Trade, Committee on Ways and
                Means, House of Representatives


December 1999

                CUSTOMS SERVICE
                MODERNIZATION
                Impact of New Trade
                Compliance Strategy
                Needs to Be Assessed




GAO/GGD-00-23
United States General Accounting Office                                          General Government Division
Washington, D.C. 20548




                                    B-280470
                                    December 15, 1999

                                    The Honorable Philip M. Crane
                                    Chairman, Subcommittee on Trade
                                    Committee on Ways and Means
                                    House of Representatives

                                    Dear Mr. Chairman:

                                    To speed the processing of imports and improve compliance with trade
                                    laws, Congress enacted Title VI of the North American Free Trade
                                                                                            1
                                    Agreement Implementation Act on December 8, 1993. The Customs
                                    Service refers to this legislation as the Customs Modernization and
                                    Informed Compliance Act or Mod Act. The Mod Act fundamentally altered
                                    the relationship between importers and Customs by shifting from Customs
                                    to the importer the legal responsibility for declaring the value,
                                    classification, and rate of duty applicable to merchandise being imported
                                    into the United States. Customs is responsible for determining the final
                                    classification and value of the merchandise. The Mod Act also gave
                                    Customs and importers a shared responsibility for ensuring compliance
                                    with trade laws. To implement these new responsibilities, Customs
                                    developed an informed compliance strategy.

                                    You asked us to (1) assess the status of Customs’ implementation of the
                                    informed compliance strategy and (2) determine whether trade
                                    compliance under the new program had improved. We addressed these
                                    two objectives for five key initiatives and actions under the informed
                                    compliance strategy:

                                 • information programs: basic, and targeted to specific imported
                                   commodities;

                                 • compliance measurement: a process of physical inspections of
                                   merchandise and/or entry documentation to determine the rate of
                                   compliance;

                                 • compliance assessment: a mechanism by which Customs evaluates a
                                   company’s internal control systems to ensure that they promote the filing
                                   of import paperwork that is in compliance with laws and regulations;

                                    1
                                        Public Law 103-182.




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                   • account management: Customs’ approach to managing its work through
                     accounts (importing companies) rather than individual import
                     transactions; and

                   • Customs’ responses to noncompliance by importers.

                     We performed our work at Customs headquarters in Washington, D.C., and
                     at two ports of entry—Los Angeles/Long Beach, CA; and Seattle, WA. We
                     also interviewed selected importers to obtain their views about Customs’
                     efforts in implementing the informed compliance strategy. Appendix I
                     more fully describes the methodology we followed in reviewing each of the
                     key initiatives and actions. We performed our work between June 1998 and
                     September 1999 in accordance with generally accepted government
                     auditing standards.

                     Compliance data suggest that the key initiatives and actions that make up
Results in Brief     Customs’ informed compliance strategy have not yet produced the benefits
                     that were expected. Trade compliance rates have remained static at about
                     81 percent, short of Customs’ 90-percent goal. In addition, revenue
                     collection rates have decreased from 99.37 percent in fiscal year 1995 to
                     98.35 percent in fiscal year 1998. This resulted in projected net revenue
                     underpayments increasing from $135 million in fiscal year 1995 to $343
                     million in fiscal year 1998.

                     Among the reasons for these results may be that Customs has not
                     implemented three of the key initiatives and actions to the extent or at the
                     pace that it had expected. Two of the five—information programs and
                     compliance measurement—are fully operational. However, compliance
                     assessment, account management, and Customs’ responses to
                     noncompliant importers have been implemented but have not yet reached
                     many of the intended importers.

                     In compliance assessment, Customs expected to complete assessments for
                     2,100 importers in 8 to 10 years at a rate of about 210 to 263 annually;
                     however, it completed only 209 assessments from October 1, 1995, through
                     March 31, 1999. In account management, Customs identified 7,405
                     importers as potential candidates for its account management program.
                     From fiscal year 1995 through fiscal year 1999, Customs had assigned
                     account managers to 604 importers. Customs has not determined the
                     specific level of resources necessary to assign account managers to the
                     pool of candidate importers; but believes that with current resources, it
                     will not be able to assign account managers to all candidates in the pool.




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             In responding to noncompliant importers, Customs has had limited
             success in increasing compliance. Its efforts to raise compliance rates in
             selected industries led to an initial increase in the rates, followed by a
             decrease, and ended with the fiscal year 1998 compliance rates falling
             below Customs’ goal. Its efforts to deal with about 45 importers that have
             the most serious ongoing compliance problems have included a variety of
             actions but have not included penalty enforcement actions, such as
             seizures or fines. Few of these importers have improved their compliance
             rates enough to meet Customs’ 90-percent goal.

             Customs cited the lack of sufficient staff resources as a major reason for
             shortfalls in implementing the compliance assessment and account
             management programs to the extent or at the pace intended. Customs also
             noted that as it implemented the compliance measurement system and
             introduced new analytical tools, staff have become more astute at finding
             noncompliance.

             Although Customs has monitored and evaluated certain aspects of the key
             initiatives and actions, it has not evaluated, nor does it have a plan to
             evaluate, the impact on compliance of the overall informed compliance
             strategy. However, such an evaluation seems appropriate to address the
             concerns raised by our analysis of the impact of the compliance
             assessment initiative on the compliance rates for 59 importers. The overall
             improvement in these importers’ compliance rates after compliance
             assessment was less than Customs expected. The limited extent or pace of
             implementation of some aspects of the strategy and our findings
             concerning compliance rates for the 59 importers raise fundamental
             questions about the informed compliance strategy. We make a
             recommendation to Customs to address these questions.

             Customs’ mission is to (1) ensure that merchandise and persons entering
Background   and exiting the United States do so in compliance with U.S. laws and
             regulations and (2) collect revenue from international trade. Customs
             collected $22.1 billion in revenue at more than 300 ports of entry in fiscal
             year 1998. Customs performs its mission with a workforce of nearly 20,000
             personnel at its headquarters, 20 Customs Management Centers, 20
             investigative offices, 5 Strategic Trade Centers, and 301 ports of entry
             around the country.

             Customs established a two-step procedure to process merchandise
             imported into the United States. During the first step, known as cargo
             release, Customs assumes direct control of the merchandise and uses an
             inspection process to verify that the cargo meets import requirements and



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is properly and accurately documented. When Customs determines that
these requirements have been met, the cargo is released. During the
second step, referred to as entry summary, Customs selects for review
some of the detailed paperwork that has been submitted by the importer.
Customs subsequently liquidates the importation (completes the
transaction) after determining that the appropriate import duty has been
paid.

Although cargo release and entry summary are Customs’ major programs
for ensuring compliance with trade laws, its commercial fraud, fines,
penalties, and forfeitures program is its major weapon against violators of
                                                        2
these laws. Customs also assesses liquidated damages when an importer
does not comply with regulations. Civil monetary penalties, on the other
hand, are assessed for violations, such as misclassification, knowingly
falsifying the country of origin, and other fraudulent acts. Customs usually
takes seizure actions when merchandise is illegal or not admissible to the
United States.

Although Customs agents, inspectors, and import specialists assess
penalties and make seizures, it is the Fines, Penalties, and Forfeitures
offices that are responsible for administrative processing and tracking of
all liquidated damages, penalty, and seizure cases. Customs has been
performing these activities for many years, long before the Mod Act, and
continues to perform them in addition to its informed compliance efforts.

For over 15 years, Customs has used its Automated Commercial System
(ACS) to store and process import information and to manage import-
                                                                              3
related activities, such as collecting revenue and capturing trade statistics.
ACS allows Customs to identify, track, and control imported merchandise
during cargo release and entry summary liquidation processing. It also
allows Customs to retrieve import information whenever needed.




2
 Liquidated damages are monetary assessments made for breach of one or more conditions in bonds
posted with Customs to ensure protection of the revenue or to guarantee compliance with laws and
regulations administered by Customs.
3
Customs is in the process of developing a replacement for ACS, called the Automated Commercial
Environment (ACE).




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                             In the late 1980s, Customs recognized the need to overhaul, streamline,
The Customs                  and update its automated data processing capabilities and reorient its
Modernization and                                 4
                             business processes. Customs also realized that it needed to work with the
Informed Compliance          trade community and Congress to forge legislation for meaningful change.
                             After several attempts, compromise legislation acceptable to Customs,
Act                          Congress, and the trade community was developed. This legislation, the
                             Customs Modernization and Informed Compliance Act or Mod Act, which
                             allowed Customs to automate its processes incrementally and allowed
                             Customs to be flexible and innovative in redesigning its business
                             processes, became law on December 8, 1993, as Title VI of the North
                             American Free Trade Agreement Implementation Act.

                             The Mod Act introduced two new concepts: informed compliance and
                             shared responsibility. These concepts were premised on the theory that in
                             order to maximize voluntary compliance with Customs laws and
                             regulations, the trade community needed to be fully and completely
                             informed of its legal obligations. In addition, Customs was to effectively
                             communicate its requirements to the trade community, and the people and
                             businesses subject to those requirements were to conduct their regulated
                             activities in conformance with U.S. laws and regulations. The trade
                             community was to use reasonable care in meeting its responsibilities.
                             According to Customs, there is a general consensus that a “black and
                             white” definition of reasonable care is impossible because the concept of
                             acting with reasonable care depends upon individual circumstances. In
                             lieu of a definition, Customs has issued a checklist of measures for
                             importers to use as guidance in meeting the reasonable care requirements.

Customs’ Implementation of   Most import activity is attributable to a relatively small group of importers.
                             In fiscal year 1998, Customs processed shipments with a total value of
the Mod Act                  about $897 billion for more than 443,000 commercial importers. Only 1,000
                             of these importers, or less than 1 percent, accounted for about 60 percent
                             of import value—a total of $538 billion. These percentages have remained
                             fairly constant for several years, at least since fiscal year 1996. Customs
                             determined that these top 1,000 importers are in a position to have a
                             significant impact on trade compliance rates and introduced a “big player
                             focus” towards trade compliance.

                             In addition to big players, Customs directed its trade compliance efforts
                             toward primary focus industries (PFIs). Customs selected industries as
                             4
                              We will not be discussing the automation aspects of the Mod Act in this report. ACE is addressed in
                             our report entitled Customs Service Modernization: Serious Management and Technical Weaknesses
                             Must Be Corrected (GAO/AIMD-99-41, Feb. 26, 1999). Customs’ core business processes are trade
                             compliance (imports), passenger processing, and outbound (exports).




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                        PFIs if they were considered vital to U.S. national interest on the basis of a
                        number of factors, including strategic importance, international trade
                        agreements, health and safety, and economic concerns. For fiscal year
                        1998, Customs selected the following PFIs for trade compliance attention:

                      • Agricultural Products,

                      • Automotive,

                      • Communications,

                      • Critical Components (Bearings and Fasteners),

                      • Footwear,

                      • Production Equipment,

                      • Steel, and

                      • Textiles and Wearing Apparel.

                        In addition to focusing on big players and PFIs, Customs developed and
                        implemented several key initiatives and actions as part of its informed
                        compliance strategy, including (1) information programs, (2) compliance
                        measurement, (3) compliance assessment, (4) account management, and
                        (5) responses to noncompliance. The remainder of this report will discuss
                        these five initiatives and actions, Customs’ implementation of them, and
                        their results.

                        Providing information to importers to inform them about trade laws,
Customs Provided        regulations, and Customs policies and procedures is not new; it has been
Informed Compliance     going on for years. However, under its informed compliance strategy,
Information to          developed as a result of the Mod Act, Customs enhanced its basic
                        information program and developed a new targeted information program
Importers               to provide the importing community with relevant information concerning
                        its responsibilities and rights under Customs laws and regulations.

                        Through these two programs, Customs provided importers with extensive
                        information using the Internet, an electronic bulletin board, seminars, and
                        informed compliance publications on such topics as value, classification,
                        reasonable care, and recordkeeping requirements. Ports of entry around
                        the country also provided informed compliance information to their local
                        importing communities. Limited feedback that we obtained from several



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                              major importers indicated overall satisfaction with Customs’ informed
                              compliance information efforts.

Basic Information Program     According to the Commissioner of Customs’ May 1996 memorandum for
                              trade community members on informed compliance strategy, the basic
                              information program was intended for all parties involved in importing.
                              Using the program, Customs would

                            • continue to issue rulings on the proper classification of imported
                              merchandise;

                            • give the trade community an opportunity to comment on draft regulatory
                              documents by posting the documents on the Customs Electronic Bulletin
                              Board (CEBB);

                            • establish an educational outreach program to educate the trade
                              community on Mod Act responsibilities;

                            • establish a Customs Web server for dissemination of Customs information
                              via the Internet;

                            • increase the knowledge of Customs staff through internal and external
                              Customs seminars; and

                            • consider making information, such as Customs Bulletins, notices, and
                              directives, available via CD-ROM.

                              In accordance with its informed compliance strategy, we found that in
                              calendar year 1998, Customs had issued over 13,000 rulings, posted 7 draft
                              regulatory documents to the CEBB for public comment, and developed 13
                              informed compliance publications. In addition, in fiscal year 1998,
                              Customs conducted over 130 internal and external educational seminars.

                              Customs established its Web site on the Internet in August 1996, recording
                              1.5 million visits to the site in its initial year. Customs chose not to pursue
                              distribution of such information as Customs Bulletins, notices, directives,
                              and other informed compliance materials by CD-ROM because the
                              information became accessible once the Web site was established.

                              The CEBB was established in January 1991 to provide importers access to
                              current, relevant Customs operations and trade information. Enhanced for
                              informed compliance purposes, news releases, rulings, and about 25 other




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                         subject areas can be accessed through the CEBB. Almost all information
                         on the CEBB can also be accessed through the Customs Web site.

                         In March 1999, we accessed CEBB files through the Web site and found
                         that one subject area, Mod Act Information, contained 70 information files,
                         including draft and final regulations, Customs’ informed compliance
                         strategy, and numerous informed compliance publications. These files
                         included, for example, informed compliance publications that discussed
                         reasonable care and recordkeeping requirements. According to Customs,
                         the CEBB will eventually be phased out and all data integrated into the
                         Web site.

                         The Customs Web site contains an extensive array of information,
                         including regulations and rulings, merchandise tariff classification and
                         entry procedures, marking requirements, and informed compliance
                         strategy and publications. Web page selections include such topics as
                         “About U.S. Customs” and “Importing and Exporting.” As of April 1999,
                         over 10.6 million visits to Customs’ Web site had been recorded since it
                         was established in August 1996.

                         As part of its efforts to educate the importing community on its
                         responsibilities, Customs developed an informed compliance publication
                         series. The publication series entitled “What Every Member of the Trade
                         Community Should Know About:***” addressed trade issues, such as
                         merchandise classification, customs value, and reasonable care. Thirty-
                         four trade topics have been covered in this series since its inception in
                         1996. Customs received positive feedback from the trade community about
                         this series and its applicability toward understanding informed compliance
                         responsibilities.

Targeted Information     According to the Commissioner’s May 1996 memorandum, the targeted
                         information program was designed to provide information and assistance
Program                  to the importers beyond that provided through the basic program. The
                         targeted information program was primarily aimed at industries and
                         certain trade segments that required special efforts to deal with
                         compliance issues. The targeted information programs used a variety of
                         communication methods, including

                       • development and distribution of industry- and/or commodity-specific
                         publications,

                       • seminars and industry association sponsored meetings,




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                          • importer visits, and

                          • videotapes.

                            Customs has produced a number of commodity- and industry-specific
                            publications under its “What Every Member of the Trade Community
                            Should Know About:***” series. In fiscal year 1998, such publications as
                            Ribbons & Trimmings, Footwear, and Lamps, Lighting and Candle Holders
                            were issued as guides to help with classification of these commodities.

                            Customs also produced newsletters and other publications for specific
                            industries. One newsletter entitled Production Equipment Trade Educator
                            focused on classification and valuation of production equipment. Another
                            was The Auto Book: A Practical Guide to Classification of Vehicles, Parts
                            and Accessories under the Harmonized Tariff Schedule, geared, of course,
                            to the auto industry.

                            In addition, Customs officials made 69 presentations to the trade
                            community across the country on specific topics, such as bearings,
                            production equipment, and wood products. Presentations were made at
                            industry association meetings, ports of entry, and trade conferences.
                            Customs did not request formal feedback from the trade community as a
                            means of assessing satisfaction with the information presented at its
                            seminars. However, Customs officials told us that they had received letters
                            from the trade community that were complimentary of the presentations
                            and the usefulness of the information provided.

                            Furthermore, Customs officials visited many importers to discuss new
                            programs and initiatives and to provide instructions on how to properly
                            classify imported merchandise. Customs did not compile information on
                            the number of visits made to importers. Customs also issued three videos
                            on topics considered of high interest to the trade community: Account
                            Management, Informed Compliance, and Textile Rules of Origin.

Ports of Entry Informed     According to the Commissioner’s May 1996 memorandum, ports of entry
                            were also to develop and implement informed compliance activities to
Compliance Activities       ensure that the local trade community was informed of trade laws and
                            regulations and Customs policies and procedures.

                            We visited two ports of entry, Seattle, WA; and Los Angeles, CA, to gain an
                            understanding of local informed compliance activities. The Seattle port of
                            entry




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                           • published a trade newsletter,

                           • held monthly meetings to discuss issues of concern to the importing
                             community,

                           • held port-sponsored seminars and workshops several times a year,

                           • held open house events and tours to meet and greet trade representatives,
                             and

                           • visited importers to promote informed compliance activities.

                             The Port of Los Angeles (Los Angeles Airport and the Los Angeles/Long
                             Beach Seaport)

                           • issued public bulletins to notify the trade community of activities and
                             administrative changes,

                           • held monthly and quarterly meetings with importing trade associations,

                           • held port-sponsored seminars, and

                           • held open house events that included a tour of the airport Customs facility.

                             Customs officials told us that although specific documentation was not
                             compiled, ports of entry across the country have been involved in
                             informed compliance activities. The officials stated that some ports,
                             however, were more proactive than others and had organized numerous
                             activities; others had few activities.
                                                                                                                   5
Selected Importers           As part of our review, we asked for the views of nine importers regarding
                             the basic and targeted information programs. We asked the importers a
Generally Satisfied With     series of questions, including whether (1) they used the Customs Web site,
Customs’ Informed            (2) Customs seminars they attended were informative, and (3) they felt
Compliance Information       that Customs was doing a good job providing information to assist them to
Programs                     voluntarily comply with Customs laws and regulations.

                             All nine importers we interviewed responded that they thought the Web
                             site was very useful as well as a great source of information. The importers
                             said that they checked the Web site frequently for relevant, current
                             information. Some importers also commented, however, that although the
                             5
                                 Appendix I provides information on how the nine importers interviewed by GAO were selected.




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                            Web site provides importers greater access to Customs information, there
                            is a great deal of information to sort through to find what may be relevant
                            to a company. Many importers also stated that Customs’ presentations at
                            various seminars were generally informative. A few of the importers
                            suggested that Customs act more quickly in holding seminars, once new
                            changes or new programs were introduced. Several of the importers we
                            interviewed commented that the publications were informative and
                            provided a good source of basic level information. Overall, importers we
                            interviewed said Customs’ efforts to provide the trade community with
                            adequate and timely information were generally sufficient, and its efforts
                            to keep the trade community informed had improved since the Mod Act.

                            In response to Mod Act requirements, Customs began in fiscal year 1995 to
Compliance                  measure and report to Congress on the importing community’s level of
Measurement Results         compliance with trade laws and regulations. In fiscal year 1996, Customs
Indicate That Trade         established goals to attain overall trade compliance rates of 90 percent and
                            PFI compliance rates of 95 percent by fiscal year 1999. Overall trade
Compliance and              compliance rates, however, have remained static at about 81 percent from
Revenue Collection          fiscal year 1995 through fiscal year 1998. PFI rates have also remained
Goals Have Not Been         static at nearly 84 percent from fiscal year 1996 through fiscal year 1998.
Met                         Customs recently extended both goals out to fiscal year 2004.

                            Customs also established a goal to collect at least 99 percent of revenue
                            due, which was last achieved in fiscal year 1996. Projected revenue
                            collection rates have decreased from 99.37 percent in fiscal year 1995 to
                            98.35 percent in fiscal year 1998. This amounts to projected net revenue
                            underpayments increasing from $135 million in fiscal year 1995 to $343
                            million in fiscal year 1998.

Description of Compliance   Customs describes compliance measurement as a process of physical
                                                                                      6
                            inspections of merchandise and/or Customs entry summary
Measurement                 documentation reviews to determine the compliance rate of transactions.
                                                                                  7
                            Compliance measurement is a statistically valid method of determining
                            compliance by means of examinations that are based on Harmonized Tariff



                            6
                             Merchandise arriving at a U.S. port must be “entered” with Customs unless specifically exempted.
                            “Entry” refers to the required documentation filed with Customs to secure the release of imported
                            cargo from Customs’ custody.
                            7
                             We performed a limited review of Customs’ statistical sampling methodologies used in fiscal years
                            1995 through 1998. From our discussions with Customs statisticians and an analysis of the sampling
                            methodologies, we are satisfied that the methodologies are reasonable, and the estimates of
                            compliance rates based on the methodologies appear statistically valid as reported.




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                                       8
                           Schedule classifications. Compliance measurement results enable
                           Customs to assess the performance of major industries, including PFIs,
                           major importers, and its own performance concerning revenue collection
                           and enforcement of trade laws. According to Customs, compliance
                           measurement also provides the basis for working with importers in
                           improving their compliance and in developing and implementing Customs’
                           strategies to improve compliance.

Customs Modifications to   In response to Mod Act requirements, Customs established the compliance
                           measurement program on April 7, 1994. During fiscal year 1994, Customs
the Compliance             trained port personnel responsible for conducting cargo inspections and
Measurement Program        document reviews and measured the compliance of 15 industries in
                           preparation for overall program implementation. In fiscal year 1995,
                           Customs conducted the first national compliance measurement of imports
                           across the entire spectrum of the Harmonized Tariff Schedule to establish
                           a compliance baseline for use in comparisons with future measurement
                           and projections.

                           Customs began to focus compliance measurement efforts on PFIs during
                           fiscal year 1996 to determine compliance rates for specific industries
                           importing automobiles, bearings, and textiles, among other commodities
                           and merchandise; and to direct informed compliance efforts, such as
                           seminars, toward targeted industries experiencing low trade compliance.
                           During fiscal year 1997, Customs linked compliance assessment results
                           with compliance measurement results to improve its capability to measure
                           and identify noncompliance. This improvement was designed to allow
                           Customs to perform a minimum number of inspections on compliant
                           importers and an increased number of inspections on noncompliant
                           importers.

                           In its fiscal year 1998 Trade Compliance Measurement Report, Customs
                           introduced the concept of significance into the compliance measurement
                           process. Customs applied criteria to violations discovered during
                           compliance measurement examinations and document reviews to
                           differentiate between discrepancies, such as clerical errors, and more
                           egregious or willful violations, including narcotics smuggling and
                           intellectual property rights infringement. Measuring a violation’s
                           significance allows Customs to focus its resources on the most significant
                           trade violations.

                           8
                            The Harmonized Tariff Schedule is a 97-chapter catalogue of 1,200 4-digit tariff numbers designed to
                           enable importers, customs brokers, customs officers, and other interested persons to determine the
                           classification of and rates of duty applicable to imported articles.




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Compliance Rates Remain                Since Customs started measuring and reporting compliance, overall and
                                       PFI compliance rates have remained static from fiscal year 1995 through
Static                                 fiscal year 1998 (see fig. 1). Customs officials attributed the static
                                       compliance rates, in part, to Customs’ increasing ability to detect
                                       noncompliance by conducting more thorough and uniform cargo
                                       examinations and document reviews and using sophisticated analytical
                                       tools. Customs officials explained that the more familiar inspectors and
                                       import specialists became with cargo inspected for compliance
                                       measurement, the more likely they were to detect discrepancies. Customs
                                       also credited the use of sophisticated analytical tools to analyze
                                       compliance measurement data, develop importer compliance profiles, and
                                       identify potential trends of noncompliance. According to Customs
                                       officials, these analytical tools greatly enhanced Customs’ ability to detect
                                       and react to trends indicating potential noncompliance that may otherwise
                                       have remained undetected.

Figure 1: Compliance Rates Have
Remained Static Between Fiscal Years
1995 and 1998




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                        Sources: U.S. Customs Service Commercial Compliance Measurement Report, fiscal year 1995 and
                        U.S. Customs Service Trade Compliance Measurement Report, fiscal years 1996-1998.


                        The conclusions of a Customs analysis of the auto/truck parts industry,
                        however, may provide another explanation for static compliance rates. The
                        analysis indicated that importers too small to justify the level of attention
                        Customs affords large importers—for example, providing account
                        managers or compliance assessments—had the lowest aggregate
                        compliance rate and generated a disproportionate share of compliance
                        discrepancies within the industry. The analysis concluded that unless the
                        aggregate compliance rate for small companies improves dramatically,
                        auto/truck parts industry compliance may never rise above 89 percent
                        even if the compliance rate for large companies rises to 95 percent. It also
                        concluded that Customs must pursue the challenge of raising small
                        company compliance within the auto/truck parts industry.

                        In addition, Customs acknowledged, in its fiscal years 1997 and 1998
                        Accountability Reports, that its goal of achieving 90 percent overall
                        compliance and 95 percent for PFIs by 1999 as originally planned, and later
                        adjusted to the year 2000, was overly optimistic. According to its Fiscal
                        Year 2000 President’s Budget Justification Materials, Customs anticipates
                        achieving both goals by fiscal year 2004 but acknowledged that further
                        adjustments may be needed as more experience is gained. Customs
                        officials stated that these goals are also dependent on budgetary resources
                        and automation funding.

Applying Significance   Customs reported an overall compliance rate and a significance
                        compliance rate in its 1998 Trade Compliance Measurement Report. The
Criteria Changes        89 percent significance compliance rate was higher than the 81 percent
Compliance Rate         overall compliance rate. Customs stated that for compliance measurement,
                        a discrepancy is indicated whenever any of the diverse trade laws,
                        regulations, and agreements are violated. This is, in effect, a “letter-of-the-
                        law” definition of discrepancy that has been used since the beginning of
                        compliance measurement.

                        In an attempt to increase the relevance of compliance measurement,
                        however, Customs established a task force in 1997 to review the
                        discrepancy definitions and apply a standard for significance. The task
                        force identified criteria to distinguish major discrepancies involving illegal
                        narcotics, intellectual property rights, and forced labor violations, among
                        others, which Customs always considers significant, from nonmajor
                        discrepancies such as clerical errors. Customs applied its standard for
                        significance to the compliance measurement process to identify and



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                                  address major compliance problems before considering less important or
                                  inconsequential issues.

                                  Customs officials told us that they intend to continue compiling and
                                  reporting both overall and significance compliance rates and would not
                                  limit their compliance measurement program to one or the other. The
                                  officials did, however, expect to have an internal dialogue about the
                                  significance discrepancy definition applied to compliance rates and its
                                  place and use in compliance measurement.

Projected Revenue                 Although compliance rates have remained static from fiscal years 1995 to
                                  1998, projected revenue collection rates have decreased for the same
Collection Rates Have             period, from 99.37 percent in fiscal year 1995 to 98.35 percent in fiscal year
Decreased, and Projected          1998. This decrease amounted to projected net revenue underpayments
Net Revenue                       increasing from $135 million in fiscal year 1995 to $343 million in fiscal
Underpayments Have                year 1998 (see fig. 2).
Increased

Figure 2: Projected Net Revenue
Underpayments Have Increased




                                  Sources: U.S. Customs Service 1996 Annual Report and U.S. Customs Service Accountability
                                  Report, fiscal year 1998.




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                      The projected revenue collection rates decreased and the projected net
                      revenue underpayments increased while total gross revenue collections
                      dropped from $23.1 billion to $22.1 billion during this time period. In its
                      fiscal year 1997 Accountability Report, Customs attributes the increase in
                      projected net revenue underpayments to refinements in accumulating and
                      projecting revenue data. Customs officials said that they were trying to
                      reverse the situation but did not provide information about any steps that
                      they were taking.

                      A compliance assessment is a review of an importing company’s Customs
Compliance            systems and procedures, including internal controls, to ensure that the
Assessments Behind    imports are in compliance with U.S. laws and regulations. The goal is to
Schedule and Impact   ensure maximum compliance.
Not Yet Evaluated     In fiscal year 1997, Customs estimated that it would take 8 to 10 years to
                      complete compliance assessments at the top 2,100 importers based on the
                      value of imports. However, because Customs completed only 209
                      compliance assessments from fiscal year 1996 through March 31, 1999, it
                      appears unlikely that Customs will be able to achieve that goal. To
                      expedite the lengthy compliance assessment process, Customs
                      implemented a revised approach in July 1999, but it is too early to
                      determine the impact of the revisions on Customs’ ability to meet its goal.

                      Customs began conducting follow-up reviews at importers who had
                      received compliance assessments in fiscal year 1998. The reviews were
                      intended to determine whether importers had taken corrective action to
                      improve their internal controls over imports and had improved
                      compliance. However, Customs has not yet developed a methodology for
                      evaluating the overall impact of compliance assessments on importer
                      compliance with U.S. laws and regulations.

                      Our analysis of 59 importers that had compliance assessments completed
                      by the end of fiscal year 1997 raised some concerns about the impact of
                      compliance assessments on overall compliance rates. In many cases, the
                      compliance rates for the 59 individual importers were based on few
                      examinations and were therefore not statistically valid, but they serve as
                      indicators that compliance assessments may not be maximizing
                      compliance at many importers that have received them. This analysis
                      showed that from fiscal year 1996 to fiscal year 1998, compliance
                      worsened for 20, improved for 27, and stayed the same for 4. Eight
                      importers already were in full compliance, and they stayed that way.




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Overview of Compliance      For many years, Customs has conducted regulatory audits of importer
                            records to verify compliance with U.S. laws and regulations. In October
Assessment Process          1995, Customs implemented a different kind of audit—compliance
                            assessments. The primary focus of regulatory audits is to identify lost
                            revenue and the primary focus of compliance assessments is to work with
                            importers to ensure that their imports comply with U.S. laws and
                            regulations. The Regulatory Audit Division is responsible for performing
                            compliance assessments with assistance from import specialists, account
                            managers (if assigned), and other staff, as needed.

                            Compliance assessments include evaluating an importer’s operating
                            practices and internal controls supporting its Customs-related activities.
                            Assessments also include statistical sampling of entry transactions from
                            the importer’s previous fiscal year. Each assessment involves a minimum
                            review of compliance in five trade areas (classification, value, quantity,
                                                                         9
                            special duty provisions, and recordkeeping). The findings of compliance
                            assessments are to be used to determine the frequency of future
                            compliance measurement examinations. Companies are categorized as
                            low, moderate, or high risk on the basis of compliance assessment results.
                            According to Customs, poor compliance would mean higher risk and
                            therefore more examinations.

                            When a compliance assessment indicates the need for corrective action to
                            ensure compliance, the importer is to be asked to prepare and implement a
                            Compliance Improvement Plan. These plans are to outline the specific
                            deficiencies that the importer needs to correct, how the operating
                            practices and internal controls will be changed, and the time frame for
                            taking corrective action. According to Customs, follow-up reviews are
                            conducted to (1) verify that corrective action was completed and
                            compliance improved and (2) determine whether the risk category can be
                            changed and the number of examinations reduced.

Customs Behind Schedule     Customs targeted the top 1,000 importers on the basis of the value of
                            imports and the top 250 importers by value in each of the 8 PFIs to receive
for Completing Compliance   compliance assessments; about 2,100 importers altogether. As of March 31,
Assessments                 1999, Customs had completed 209 compliance assessments (see table 1),
                            and another 164 had been initiated.
                            9
                             Transactions are checked to ensure that merchandise was appropriately classified by type using the
                            U.S. harmonized tariff system; and the entered value includes the purchase price, packing costs, and
                            other costs as defined by Customs. Quantity is checked to ensure that the quantity entered agrees with
                            the amount in the importer’s inventory or receiving records. Special duty provisions include checking
                            compliance with trade agreements, such as the North American Free Trade Agreement when the
                            annual import value is less than $10 million. Recordkeeping is tested to make sure the importer
                            maintains and can produce records in accordance with U.S. laws and regulations.




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Table 1: Compliance Assessments
Completed as of March 31, 1999, by                                                                         Number of compliance
Primary Focus Industry               Industry                                                             assessments completed
                                     PFI
                                     Agriculture                                                                                        6
                                     Automotive                                                                                        41
                                     Critical components (bearings and fasteners)                                                      16
                                     Communications                                                                                    36
                                     Footwear                                                                                          13
                                     Production equipment                                                                              19
                                     Steel                                                                                             14
                                     Textiles and wearing apparel                                                                      47
                                     Non-PFI                                                                                           17
                                     Totals                                                                                           209
                                     Source: GAO analysis of data provided by Customs’ Regulatory Audit Division.


                                     In fiscal year 1997 Customs estimated that it would take 8 to 10 years to
                                     complete the 2,100 compliance assessments with the existing staff and a
                                     completion rate of about 210 to 263 compliance assessments annually.
                                     However, Customs has not been able to complete nearly that number of
                                     assessments annually; 15 were completed in fiscal year 1996, 61 were
                                     completed in fiscal year 1997, and 92 were completed in fiscal year 1998.

                                     In both the fiscal year 1999 and 2000 budget submissions, Customs
                                     requested 100 additional auditors to perform compliance assessments.
                                     According to the narrative justifying these requests, 250 additional auditors
                                     over the current 400 were needed to put compliance assessments on a
                                     periodic cycle that will allow them to conduct assessments at targeted
                                     importers once every 5 years. Customs requested 100 new auditors
                                     because that is the optimum number that Customs believes it can train and
                                     assimilate into the program at one time. The Treasury Department
                                     approved the fiscal year 1999 budget request for 100 additional auditors,
                                     but the Office of Management and Budget did not. The Treasury
                                     Department did not approve the fiscal year 2000 budget request. Customs
                                     was planning to include 100 additional auditors to perform compliance
                                     assessments in the fiscal year 2001 budget request.

Compliance Assessments               The Director of the Regulatory Audit Division told us that action has been
                                     taken to expedite the compliance assessment process because these
Have Been Lengthy and                assessments have been lengthy and time consuming. For the 168
Time Consuming                       compliance assessments completed by September 30,1998, the median
                                     number of days elapsed was 428, and the median number of staff hours
                                                          10
                                     expended was 1,698. The Director told us that the staff hours were
                                     10
                                        Calculation of median calendar days and staff hours was based on 167 compliance assessments
                                     because we excluded 1 assessment that was suspended and later restarted.




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                               understated, however, because they include only Regulatory Audit staff
                               hours. Total compliance assessment hours are unknown because Customs
                               does not track hours spent by staff in other offices, such as Strategic Trade
                               Center staff, who prepare importer profiles prior to the assessments, and
                               import specialists.

                               Customs had implemented three initiatives to expedite the compliance
                               assessment process: establishing standards and guidelines for the length of
                               compliance assessments, reducing the number of entries reviewed during
                               an assessment, and establishing an importer-assisted assessment
                               methodology designed to perform assessments more rapidly. According to
                               the Regulatory Audit Division Director, the preliminary results of these
                               initiatives suggest the potential to shorten the compliance assessment
                               process, but further experience is needed to know just how much impact
                               they will have.

Calendar Day and Staff Hour    In November 1997, the Regulatory Audit Division established a 9-month
Standards Established          (270-day) target for completing compliance assessments from the entrance
                               conference with the importer through completion of a compliance
                               assessment report. Fourteen of 18 compliance assessments started since
                               the new policy was issued and completed by March 31,1999, were
                               completed in less than 270 days. The median number of calendar days
                               elapsed for the 14 assessments was 220. The median number of days
                               elapsed for the other four assessments was 291 days.

                               The Regulatory Audit Division also developed staff hour guidelines for
                               performing compliance assessments. The guidelines state that staff hours
                               expended should vary depending on the scope of the compliance
                               assessment, whether a compliance improvement plan is needed, and other
                               factors. The Regulatory Audit Division Director told us that he uses 1,500
                               hours as a general rule of thumb for planning staff resource utilization.
                               Using 1,500 hours as the criterion for the number of staff hours expended,
                               we found that 16 of 18 compliance assessments initiated and completed
                               since the new policy was issued required less than 1,500 hours; and the
                               median number of staff hours expended was 1,024 hours. The other two
                               assessments took 1,668 and 2,883 staff hours to complete, respectively.

Reduced Number of Entries to   In July 1999, the Regulatory Audit Division reduced the maximum sample
be Reviewed                    size of entries to be reviewed from 220 to 100 for most trade areas. Prior to
                               adopting the reduced sample size, Customs tested using the smaller
                               sample size at five importers but did not perform a detailed analysis of the
                               impact on staff hours and calendar days. Customs prepared a brief
                               summary, however, which indicated that smaller samples provided



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                                 sufficient coverage, reduced workload for both Customs and the importer,
                                 and reduced the time needed to perform compliance assessments.

Importers Allowed to Assist in   A process called Controlled Assessment Methodology (CAM) was
Performing Compliance            developed to allow importers to voluntarily perform much of the
Assessments                      compliance assessment with verification by Customs auditors. CAM has
                                 the same test and sampling parameters as a standard compliance
                                 assessment, except that the importer is to provide staff to assist in the
                                 assessment. Customs prepares a written work plan that includes
                                 applicable audit steps and time frames for the importer to perform. When
                                 the work is completed, Customs verifies its accuracy.

                                 The Regulatory Audit Division expects that some importers will be willing
                                 to choose this option for several reasons, including (1) a less intrusive
                                 compliance assessment process; (2) improved importer understanding of
                                 their own operations; and (3) elimination of duplicate effort, which
                                 frequently occurs when importers self-assess their efforts in advance of
                                 the Customs assessment without Customs guidance.

                                 As of April 19, 1999, compliance assessments had been completed at 13
                                 importers that elected to participate in CAM. According to the Regulatory
                                 Audit Division Director, early experience with CAM suggests that it does
                                 expedite the completion of compliance assessments, and its impact on
                                 Customs staff resources and length of compliance assessments will need
                                 to be monitored.

Follow-up Reviews to             The objective of a follow-up review is to determine if corrective actions
                                 noted in the importer’s compliance improvement plan were implemented
Determine Compliance             and whether they were effective in correcting deficiencies. The Regulatory
Assessment Benefits Are          Audit Division Director stated that follow-up reviews are the critical final
Being Scheduled                  step of the compliance assessment process and should demonstrate
                                 whether compliance assessments are improving importer operating
                                 practices, internal controls, and compliance rates.

                                 In fiscal year 1998 Customs developed guidance for performing follow-up
                                 reviews and performed a limited number. Customs performed seven
                                 follow-up reviews in fiscal year 1998, including reviews of three importers
                                 originally categorized as high risk and four categorized as moderate risk.
                                 The reviews resulted in six importers being recategorized to low risk and
                                 one recategorized from moderate risk to high risk. For the importer
                                 recategorized from moderate to high risk, Customs found that, among
                                 other things, the importer had not fully implemented corrective actions
                                 and did not correctly value imported merchandise.



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                           Follow-up reviews were included in the annual audit planning process for
                           the first time for fiscal year 1999. As of July 19, 1999, Customs estimated
                           that it would start and/or complete at least 41 follow-up reviews by the end
                           of fiscal year 1999.

Overall Impact of          Improved compliance and increased revenue collection were identified by
                           the Regulatory Audit Division as performance measures for the
Compliance Assessments     compliance assessment initiative. However, the Director told us that
Not Yet Evaluated          although these performance measures are important, because of other
                           work priorities and limited staffing, the impact of compliance assessments
                           on improving importer compliance with U.S. import laws and regulations
                           and increasing revenue collections had not been determined as of the end
                           of our fieldwork in July 1999.

Our Analysis Raises        In the absence of a Customs evaluation of the impact that compliance
                           assessments have on importers’ compliance with U.S. laws and
Concerns About Impact of                                                                 11
                           regulations, we analyzed compliance rates for all 59 importers that had
Compliance Assessments     compliance assessments completed by September 30, 1997, and had
on Importer Compliance     received compliance measurement exams in both fiscal year 1996 and
                           fiscal year 1998.

                           Although the number of compliance measurement examinations that these
                           importers received (see app. II) was usually not sufficient to calculate
                                                                12
                           statistically valid compliance rates, the compliance rates serve as an
                           indicator about whether or not overall compliance has improved. Our
                           analysis of all 59 importers showed that compliance rates worsened for 20,
                           improved for 27, and stayed the same for 4. Eight importers already were
                           in full compliance (100 percent compliance) in fiscal year 1996 and stayed
                           that way.




                           11
                            One additional importer that had received a compliance assessment by September 30, 1997, was not
                           included in our analysis because Customs erroneously provided data on another importer with a
                           similar name.
                           12
                             A compliance rate is statistically valid only when the number of items sampled is large enough to
                           provide an estimate that, with a high level of confidence, approximates the results from reviewing all
                           items with a specified level of precision. According to a Customs official, a minimum of 30 compliance
                           measurement exams would be needed to calculate a statistically valid compliance rate that would be
                           representative of all imports for an importer.




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Table 2: Changes to Compliance Rates                a
From FY 1996 to FY 1998 for 59         Change                                                                                       Total
Importers With Compliance              Down                                                                                       20 of 59
Assessments Completed by September     Up                                                                                         27 of 59
30, 1997                               Stayed the same                                                                             4 of 59
                                       Full compliance                                                                             8 of 59
                                       Total                                                                                            59
                                       a
                                         The number of exams that make up the underlying data for this table was in most cases not sufficient
                                       to calculate statistically valid compliance rates. Where increase or decrease was less than 1 percent,
                                       we considered the compliance rate to have remained the same.
                                       Source: GAO analysis of data provided by Customs’ Analytical Development Division.


                                       The Regulatory Audit Division Director agreed that this analysis, although
                                       not based on statistically valid compliance rates, does have some
                                       usefulness for evaluating compliance. He further indicated that the
                                       Regulatory Audit Division had been giving priority to other activities, such
                                       as revising the compliance assessment process, and that he plans to begin
                                       focusing on developing a methodology to measure the impact of
                                       compliance assessments. A compliance rate analysis similar to the one we
                                       performed would be one piece of this methodology, according to the
                                       Director.
                                                                                   13
Most Selected Importers                We interviewed nine importers to obtain their views regarding the
                                       advantages and disadvantages of the compliance assessment process and
Cited Benefits From                    to determine whether they had any suggestions for improvement. Eight of
Compliance Assessment                  the nine importers felt that their import operations benefited as a result of
                                       the compliance assessment. Seven importers indicated that the compliance
                                       assessment provided an independent review of import operations that
                                       identified both strengths and weaknesses in the internal controls, as well
                                       as recommendations on how to correct the weaknesses. Two importers
                                       indicated that after the compliance assessment, they had more confidence
                                       in the quality of their systems.

                                       In addition, two importers indicated that they had used their systems, after
                                       making any corrections on the basis of the compliance assessment, as the
                                       model for import operations at other company divisions or locations.
                                       Three other importers said they made organizational changes or increased
                                       staffing on the basis of the compliance assessment to better ensure future
                                       compliance. One importer felt it had not received any benefits from the
                                       compliance assessment. The importer felt that way because it was already
                                       highly compliant, as evidenced by the low-risk rating it received from the
                                       compliance assessment.

                                       13
                                            Appendix I provides information on how the nine importers interviewed by GAO were selected.




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                         Six importers interviewed commented on the length of the assessment; the
                         resultant cost to their operations; and the amount of staff resources
                         dedicated to preparing for, and providing information to, the auditors. Two
                         importers felt that the compliance assessment process should be more
                         standardized because of differences in the process identified from
                         discussions with other importers about their compliance assessments.
                         Three importers indicated that Customs should demonstrate more
                         commitment to working with them, and one importer commented that
                         Customs should be less adversarial during the compliance assessment. It
                         should be noted, however, that assessments performed on companies we
                         interviewed had been completed early in the program when Customs was
                         still designing and refining the basic compliance assessment process. The
                         assessments were also completed before Customs began to revise and
                         expedite the compliance assessment process, as previously discussed.

                         Account Management is Customs’ approach to managing its work through
The Account              accounts—importers—rather than by individual merchandise transactions
Management Program       at the ports of entry. According to Customs, an account manager is to
Is Encountering          maintain a liaison with the account, provide information under the
                         principle of informed compliance, help ensure uniform treatment of an
Staffing Difficulties,   account’s merchandise at all ports, and help the company identify and
and its Impact on        resolve any areas of noncompliance.
Importer Compliance
Is Unknown               In fiscal year 1997 Customs identified 7,405 major importers as candidates
                         for the account management program. Customs hopes to eventually assign
                         managers to all 7,405 importers depending on availability of staff
                         resources. However, Customs had not developed a plan or time frame for
                         assigning account managers to the importers and had not determined the
                         level of staff resources that would be necessary to manage the accounts.
                         Customs had assigned account managers to 604 importers from fiscal year
                         1995 through fiscal year 1999. On the basis of current progress and
                         staffing, it will be several years before all candidate accounts are assigned
                         managers. Moreover, Customs may not have enough staff resources to
                         assign account managers to all candidate importers.

                         Customs also had not evaluated whether its investment in the account
                         management program has had any positive impact on improving importers’
                         compliance rates. Customs had identified several performance measures
                         for the account management program, including increased compliance,
                         uniformity, and customer satisfaction, but was just beginning to develop
                         the methodology for collecting data as of July 1999.




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Overview of Account   Account management is Customs’ approach to viewing an importer (an
                      account) in the aggregate rather than by each merchandise entry
Management            transaction. It includes analysis of an account’s compliance nationwide,
                      coordination of all Customs activities involving the account, and
                      identification and resolution of compliance problems. Account
                      management also provides a point of contact within Customs to assist the
                      account. The National Account Service Center (NASC) at Customs
                      headquarters is responsible for managing both the national and port
                                          14
                      account programs.

                      National account managers are devoted full-time to account management
                      and are assigned by NASC to the largest importers. The national account
                      program was prototyped with eight accounts from February 1996 through
                      February 1997 and implemented nationwide in May 1997. As of September
                      30, 1999, 25 national account managers were assigned an average of 6.2
                      accounts each, with a range of 2 to 9 accounts each.

                      For port account team members, account management is a collateral
                                                                                 15
                      function. Port account teams are led by import specialists and may
                      include additional import specialists, cargo inspectors, and other
                      personnel. Port accounts are selected by the ports in coordination with
                      NASC and must be approved by NASC. The port account program was
                      prototyped at 12 ports with 12 accounts from February 1997 through
                      August 1997. It was implemented in the prototype ports in October 1997
                      and in 31 other ports in February 1998. The port account program is
                      conducted at 43 ports designated as “service ports,” which have a full
                      range of cargo-processing functions. The size and composition of port
                      account teams vary on the basis of account size and staff availability,
                      according to the NASC Director. Most teams include a minimum of two
                      import specialists. The team assigned to an importer is to be from one of
                      the top five ports through which the importer enters merchandise on the
                      basis of import value.

                      The account management cycle consists of six steps:

                      1. selecting an importer and assigning an account manager;


                      14
                         NASC was renamed the Commercial Compliance Division in July 1999 after we completed our
                      fieldwork.
                      15
                         Import specialists are responsible for various duties, including reviewing the entry summary
                      paperwork associated with import transactions, preparing binding rulings, and participating on
                      compliance assessment teams.




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2. contacting the account;

3. developing a profile of the account’s import activities and history;

4. evaluating the account’s internal controls identified in an internal
   controls questionnaire completed by the importer, preparing an
   account action plan, and obtaining Customs and account approval of
   the action plan;

5. monitoring implementation of the account action plan; and

6. maintaining the account after the action plan items are completed.

Maintaining an account (step 6) includes monitoring compliance rates,
coordinating outreach/improvement activities, and identifying additional
areas for improvement. At this step, the amount of time required by
Customs to manage the account is expected to decrease; and the full
benefit of account management is expected to be realized because the
importer would have adequate internal controls and a high compliance
rate, according to the NASC Director.

Customs identified the top 378 importers by value of imports as possible
candidates to be assigned national account managers. These companies
represented 50 percent of the value of imports as of September 30, 1996.
The next group of 7,027 companies (ranked 379 to 7,405) were identified as
possible candidates to become port accounts because they each imported
over $10 million annually. These companies represented the next 32
percent of the value of imports. Within these two groups, Customs
prioritizes individual importers for possible assignment of an account
manager or team, using a risk score that is based on import value,
                                        16
compliance rate, number of line items, its ranking in the top 250
companies within a PFI, and having at least 50 percent of imports in a PFI.
Although NASC selects importers to be assigned national account
managers, the ports select importers in coordination with NASC, and these
selections must be approved by NASC.




16
   Customs uses the number of line items as an indicator of import activity rather than the number of
entries because an entry of imported merchandise may consist of one or more different commodities,
each of which must be listed separately as its own line item.




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Customs Has Not                           NASC has not developed a plan for assigning account managers to all 7,405
                                          candidate accounts, according to the NASC Director. The Director also
Developed a Plan for                      told us that the specific level of staff resources necessary to manage all
Assigning Account                         potential candidate accounts had not been determined, but with current
Managers to Additional                    resources Customs will not be able to assign account managers to all
Accounts                                  candidates in the pool. In lieu of an assignment plan, NASC was gradually
                                          assigning additional accounts to the national account managers and ports
                                          on the basis of their ability to take on additional accounts and on the
                                          progress of existing accounts. Customs had established an interim goal of
                                          having 600 accounts assigned by the end of fiscal year 1999—200 national
                                          and 400 port accounts. As of September 30, 1999, Customs had assigned
                                          156 national and 448 port accounts for a total of 604 accounts (see table 3).


Table 3: Number of National and Port Accounts by Fiscal Year
Type of                                                                                                              Total as of
account                 FY 95           FY 96             FY 97                  FY 98               FY 99    September 30, 1999
National                     3             10                89                     40                  14                   156
Port                         0              0                12                    237                 199                   448
Totals                       3             10               101                    277                 213                   604
                                          Source: GAO analysis of data provided by Customs’ National Account Service Center.


Factors Hampering                         The NASC Director cited five factors that hampered the establishment of
                                          additional national and port accounts. These factors were:
Development of Additional
Accounts                               • the time required to manage the existing accounts, many of which had not
                                         reached maintenance;

                                       • the need to revise an internal control evaluation questionnaire given to
                                         accounts;

                                       • difficulty persuading importers to sign an account action plan;

                                       • delayed implementation of the ACE system to manage import activities;
                                         and

                                       • the part-time status of port account management teams, whose members
                                         have other duties to perform.

                                          Customs’ ability to assign account managers to additional importers was
                                          limited, in part, because many of the existing accounts were not yet in
                                          maintenance and still required a substantial amount of time to manage,
                                          according to the NASC Director. The Director expects the staff resources
                                          needed to manage accounts to be less in the maintenance step than earlier



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                                        in the account management cycle. As shown in table 4, as of March 31,
                                        1999, 46 accounts had reached maintenance, including 21 national
                                        accounts and 25 port accounts.

Table 4: Number of Accounts and Steps
in Account Management Cycle as of       Step in account
March 31, 1999                          management cycle                  National accounts            Port accounts        Total accounts
                                        Step 1: Account selected/
                                        manager assigned                                       2                     42                     44
                                        Step 2: Account contacted                             11                     44                     55
                                        Step 3: Account profile
                                        completed                                             85                    114                   199
                                        Step 4: Internal controls
                                        evaluated/action plan
                                        prepared and approved                                 14                     18                     32
                                        Step 5: Monitoring action
                                        plan items                                            20                     57                     77
                                        Step 6: Maintenance                                   21                     25                     46
                                        Unknown a                                              4                      6                     10
                                        Total number of
                                                                                                 b
                                        accounts 3/31/99                                   157                      306                   463
                                        a
                                         The status of 10 accounts was not available for various reasons, including referral to the Office of
                                        Investigations and company ownership change.
                                        b
                                          One national account was subsequently reassigned to the port account management program prior
                                        to the end of fiscal year 1999.
                                        Source: GAO analysis of data provided by Customs’ National Account Service Center.


                                        In February 1999, Customs established a working group to redesign the
                                        internal control evaluation questionnaire so it could be used for both
                                        compliance assessments and internal control evaluations of accounts. This
                                        effort was intended to facilitate timely completion of the internal control
                                        questionnaire by accounts and to clarify that importers would not be asked
                                        to complete two slightly different questionnaires, as had been the practice
                                        in the past. At the time of our review, no target date had been established
                                        for implementing the new questionnaire.

                                        The NASC Director told us that several account managers had experienced
                                        significant difficulties and delays in persuading company officials to
                                        approve and sign the account action plan. Many importers reportedly
                                        believed that the signature made the action plan a contractual agreement,
                                        which led to delays while the importers and their attorneys reviewed the
                                        plan. Starting in February 1999, NASC made signature by an account
                                        official optional, which was intended to eliminate the importers’ concern
                                        about a contractual agreement and reduce delays.




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                           Delay in developing the ACE system to manage import activities has made
                           preparing account profiles and monitoring accounts more difficult and
                           time-consuming, according to the NASC Director. Under the present
                           computer system, data on imports are captured by port and are not readily
                           available on a nationwide basis. National data on a particular importer are
                           not available without identifying all ports used by the importer and
                           manually combining the data for these ports. Under ACE, nationwide data
                           are to be available on a real-time basis on all importers for use by account
                           managers and other Customs personnel to monitor—for example, national
                           compliance rates for individual importers.

                           Progress of port accounts was also hampered because account team
                           members are part-time and have competing duties, according to the NASC
                           Director. In responding to a survey at the end of the port account
                           prototype, 9 of the 12 port account teams indicated that their other work
                           suffered due to their having to manage the port accounts. In November
                           1998, NASC identified 12 “problem ports” where it considered progress
                           with the port account program to be slow, and it imposed a temporary
                           freeze on establishing additional accounts at those ports. According to the
                           NASC Director, NASC staff visited many of these ports to encourage them
                           to devote additional staff hours to port account management, take on
                           additional port accounts, and/or do a better job reporting on port account
                           activities. Customs officials anticipate that as the port account
                           management program matures, port account managers will view it as a
                           better way of doing their jobs because it will allow them to look at their
                           work in the aggregate, not transaction by transaction. In addition, the
                           officials believed that port account management will also assist port
                           account managers in focusing their efforts in the areas determined to be
                           noncompliant.

National Account Manager   The national account program was implemented in fiscal year 1997, with
                           25 full-time national account managers. Customs originally hoped to
Staffing                   increase the number of national account managers to 100 in order to
                           manage 1,000 accounts (about 10 accounts per account manager). Because
                           Customs was not able to obtain funding to increase the number of national
                           account managers, it reduced the number of potential national accounts
                           from 1,000 to 378.

                           Customs’ first two attempts to obtain funding to increase the number of
                           national account managers were unsuccessful. Customs requested 80
                           additional national account managers in its fiscal year 1999 budget
                           submission. The request was reduced to 50 by the Treasury Department
                           and ultimately disapproved by the Office of Management and Budget. For



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                             B-280470




                             fiscal year 2000, Customs requested 50 additional national account
                             managers, but the Treasury Department did not approve the increase.
                             Customs again planned to request 50 additional national account managers
                             in its fiscal year 2001 budget submission.

Whether Customs Has          On the basis of current staffing, it is uncertain whether Customs has
                             enough import specialists to assign to port account teams to manage many
Sufficient Staff to Assign   of the 7,027 candidate port accounts. As of December 31, 1998, Customs
Managers to Many Port        had a total of 1,002 import specialists based at the ports in the port
Accounts Is Uncertain        account program. Dividing 7,027 candidate accounts by 1,002 import
                             specialists means that each import specialist would need to serve on about
                             7 teams. Because a team normally has at least 2 import specialists, each
                             import specialist would need to serve on about 14 teams, in addition to
                             performing other duties. This is in sharp contrast to full-time national
                             account managers, who were assigned an average of 6.2 accounts.

                             In addition, Customs had no system for establishing accounts at the
                             various ports. According to the NASC Director, the ports were initially
                             allowed to request accounts without NASC guidance on how many
                             accounts a port should be able to manage on the basis of staffing,
                             workload, or any other criteria. Since January 1999, only ports where the
                             number of import specialists was greater than the number of accounts
                             were allowed to assign additional port accounts. The total number of
                             accounts at these ports was limited to one account per import specialist.

                             To determine whether a difference existed in the ratio of import specialists
                             to port accounts at the various ports, and whether the difference had
                             decreased since the new policy limiting assignment of additional port
                             accounts, we compared the average number of import specialists per
                             account as of both December 31, 1998, and September 30, 1999. As of
                             December 31, 1998, we found that the average ranged widely: for example,
                             Blaine, WA, had 16 import specialists and 1 port account; Charleston, SC,
                             had 13 import specialists and 12 port accounts. Appendix III shows the
                             number of import specialists, the number of accounts, and the average
                             number of import specialists per account at each port.

                             From January through September 30, 1999, 190 additional accounts were
                             assigned to 36 ports. These assignments were consistent with the new
                             policy in most of the ports, and the difference was reduced as shown in
                             appendix III.




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Impact of Account         NASC identified increased compliance, uniformity of entry summary
                          reviews among import specialists and/or among ports, and customer
Management on Importer    satisfaction as account management performance measures in the August
Compliance Is Unknown     1998 Account Management Standard Operating Procedures. However, as
                          of July 1999, NASC was just beginning to develop the methodology for
                          collecting data. According to the NASC Director, the delay was due to lack
                          of staff resources and to staff turnover.

                          To assess the impact on importer compliance with U.S. laws and
                          regulations, NASC had planned to analyze the compliance rate of accounts
                          within the account management program from year to year. NASC was
                          working with the Analytical Development Division to develop a
                          methodology for measuring account compliance, according to the NASC
                          Director. No target date had been established for completing this
                          methodology or for its implementation as of July 1999.

                          NASC was in the process of developing a method to ensure the uniform
                          treatment of merchandise imported by port accounts by sampling entry
                          summary reviews for port accounts. Transactions from selected port
                          accounts throughout the country would be reviewed to ensure that all
                          ports were treating merchandise uniformly no matter through which port it
                          entered. According to the NASC Director, the methodology was to be
                          developed by October 1999 and implemented in January 2000.

                          To obtain feedback on customer satisfaction, the NASC Director told us
                          that he had begun meeting individually with importer officials. NASC had
                          originally considered an annual customer satisfaction survey but decided
                          to conduct interviews instead.
                                                                      17
Most Selected Importers   We interviewed nine importers to obtain their views on the advantages
                          and disadvantages of account management and to determine whether they
Cited Benefits From       had any suggestions for improvement. All nine importers indicated that
Account Management        they liked the account management concept, viewed it as a clear indicator
                          of Customs’ commitment to work with the trade community, and had
                          benefited from having an account manager. Specifically, the account
                          manager served as a conduit of information about new Customs
                          regulations and programs and about the results of Customs’ cargo
                          examinations. Six importers had asked their account managers to resolve
                          problems at a particular port or ports regarding the entry of merchandise,
                          and they generally felt that the account managers had been fully
                          responsive.
                          17
                               Appendix I provides information on how the nine importers interviewed by GAO were selected.




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                           None of the importers interviewed cited any disadvantages to being
                           assigned an account manager, and all importers indicated that if given a
                           choice they would opt to continue to participate in the program. Six
                           importers had suggestions for improving the account management
                           process. Four importers felt that they would benefit more from account
                           management if their account managers were based closer to them. In one
                           case the importer reported that it had requested and had been assigned an
                           account manager based in the same city. One importer indicated that to
                           better ensure uniform treatment by the various ports, account managers
                           should be given authority to resolve disputes about entry classification,
                           value, and other issues. One importer felt that it would have been more
                           beneficial if the account manager had been assigned during or immediately
                           after the compliance assessment to work on corrective actions, instead of
                           5 months after the compliance assessment was completed.

                           Customs, according to its Trade Compliance Risk Management Process
Mixed Results From         publication, may use informed or enforced compliance to ensure that
Two Customs Actions        importers comply with U.S. trade laws and regulations. We analyzed two of
Designed to Address        six Customs actions designed to address noncompliance within the
                           informed and enforced compliance framework—the Multi-port Approach
Noncompliance              to Raise Compliance by the year 2000 (MARC 2000) and the Company
                           Enforced Compliance Process (CECP)—and found that Customs’ efforts
                           to raise overall compliance rates for importers in selected industries had
                           mixed results.

Description of the Trade   Customs’ trade compliance process has for years consisted of activities
                           ranging from preimportation analysis through cargo arrival, examination,
Compliance Risk            release, revenue collection, investigation, fines, penalties and forfeitures,
Management Process         and archival of trade data. Though these activities continue to the current
                           day, the 1993 Mod Act led Customs to change the focus of its trade
                           compliance process from a transaction-by-transaction based system to an
                           account, or company/importer, based process.

                           As part of its effort to make Mod Act-induced changes, Customs
                           established a Risk Management Process to best allocate available
                           resources to trade priorities. Customs concentrated on identifying
                           industries and/or importers that represented the greatest risk of
                           noncompliance and on taking the appropriate action to remedy the
                           situation.

                           According to Trade Compliance Risk Management Process, Customs’ risk
                           management process consists of four key steps: (1) collecting data and
                           information, (2) analyzing and assessing risk, (3) prescribing and taking



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                       action, and (4) tracking and reporting results. Customs relies on
                       established programs, such as compliance measurement, compliance
                       assessment, and account management, to collect data and information
                       necessary to identify noncompliant industries and importers. After
                       detecting and identifying the sources of noncompliance and analyzing and
                       assessing the risk of continued trade violations, Customs decides what
                       informed or enforced action is warranted and what resources are needed
                       to address the problems. Over the last few years, Customs has developed a
                       variety of tools, including MARC 2000 and CECP, to maximize trade
                       compliance through an approach of both informed and enforced
                       compliance.

Unclear Results From   Customs, in fiscal year 1997, initiated the MARC 2000 project to raise
                       compliance of targeted industries within the trade community. MARC 2000
MARC 2000 Informed     evolved from a 9-month pilot program in fiscal year 1996, consisting of 12
Compliance Action      ports working independently to raise the compliance of locally selected
                       imports. After the pilot program, MARC 2000 involved multiple ports with
                       common compliance issues that joined together to formulate and
                       implement a national plan designed to raise compliance within four
                       industries, including bearings, gloves, production equipment, and
                       automobiles. Customs also initiated plans to include four other
                       industries—lighting fixtures, plastics, headgear, and express consignment
                       facilities—in MARC 2000. The informed compliance aspect of MARC 2000
                       included outreach efforts, such as seminars, importer counseling,
                       presentations at association meetings, and publication dissemination to
                       the targeted industries.

                       In its fiscal year 1998 MARC 2000 Annual Report, Customs reported mixed
                       results that did not clearly indicate success or failure. Fiscal year 1998
                       compliance rates for bearings and certain components of production
                       equipment increased over fiscal year 1996 baseline compliance rates.
                       Compliance rates for gloves and automobiles, however, fell below fiscal
                       year 1996 baseline rates. Fiscal year 1998 compliance rates for these
                       industries were all below the prior year’s (fiscal year 1997) compliance
                       rates (see table 5).




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Table 5: MARC 2000 Targeted PFIs’
Compliance Rates for Fiscal Years 1996                                                 Compliance rates (percentages)
Through 1998                             Primary focus industry                        1996              1997              1998
                                         Bearings                                        77                 86               82
                                         Knitted Gloves                                  85                 96               81
                                         Non-knitted Gloves                              80                 81               74
                                         Presses (production
                                         equipment)                                       64                    74            69
                                         Molds (production
                                         equipment)                                       56                    79            75
                                         Automobiles                                      91                    97            87
                                         Source: GAO analysis of data provided by Customs’ Office of Strategic Trade.


                                         Furthermore, fiscal year 1998 compliance rates for these industries were
                                         all below Customs’ 95 percent compliance goal for PFIs.

                                         Customs’ fiscal year 1998 MARC 2000 Annual Report indicated that it
                                         would continue the program in fiscal year 1999 with some modifications.
                                         For example, Customs was to expand the focus in production equipment
                                         from presses and molds to welding equipment. Additionally, only those
                                         ports with an auto industry compliance rate below 90 percent were to
                                         continue conducting the automobile action. The remaining ports were to
                                         monitor auto industry compliance through continued compliance
                                         measurement. Finally, Customs was to address the possibility of requiring
                                         noncompliant bearings importers to pay duties, fees, and taxes prior to
                                         cargo release. The report stressed that enforced compliance actions were
                                         to occur when appropriate.

Unclear Results from CECP                According to Trade Compliance Risk Management Process, Customs
                                         determines whether to use informed or enforced compliance by taking into
Enforcement Actions                      account the nature, scope, and impact of noncompliance. There are times
                                         when the informed compliance approach is not appropriate. After ongoing
                                         informed compliance efforts have failed, if voluntary compliance has not
                                         been achieved and repetitive compliance problems continue, Customs may
                                         take enforced compliance actions against violators. Examples of enforced
                                         compliance actions include initiating an investigation when criminal
                                         activity is suspected; seizing illegal cargo; making arrests when warranted;
                                         issuing penalties prescribed by regulation; requiring the payment of duties,
                                         fees, and taxes before cargo is released; and conducting additional
                                         compliance examinations. According to Customs, enforcement actions
                                         such as seizure and investigation are reserved for those instances of
                                         egregious violations; fraud; or ongoing, repetitive violations that could not
                                         be resolved through informed compliance.




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                                Customs began CECP in March 1998 to identify, target, and take action
                                against individual importers with the most serious ongoing compliance
                                problems. Under CECP, Customs monitors compliance measurement rates
                                for major importers and develops in-depth reviews for those companies
                                whose compliance measurement rates are below 90 percent in order to
                                determine what should be done to address the continued noncompliance.
                                Customs designates importers with continuously low compliance that have
                                not made progress in existing compliance programs as “confirmed risk.”
                                Customs begins enforced compliance action against importers designated
                                as confirmed risk.

                                Customs initially identified 32 companies with compliance rates below 90
                                percent and designated 4 of the 32 with stagnating or deteriorating
                                compliance rates as confirmed risk on the basis of their fiscal year 1997
                                compliance rates. Customs provided the companies written notification
                                indicating their confirmed risk status and subjected them to increased
                                compliance measurement examinations for up to 7 months. Three of the
                                importers ended fiscal year 1998 with compliance rates slightly above the
                                fiscal year 1997 rates. The fourth importer’s fiscal year 1998 compliance
                                rate dropped nearly 13 percent below its fiscal year 1997 rate. A
                                preliminary review of the first two quarters of fiscal year 1999 compliance
                                measurement data, however, indicated that the fourth importer’s
                                compliance rate reached 100 percent. The other three importers’
                                compliance rates remained below 90 percent (see table 6). According to
                                Customs, no other enforcement action had been taken against the
                                confirmed risk importers because the companies were making progress. In
                                September 1999, Customs recommended that the confirmed risk
                                designation be dropped from three of the four companies. Customs will
                                make its final decision and inform the companies of their new status in
                                December 1999.

Table 6: Compliance Rates for
Confirmed Risk Importers                                                   Compliance rates (percentages)
                                Importer                                  FY 97              FY 98             Mid-FY 99
                                A                                            61                 68                    68
                                B                                            83                 85                    86
                                C                                            64                 69                    87
                                D                                            87                 74                   100
                                Source: GAO analysis of data provided by Customs’ Office of Strategic Trade.


                                By the end of fiscal year 1998, Customs, using CECP, identified 128
                                importers, including the 32 initially identified, with compliance rates below
                                90 percent for at least 1 fiscal year. Customs then determined which were
                                the largest importers most likely to have a significant impact on industry



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                     B-280470




                     compliance rates once they became compliant. After making its
                     determination, Customs provided a list of 43 importers to Strategic Trade
                     Centers, Customs Management Centers, assistant port directors, account
                     managers, and members of the Strategic Planning Board responsible for
                     recommending an enforced compliance action, among others, for review
                     and feedback. Customs also generated and circulated a Trade Compliance
                     Analytical Review (TCAR) containing compliance rates, compliance
                     assessment results, descriptions of violations, and a recommended level of
                     compliance measurement examinations for each of the 43 selected
                     importers.

                     Customs’ Strategic Planning Board, consisting of representatives from the
                     Office of Strategic Trade, Office of Field Operations, Office of
                     Investigations, and others, met on March 11, 1999, to determine and
                     recommend compliance actions for the 43 importers. The Strategic
                     Planning Board recommended a variety of actions, including increased
                     compliance measurement examinations, referrals to ports for action, and
                     continued monitoring through compliance examinations. The Strategic
                     Planning Board did not recommend imposing any penalty enforcement
                     actions, such as seizures or fines.

                     According to Customs, the Strategic Planning Board makes subjective
                     determinations, without specific criteria, when determining the course of
                     action to improve importer compliance. The Strategic Planning Board
                     relies on feedback provided by account managers, port account team
                     leaders, and assistant port directors; analytical information contained in
                     the TCAR reports; and discussions about importer progress towards
                     improved compliance when deciding what enforcement actions, if any, to
                     recommend.

                     According to Customs, the Strategic Planning Board had not
                     recommended enforcement actions such as seizures or fines against
                     noncompliant importers identified through CECP because their trade
                     violations were not significant enough to warrant such responses.
                     Significant and willful violations such as narcotics smuggling and fraud
                     have, of course, always been and will continue to be enforced in the
                     traditional fines, penalties, and forfeitures environment outside of CECP.
                                                      18
                     Under the Results Act, executive agencies are to develop strategic plans
Customs Evaluation   in which they, among other things, define their missions, establish results-
Efforts              oriented goals, and identify strategies they plan to use to achieve those
                     18
                          Government Performance and Results Act of 1993, P.L. 103-62.




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goals. In addition, agencies are to submit annual performance plans
covering the program activities set out in the agencies’ budgets (a practice
that began with plans for fiscal year 1999). These plans are to describe the
results the agencies expect to achieve with the requested resources and
indicate the progress the agency expects to make during the year in
achieving its strategic goals.
                                         19
Earlier this year, we testified that the strategic plan developed by the
Customs Service addressed the six requirements of the Results Act. The
plan’s goals and objectives covered Customs’ major functions—processing
cargo and passengers entering and cargo leaving the United States. The
plan discussed the strategies by which Customs hopes to achieve its goals.
The strategic plan discussed, in very general terms, how it related to
annual performance plans. It also contained a listing of program
evaluations used to prepare the plan and provided a schedule of
evaluations to be conducted in each of the functional areas.

In addition to the required elements, we testified that Customs’ plan
discussed the management challenges it was facing in carrying out its core
functions, including information and technology, finance, and management
of human capital. We concluded that the plan did not, however, adequately
recognize several issues that could affect the reliability of Customs’
performance data, such as needed improvements in financial management
and internal control systems.

Along these lines, Customs’ fiscal year 2000 budget justification states that
Customs needs to reassess a number of the performance goals. The
justification also states that Customs will continue to refine its compliance
measurement program in order to improve voluntary compliance.

The justification also states that although Customs did not meet 12 of its 17
performance goals, it does not plan to change its basic approach to
improving compliance, concluding that the performance goals that were
established were too ambitious for the resources available. The
justification does not, however, contain any plans for Customs to evaluate
its approach to improving compliance, including the initiatives and actions
that implement the informed compliance strategy: information programs,
compliance measurement, compliance assessment, account management,
and responses to noncompliance by importers. Customs will not be able to
set realistic goals without the results of evaluations.


19
     U.S. Customs Service: Enforcement Oversight Issues (GAO/T-GGD-99-99, May 18, 1999).




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                      The Mod Act represented a significant change in how Customs relates to
Conclusions           the importing trade community. For over 200 years, Customs and the
                      importing trade community had an enforced compliance relationship
                      based on transaction-by-transaction scrutiny for compliance with trade
                      laws. With passage of the Mod Act, Customs began to focus on informed
                      compliance by importers, rather than the enforced compliance emphasis
                      of the past. Although Customs has implemented five key initiatives and
                      actions that constitute its informed compliance strategy, three of them are
                      lagging in terms of the level of activity originally expected. Compliance
                      rates, used to measure the effectiveness of these initiatives and actions,
                      are showing no measurable improvement.

                      Although Customs has monitored and evaluated certain aspects of the
                      initiatives and actions, it has not evaluated, nor does it have a plan to
                      evaluate, the impact on compliance of the overall informed compliance
                      strategy. A properly designed and implemented evaluation would enable
                      Customs to determine whether the overall informed compliance strategy is
                      working and determine what contributions the initiatives or actions are
                      making. This seems especially important since Customs may not be able to
                      reach its goals in terms of coverage for the compliance assessment and
                      account management initiatives. Given that both initiatives may stay far
                      smaller than originally envisioned, it is important to determine what effect
                      they are likely to have on compliance rates with the importer coverage
                      they can reasonably achieve.

                      Under the Results Act, agencies are to assess their performance against
                      their goals and determine, for goals not achieved, whether the goals were
                      too high, resources too scarce, or agency efforts too ill-managed. Customs
                      has adjusted its compliance goals to reflect a 4-year delay because,
                      according to Customs, the established goals were too ambitious for the
                      resources available. An evaluation of the informed compliance initiatives
                      and actions could provide Customs with the information it needs to
                      maximize the use of the resources available for this program by enhancing
                      what works and reducing or eliminating what does not. It could also
                      provide the information needed for Customs to establish reasonable goals
                      for the program.

                      We recommend that the Commissioner of Customs develop and implement
Recommendation        an evaluation of the effectiveness of its informed compliance strategy.

                      We requested comments on a draft of this report from the Secretary of the
Agency Comments and   Treasury. In a letter dated November 11, 1999, the Customs Service’s
Our Evaluation        Director of the Office of Planning provided us with comments on the draft,



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which we have reprinted in appendix IV. Customs’ primary focus
concerned the report’s recommendation, which Customs felt should be
clarified to focus on the five compliance programs targeted by the report,
and not on the entire broad piece of legislation that is the Mod Act. If the
phrase “and the specific initiatives and actions it developed to implement
the Mod Act…” were omitted from the draft recommendation, Customs
believed it would be able to better target its response to the issues raised
in the report. We agree with Customs and omitted the phrase from the
recommendation to ensure Customs’ focus on evaluating its informed
compliance strategy and not other parts of the Mod Act.

Customs also believed that the report should recognize that its informed
compliance efforts have been continually evaluated and refined, but our
report conveys the opposite impression. Customs also stated that many
monitoring and evaluation efforts are under way, and major component
areas of informed compliance will continue to be analyzed and assessed. It
said enhancements to programs and processes will also be implemented as
appropriate. We stated that “While Customs has monitored and evaluated
certain aspects of the initiatives and actions, it has not evaluated nor does
it have a plan to evaluate the impact on compliance of the overall informed
compliance strategy.” We agree with and support Customs’ ongoing
monitoring, evaluation, and enhancement efforts of its many programs,
including those related to informed compliance activities. However, we
continue to believe that an evaluation, under the Results Act umbrella, of
the initiatives and actions that implement the informed compliance
strategy is necessary for Customs to be able to set realistic performance
goals for improving importers’ compliance rates. Moreover, this evaluation
could identify the contribution of each initiative and action toward
achieving the overall goal of the informed compliance strategy and
improving importers’ compliance rates.

In addition, Customs stated that the report gives the impression that as the
compliance rates have not risen to the levels anticipated, there is
something inherently wrong with the informed compliance approach.
Customs also stated that it believes there is a value to informed
compliance above and beyond raising compliance, as comments from
several importers that we interviewed indicated. We have not concluded
that there is something inherently wrong with the informed compliance
strategy and did not intend to give that impression. We stated in our
conclusions section on page 37 that compliance rates, used to measure the
effectiveness of informed compliance initiatives and actions, are showing
no measurable improvement and that a properly designed and
implemented evaluation could determine whether the overall informed



Page 38                             GAO/GGD-00-23 New Trade Compliance Strategy
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compliance strategy is working and what contributions the initiatives or
actions are making. If, after such an evaluation, Customs determines that
one or more of the initiatives are not making substantial contributions to
the overall goal of raising importers’ compliance rates, then either part or
all of the informed compliance strategy should be reexamined at that time.
In addition, we included comments from the major importers to show that
there was indeed value to the informed compliance program,
notwithstanding our concerns about the lack of progress in producing the
benefits expected from the program.

Customs also raised concerns about the correlation we make between the
compliance assessment and its impact on compliance as indicated by an
analysis of 59 importers (see p. 21). Customs believes that it is premature
to draw any conclusions regarding the link between compliance
assessments and compliance measurement because the programs measure
different areas of compliance. Customs also believes that our conclusion
that compliance assessments may not have improved compliance based on
a drop in fiscal year 1998 compliance rates is premature and not
sufficiently supported. Customs does not feel that sufficient analysis has
been done to lead to that conclusion and requests that the analysis of
compliance rates of 59 importers, many of which are not statistically valid,
be removed from the report as the support for drawing the conclusion.

In addition to the written comments from Customs on the results of our
analysis of 59 importers and the impact on compliance from their
compliance assessments, we had several discussions with Customs
officials on this issue. Specifically, as further clarification on this issue, the
officials believed that (1) because most of the compliance rates in our
analysis are not statistically valid, we should reconsider using them as a
basis for indicating the impact of compliance assessments; (2) it is
premature to draw any conclusions regarding the link between compliance
assessments and compliance measurement; and (3) compliance
determined under a cargo examination (compliance measurement) is not
identical to compliance as a result of a compliance assessment. The
officials pointed out that, for example, the compliance assessment may
conclude that an importer is not compliant because of unreported value in
its merchandise. This is determined through an examination of the
importer’s books and records. On the other hand, the officials noted that
compliance measurement examinations may determine that an importer is
not compliant because of inaccurate marking of merchandise. This would
be determined by physical inspection of the merchandise, which could not
be determined during a compliance assessment.




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As noted on page 21 of the report, although most of the compliance rates
in our analysis are not statistically valid, they continue to provide an
indicator about whether or not overall compliance improved at importers
that had received compliance assessments. In addition, the Regulatory
Audit Division Director agreed that our analysis, although not based on
statistically valid compliance rates, does have some usefulness for
evaluating compliance. As we also noted on page 16 of the report,
compliance assessment is a review to ensure that a company’s imports are
in compliance with U.S. laws and regulations, the goal being to ensure
maximum compliance. Although a compliance assessment involves
reviewing a company’s books and records, it also involves statistical
sampling of entry transactions, including a minimum review of compliance
in five trade areas, including classification, value, and quantity. This
procedure appears to establish the link between compliance assessment
and compliance measurement, since compliance assessment findings are
used to determine the frequency of future compliance measurement
examinations. It also appears that compliance measurement results could
and should be used to analyze the impact of compliance assessments. As
our limited analysis showed on page 21, compliance measurement rates
serve as an indicator of whether or not overall compliance has improved.

We have also included in the final report technical comments and
suggestions from Customs as appropriate.

As arranged with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 10 days after its
issue date. At that time, we will send copies of this report to the Honorable
Sander M. Levin, Ranking Minority Member of your Subcommittee; the
Honorable Raymond Kelly, Commissioner of Customs; and Mr. Robert
Trotter, Customs’ Assistant Commissioner for Strategic Trade.




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The major contributors to this report are acknowledged in appendix V. If
you or your staff have any questions on this report, please call Darryl
Dutton on (213) 830-1000 or me on (202) 512-8777.

Sincerely yours,




Laurie E. Ekstrand
Director, Administration
of Justice Issues




Page 41                           GAO/GGD-00-23 New Trade Compliance Strategy
Contents



Letter                                                                     1


Appendix I                                                                44

Scope and
Methodology
Appendix II                                                               48

FY96 and FY98
Compliance
Measurement Exams
and Compliance Rates
for 59 Importers With
Compliance
Assessments by
9/30/97
Appendix III                                                              50

Number of Import
Specialists and Port
Accounts by Port
Appendix IV                                                               52

Comments From the
Department of the
Treasury
Appendix V                                                                56

GAO Contacts and
Staff
Acknowledgments


                        Page 42   GAO/GGD-00-23 New Trade Compliance Strategy
          Contents




Tables    Table 1: Compliance Assessments Completed as of March                        18
            31, 1999, by Primary Focus Industry
          Table 2: Changes to Compliance Rates From FY 1996 to                         22
            FY 1998 for 59 Importers With Compliance
            Assessments Completed by September 30, 1997
          Table 3: Number of National and Port Accounts by Fiscal                      26
            Year
          Table 4: Number of Accounts and Steps in Account                             27
            Management Cycle as of March 31, 1999
          Table 5: MARC 2000 Targeted PFIs’ Compliance Rates                           33
            for Fiscal Years 1996 Through 1998
          Table 6: Compliance Rates for Confirmed Risk Importers                       34


Figures   Figure 1: Compliance Rates Have Remained Static                              13
            Between Fiscal Years 1995 and 1998
          Figure 2: Projected Net Revenue Underpayments Have                           15
            Increased




          Abbreviations

          ACE           Automated Commercial Environment
          ACS           Automated Commercial System
          CAM           Controlled Assessment Methodology
          CEBB          Customs Electronic Bulletin Board
          CECP          Company Enforced Compliance Process
          MARC 2000     Multi-port Approach to Raise Compliance by the Year 2000
          NASC          National Account Service Center
          PFI           Primary Focus Industry
          TCAR          Trade Compliance Analytical Review




          Page 43                              GAO/GGD-00-23 New Trade Compliance Strategy
Appendix I

Scope and Methodology


                     To review the status of Customs’ implementation of the informed
                     compliance strategy developed in response to the Mod Act and to
                     determine the extent to which trade compliance under the new program
                     had improved, we concentrated on five key initiatives. For overall program
                     information, we interviewed key Customs officials from the Office of
                     Strategic Trade and Office of Regulations and Rulings. We obtained
                     background material on the Mod Act from these two offices and from the
                     Office of Field Operations and Office of the Chief Counsel. We also
                     obtained and reviewed the background and legislative history of the Mod
                     Act.

                     We obtained numerous documents from the key Customs offices
                     mentioned above, including: The Customs Modernization Act Guidebook;
                     The Trade Compliance Road Map; the U.S. Customs Service Strategic Plan,
                     fiscal years 97—02; U.S. Customs Service Accountability Report, fiscal
                     years 1995—1998; Trade Compliance Measurement Report, fiscal years
                     1995—1998; Trade Compliance and Enforcement Plan, fiscal years 1995—
                     1998; and Trade Compliance Risk Management Process.

                     In addition to these background and planning documents, we obtained
                     more specific documents and conducted additional interviews concerning
                     each of the five initiatives as discussed below.

Basic and Targeted   To examine Customs’ information programs portion of its informed
                     compliance strategy, we began by reviewing the May 20, 1996,
Information          Commissioner’s Informed Compliance Strategy. This document describes
                     the basic and targeted information programs and their components. Using
                     this document as a guide, we analyzed the information that Customs
                     disseminated by various methods, including the Internet and CEBB. We
                     also obtained lists of headquarters-sponsored seminars and other informed
                     compliance outreach activities.

                     To obtain information on informed compliance outreach efforts at the
                     Ports of Seattle and Los Angeles/Long Beach, we interviewed key officials
                     and obtained selected documents. The documents included Seattle Trade
                     Talk newsletter and Port of Los Angeles Public Bulletins. We also obtained
                     lists of seminars and other local outreach efforts. We selected Seattle for
                     review because Customs officials told us that it had been involved in
                     numerous pilot projects concerning implementation of the informed
                     compliance strategy. We selected Los Angeles/Long Beach because of its
                     proximity to the Long Beach Strategic Trade Center, where much of our
                     fieldwork was conducted, and because it is a major port, through which a
                     large volume of imported merchandise enters the United States.



                     Page 44                            GAO/GGD-00-23 New Trade Compliance Strategy
                         Appendix I
                         Scope and Methodology




Compliance Measurement   To identify the impact that the informed compliance program has had on
                         levels of importer compliance, we obtained and analyzed the Trade
                         Compliance Measurement Reports for fiscal years 1995 to 1998. We
                         interviewed key Customs headquarters officials responsible for the
                         compliance measurement program and discussed program results with
                         them.

                         Because compliance measurement is a process based on physical
                         inspections of merchandise and/or entry summary documentation reviews
                         to determine compliance rates, we assessed the reliability of the data used
                         to make the compliance rate determinations. We interviewed officials from
                         Customs’ Office of Information Technology, which manages ACS,
                         Customs’ primary data collection and import processing system. The
                         officials explained and documented how the data are entered into the
                         system and the uses of the data. We did not verify or validate the data
                         through any data testing, but we did discuss the reliability of the data with
                         Office of Information Technology officials. The officials explained the
                         logic and the different edit checks used to scrutinize the data from the time
                         they are initially entered into the system by importers or brokers, to the
                         time they enter the statistical programs that select merchandise or entry
                         summaries for examination. We assessed these data systems as sufficiently
                         reliable for use in this report.

                         In order to evaluate the statistical sampling methods that Customs used to
                         generate compliance rates, we interviewed statisticians in the Office of
                         Strategic Trade, and we reviewed descriptions of the statistical sampling
                         methodology provided in Customs publications and internal memoranda.
                         Our interviews and examinations of the written materials gave us an
                         understanding of the sampling design and variance estimation procedures
                         used in the sampling plan. However, our review did not include an
                         examination of Customs’ computer software to determine whether the
                         software executed the same procedures that were described to us. We
                         assessed Customs’ statistical sampling methodology as being reasonable
                         and adequate for the purpose of generating compliance rates.

Compliance Assessment    To determine the status of Customs’ compliance assessment initiative, we
                         interviewed headquarters officials from the Regulatory Audit Division, the
                         organization that conducts the compliance assessments. We discussed the
                         initiative’s goals and the timeliness of the assessment process. We
                         reviewed pertinent policy and procedure documents, including criteria for
                         selecting importers to receive compliance assessments. We also analyzed
                         data concerning the amount of time it took to complete each assessment,
                         and the number of compliance assessments completed by March 31, 1999.



                         Page 45                             GAO/GGD-00-23 New Trade Compliance Strategy
                     Appendix I
                     Scope and Methodology




                     To measure the impact of compliance assessments on importers’
                     compliance rates, we analyzed data on importer compliance rates for fiscal
                     years 1996 and 1998. These data were for 59 importers on which
                     compliance assessments had been completed by the end of fiscal year 1997
                     and that had received compliance measurement exams in both years. We
                     obtained and compared compliance rate data for fiscal year 1996, the first
                     year that company-specific compliance data were available; and for fiscal
                     year 1998, the year after all 59 compliance assessments were completed.
                     We analyzed these data to determine whether compliance rates had gone
                     up, gone down, or stayed the same for importers that had received
                     compliance assessments.

Account Management   To determine the status of the account management initiative, we
                     interviewed headquarters officials, including the Director of the National
                     Account Service Center and national and port account coordinators. We
                     inquired about the goals of the initiative, its progress, and whether any
                     factors were hampering progress. We also interviewed a national account
                     manager and six port account team leaders at the Los Angeles
                     International Airport and the Los Angeles/Long Beach Seaport. We
                     selected these facilities because of their proximity to the Long Beach
                     Strategic Trade Center, where much of our fieldwork was conducted, and
                     because they are major ports through which large volumes of merchandise
                     enter the United States.

                     We also reviewed pertinent policies and procedures, including criteria by
                     which Customs selects importers to be assigned account managers. We
                     collected and analyzed data on the number of national and port accounts
                     as of September 30, 1999; the fiscal year each account was first assigned an
                     account manager; and the progress of each selected importer through the
                     account management process as of March 31, 1999.

Responses to         To examine Customs’ actions to address noncompliance, we analyzed two
                     of six options available within informed and enforced compliance that are
Noncompliance        described in Customs’ Trade Compliance and Risk Management Process—
                     MARC 2000 and CECP. We selected these two programs because they
                     were fully implemented, and the amount of data available for analysis was
                     more concise than for the other options. Time constraints also influenced
                     our selection.

                     We reviewed the fiscal year 1998 MARC 2000 Annual Report and discussed
                     the results with Office of Strategic Trade headquarters officials. We also
                     analyzed MARC 2000 data provided by the Los Angeles Strategic Trade
                     Center and the South Pacific, Mid-America, Gulf, and South Atlantic



                     Page 46                            GAO/GGD-00-23 New Trade Compliance Strategy
                              Appendix I
                              Scope and Methodology




                              Customs Management Centers. We also reviewed Trade Compliance
                              Analytical Reviews and Strategic Planning Board minutes, and we analyzed
                              CECP data provided by the Office of Strategic Trade.

Views of Selected Importers   To determine the views of importers toward Customs’ basic and targeted
                              information, compliance assessment, and account management initiatives,
                              we interviewed nine importers. These importers were judgmentally
                              selected from the population of 30 importers that had (1) a compliance
                              assessment completed by the end of fiscal year 1997 and (2) an account
                                                                     1
                              manager assigned by March 10, 1998. We used the cut-off dates to allow
                              sufficient time for the importers to take corrective action, if indicated,
                              after completion of the compliance assessment and for the importers to
                              have at least 1 year of experience with their account managers. We
                              contacted 15 of the 30 importers to request an interview; 9 of the 15 agreed
                              to our interview under conditions of anonymity, to which we agreed.

                              We performed our work between June 1998 and September 1999 in
                              accordance with generally accepted government auditing standards. We
                              requested comments on a draft of this report from the Secretary of the
                              Treasury. The Customs Service’s Director of the Office of Planning
                              provided written comments that are discussed at the end of the letter and
                              are reprinted in appendix IV.




                              1
                              According to the original data provided by Customs, 30 importers met these criteria. Customs later
                              provided revised data that indicated a total of 33 importers met these criteria.




                              Page 47                                         GAO/GGD-00-23 New Trade Compliance Strategy
Appendix II

FY96 and FY98 Compliance Measurement
Exams and Compliance Rates for 59
Importers With Compliance Assessments by
9/30/97
                                                                            Increase or
                                                                              decrease
                         FY 1996      FY 1996     FY 1998      FY 1998 compliance rates           Stayed
Importer     Report     Stratified Compliance    Stratified Compliance    FY 1996 and                the              Full
number           date      exams          rate      exams          rate        FY 1998 Down     Up same        compliance
Low risk
1              9/3/97          3      66.67%           4     100.00%           33.33%             X
2              6/2/97          3      66.67%           3     100.00%           33.33%             X
3            7/28/97          46      78.26%           1     100.00%           21.74%             X
4            9/30/97           5     100.00%           5     100.00%            0.00%                                   X
5              3/6/97         37      89.19%          13      92.31%            3.12%             X
6            4/18/97          29      89.66%          13      84.62%           -5.04%      X
8            5/16/97           4      75.00%          10      90.00%           15.00%             X
9            1/31/97          24      83.33%          12      91.67%            8.33%             X
10             9/2/97         18      72.22%           5      60.00%          -12.22%      X
11           9/27/96           1     100.00%           1     100.00%            0.00%                                   X
12           9/27/96          14     100.00%          17     100.00%            0.00%                                   X
                                                                                                           a
13           4/18/97          85      92.94%          16      93.75%            0.81%                    X
15           9/20/96         201      88.06%          46      80.61%           -7.45%      X
17           9/30/97          14      85.71%          10      80.00%           -5.71%      X
18           5/16/97          64      84.38%          17      88.24%            3.86%             X
24             9/4/97          7     100.00%           1     100.00%            0.00%                                   X
25           9/29/97          40      85.00%          24      91.67%            6.67%             X
26          12/20/96         117      88.03%          17     100.00%           11.97%             X
29          11/14/96          26      96.16%          21      80.96%          -15.20%      X
32           9/30/97          25      88.00%           6      66.67%          -21.33%      X
33           9/30/97          43      90.70%           2     100.00%            9.30%             X
                                                                                                           a
34           9/30/96          52      80.77%          15      80.00%           -0.77%                    X
36           9/26/97           7      71.43%           8      75.00%            3.57%             X
37           5/21/97         194      91.75%          10      80.00%          -11.75%      X
38           7/31/97           9     100.00%           7      85.71%          -14.29%      X
39           9/24/97         102      90.20%          20      80.00%          -10.20%      X
40           9/22/97          76      93.42%          22      95.45%            2.03%             X
42           7/19/96          23      78.26%           8      87.50%            9.24%             X
43           9/27/96           5      80.00%          12      91.67%           11.67%             X
44             3/5/97          6     100.00%           8      87.50%          -12.50%      X
45           11/6/96          11      81.82%           5     100.00%           18.18%             X
51             5/8/97         24      79.17%           6      83.34%            4.17%             X
53          12/20/96          52      86.54%          11     100.00%           13.46%             X
Subtotal low risk             33                                                          10     17       2             4
Medium risk
54           8/28/96          14      78.57%           7      85.71%            7.14%             X
56          11/25/96           5      75.00%           5      80.00%            5.00%             X
57          11/25/96           2      50.00%           3     100.00%           50.00%             X
58             3/6/97         15     100.00%          10      70.00%          -30.00%      X
59           9/12/97           8      87.50%           6      50.00%          -37.50%      X
60           8/13/97           7      57.14%          10      70.00%           12.86%             X
61           12/5/96           4      75.00%           2     100.00%           25.00%             X
63           6/30/97          57      85.96%          30      73.33%          -12.63%      X




                                            Page 48                            GAO/GGD-00-23 New Trade Compliance Strategy
                                         Appendix II
                                         FY96 and FY98 Compliance Measurement Exams and Compliance Rates for 59 Importers
                                         With Compliance Assessments by 9/30/97




                                                                               Increase or
                                                                                 decrease
                        FY 1996    FY 1996     FY 1998      FY 1998       compliance rates                    Stayed
Importer      Report Stratified Compliance    Stratified Compliance          FY 1996 and                         the                 Full
number           date    exams         rate      exams          rate              FY 1998 Down              Up same           compliance
66             3/7/97         4   100.00%             10     80.00%               -20.00%    X
(Medium risk continued)
68             9/3/96        17     94.12%             9      100.00%                  5.88%                 X
69           8/26/96          8   100.00%              8       87.50%                -12.50%         X
70           7/12/96         21     95.24%             9       77.78%                -17.46%         X
71           7/19/96          3   100.00%              1      100.00%                  0.00%                                            X
73           8/13/96          9   100.00%              3      100.00%                  0.00%                                            X
Subtotal                     14                                                                      6        6        0                2
medium risk
High risk
74             3/7/97         3     66.67%           18        66.67%                  0.00%                           X
75            2/2497          1      0.00%           10        90.00%                                        X
76           9/29/97         10     80.00%           32        90.63%                 10.63%                 X
78           8/12/97          4     50.00%           34        91.18%                 41.18%                 X
79             9/8/97         1   100.00%            12        83.33%                -16.67%         X
                                                                                                                        a
80           11/1/96        108     81.48%          183        80.88%                  0.60%                           X
81          12/23/96          2   100.00%             1       100.00%                  0.00%                                            X
82             3/5/97         4   100.00%             5       100.00%                  0.00%                                            X
83           9/12/97         14   100.00%            27        92.59%                 -7.41%         X
84             9/5/97        13   100.00%            24        95.83%                 -4.17%         X
86           9/18/97          2     50.00%           25        96.00%                 46.00%                 X
87           8/29/97         12     91.67%           55        89.10%                 -2.57%         X
Subtotal high risk           12                                                                      4       4         2                 2
Grand total of               59                                                                     20      27         4                 8
all risk
                                         a
                                          Difference between the FY 1996 and FY 1998 compliance rates. A positive number in difference
                                         column indicates an increase from FY 1996 to FY 1998. A negative number in difference column
                                         indicates a decrease from FY 1996 to FY 1998. Where increase or decrease was less than 1 percent,
                                         we considered the compliance rate to have remained the same.
                                         Source: GAO analysis of data provided by Customs’ Analytical Development Division.




                                         Page 49                                       GAO/GGD-00-23 New Trade Compliance Strategy
Appendix III

Number of Import Specialists and Port
Accounts by Port

                                                            Average no. of       No. of port                    Average no. of
                           No. of import     No. of port import specialists       accounts     No. of port   import specialists
Port name                    specialists      accounts    per port account    assigned Jan.     accounts      per port account
(prototype ports*)              12/31/98       12/31/98            12/31/98    thru 9/30/99       9/30/99               9/30/99
1. Anchorage                           4              1                 4.0               0             1                   4.0
2. Atlanta *                          13              6                 2.2               4            10                   1.3
3. Baltimore                          15              2                 7.5               2             4                   3.8
4. Blaine                             16              1                16.0               3             4                   4.0
5. Boston                             26              6                 4.3               3             9                   2.9
6. Buffalo*                           45             18                 2.5               2            20                   2.3
7. Champlain                          22              3                 7.3               5             8                   2.8
8. Charleston*                        13             12                 1.1               1            13                   1.0
9. Charlotte                           8              2                 4.0               1             3                   2.7
10. Chicago                           37              3                12.3              11            14                   2.6
11. Cleveland                         29              3                 9.7               7            10                   2.9
12. Dallas/Fort Worth                 14              1                14.0               9            10                   1.4
13. Denver                             3              2                 1.5               2             4                    .8
14. Detroit                           45              0                                  13            13                   3.5
15. Dulles                             5              2                 2.5               0             2                   2.5
16. El Paso                           21              2                10.5               5             7                   3.0
17. Honolulu                           7              1                 7.0               1             2                   3.5
18. Houston                           16              4                 4.0              18            22                    .7
19. JFK Airport*                    125              20                 6.3              28            48                   2.6
20. Laredo                            12              1                12.0               0             1                  12.0
       Pharr                           9              1                 9.0               1             2                   4.5
21. LA Seaport*                       92             25                 3.7              14            39                   2.4
22. LAX*                              41             15                 2.7               4            19                   2.2
23. Miami*                            32              7                 4.6               2             9                   3.6
24. Milwaukee                          2              1                 2.0               1             2                   1.0
25. Minneapolis                        6              1                 6.0               4             5                   1.2
26. Mobile                             3              0                                   8             8                    .4
27. New Orleans                       24              2                12.0               6             8                   3.0
28. Nogales                           13              1                13.0               4             5                   2.6
       Phoenix                         4              1                 4.0               0             1                   4.0
29. Norfolk                            8              3                 2.7               3             6                   1.3
30. NY/Newark*                        98             36                 2.7               1            37                   2.6
31. Pembina                            8              2                 4.0               1             3                   2.7
32. Philadelphia*                     20              6                 3.3               0             6                   3.3
33. Portland, ME                       6              2                 3.0               0             2                   3.0
34. Portland, OR                       8              3                 2.7               1             4                   2.0
35. Providence                         2              1                 2.0               0             1                   2.0
36. San Diego/Otay Mesa*              21              5                 4.2               3             8                   2.6
37. San Franciso*                     56             27                 2.1              14            41                   1.4
38. San Juan                          14              4                 3.5               0             4                   3.5
39. Savannah                           6              2                 3.0               2             4                   1.5
40. Seattle*                          27             17                 1.6               2            19                   1.4
41. St. Albans                        12              4                 3.0               0             4                   3.0




                                           Page 50                               GAO/GGD-00-23 New Trade Compliance Strategy
                                     Appendix III
                                     Number of Import Specialists and Port Accounts by Port




                                                       Average no. of            No. of port                       Average no. of
                     No. of import      No. of port import specialists            accounts        No. of port   import specialists
Port name              specialists       accounts    per port account         assigned Jan.        accounts      per port account
(prototype ports*)        12/31/98        12/31/98            12/31/98         thru 9/30/99          9/30/99               9/30/99
42. St. Louis                    4               1                 4.0                    2                3                   1.3
43. Tampa                        5               0                                        2                2                   2.5
     Jacksonville                5               1                 5.0                    0                1                   5.0
Totals                       1,002             258                 3.9                  190              448                   2.2
                                     Source: GAO analysis of data provided by Customs’ National Account Service Center.




                                     Page 51                                      GAO/GGD-00-23 New Trade Compliance Strategy
Appendix IV

Comments From the Department of the
Treasury




              Page 52     GAO/GGD-00-23 New Trade Compliance Strategy
                Appendix IV
                Comments From the Department of the Treasury




Now on p. 3.


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Now on p. 10.



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                Page 53                                GAO/GGD-00-23 New Trade Compliance Strategy
                 Appendix IV
                 Comments From the Department of the Treasury




 Now on p. 21.




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 Now on p. 2.




 Now on p. 26.




 Now on p. 4.



 Now on p. 4.




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                 Page 54                                GAO/GGD-00-23 New Trade Compliance Strategy
                Appendix IV
                Comments From the Department of the Treasury




Now on p. 14.




Now on p. 14.




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Now on p. 24.




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                Page 55                                GAO/GGD-00-23 New Trade Compliance Strategy
Appendix V

GAO Contacts and Staff Acknowledgments


                  Laurie Ekstrand, (202) 512-8777
GAO Contacts      Darryl Dutton, (213) 830-1000



                  In addition to the persons named above, James Bancroft, Gretchen
Acknowledgments   Bornhop, Carla Brown, Michael Kassack, Sidney Schwartz, Barry Seltser,
                  Michele Tong, and Bonita Vines made key contributions to this report.




                  Page 56                           GAO/GGD-00-23 New Trade Compliance Strategy
Page 57   GAO/GGD-00-23 New Trade Compliance Strategy
Page 58   GAO/GGD-00-23 New Trade Compliance Strategy
Page 59   GAO/GGD-00-23 New Trade Compliance Strategy
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