oversight

Federal Trade Commission: Information on Proposed Regional Restructuring Effort

Published by the Government Accountability Office on 1999-02-16.

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

                United States General Accounting Office

GAO             Report to Congressional Requesters




February 1999
                FEDERAL TRADE
                COMMISSION
                Information on
                Proposed Regional
                Restructuring Effort




GAO/GGD-99-25
GAO   United States
      General Accounting Office
      Washington, D.C. 20548

      General Government Division



      B-281687

      February 16, 1999

      The Honorable James M. Jeffords
      The Honorable John F. Kerry
      The Honorable Olympia J. Snowe
      United States Senate

      The Honorable Scott McInnis
      The Honorable Diana DeGette
      The Honorable Joel Hefley
      The Honorable Bob Schaffer
      The Honorable Edward J. Markey
      House of Representatives

      This report responds to your request that we review the Federal Trade
      Commission’s (FTC) June 1998 proposal to restructure its regional
      operations. FTC is responsible for administering a variety of statutes that
      focus on two areas. First, through its consumer protection activities, it
      seeks to protect the public from unfair and deceptive acts and practices in
      the marketplace. Second, through its competition or antitrust activities,
      FTC seeks to promote competition in the marketplace. FTC’s consumer
      protection and competition activities are currently carried out in its
      headquarters office in Washington, D.C., and in its 10 regional offices in
      Atlanta, Boston, Chicago, Cleveland, Dallas, Denver, Los Angeles, New
      York City, San Francisco, and Seattle.

      In June 1998, FTC Commissioners approved a proposal to restructure
      FTC’s regional operations to include (1) reconfiguring the 10 existing
      regional offices to 8 offices in 7 regions; (2) closing the Boston and Denver
      regional offices and shifting responsibility for the states covered by those
      offices to other regional offices; (3) merging the management and
      administration of the 2 California offices (Los Angeles and San Francisco)
      under 1 director, located in San Francisco; (4) allowing all staff in the
      closing offices to transfer to other offices; (5) transferring the 33 staff
      positions from the 2 closing regions to other regional offices and
      headquarters; and (6) focusing FTC’s regional work on competition or
      antitrust matters in 3 proposed regional antitrust centers—most probably
      located in San Francisco, Cleveland, and New York City—with the other
      regions continuing to perform this work only on a limited basis. FTC
      suspended plans to implement its restructuring proposal, pending the
      completion of this report. FTC’s proposed regions and their corresponding
      offices would be the Northeast Region (New York City), East Central
      Region (Cleveland), Southeast Region (Atlanta), Midwest Region


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                   (Chicago), Southwest Region (Dallas), Northwest Region (Seattle), and
                   Western Region (San Francisco and Los Angeles). Figures I.1 and I.2 in
                   appendix I show FTC’s current and proposed regional structures.

                   As agreed, the objectives of this report are to provide information on (1)
                   FTC’s rationale for proposing the regional restructuring, (2) the process
                   FTC followed in developing its restructuring proposal, (3) factors FTC
                   used and could have used in deciding how to restructure, (4) other options
                   to the proposed restructuring identified in prior FTC studies or by Boston
                   and Denver regional officials, and (5) the views of selected stakeholders
                   regarding the impact the proposed restructuring could have in the areas
                   covered by the Boston and Denver regional offices.

                   FTC’s rationale for developing its proposal to restructure its regional
Results in Brief   operations was to address its growing concerns about an increased and
                   more complex workload in the face of limited staffing resources.
                   Specifically, according to FTC officials, the proposal was to accommodate
                   increased and more complex workloads for both its competition and
                   consumer protection missions. Headquarters officials said that they
                   believed staff resources were not allocated efficiently to regions—that is,
                   regions were too small for efficiently carrying out FTC’s mission—given its
                   workload. Boston and Denver regional officials disagreed that regions
                   were too small to effectively contribute to FTC’s competition and
                   consumer protection missions and said that regions have made significant
                   contributions to these missions.

                   FTC’s decisionmaking process for developing its proposal consisted of
                   deliberations among headquarters officials during the early months of
                   1998. Although FTC officials said they had previously alerted regions to the
                   possibility of a restructuring, the process for developing the current
                   proposal did not include discussions with staff or managers in its Boston
                   and Denver offices. In addition, FTC’s process for developing the proposal
                   did not include discussions with external stakeholders that work with
                   these regions. In its strategic plan, FTC identified some of these
                   stakeholders as partners in helping it carry out its mission. According to
                   FTC officials, after FTC developed the restructuring proposal, but prior to
                   submitting it to the Commissioners for approval, FTC consulted with
                   concerned Members of Congress and officials of the Department of
                   Justice’s (DOJ) Antitrust Division about the proposal. These officials also
                   said FTC contacted other external stakeholders concerning the proposal
                   after the Commissioners had voted on and approved the proposal.




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According to FTC’s proposal, the decision to close the Boston and Denver
regional offices and to retain the remaining eight offices was based on
three factors—population, gross state product (GSP), and the percentage
of consumer fraud cases FTC filed in federal courts within each region.
According to FTC headquarters officials, FTC also considered staff
expertise and geographic location as factors for retaining offices in San
Francisco and Seattle. In addition, FTC officials said that FTC used
geographic location as a principal factor in deciding where it would most
likely locate the three proposed regional antitrust centers. FTC staff from
the Boston and Denver offices and our review of FTC documents identified
other factors—productivity, future population growth, and cost—that FTC
could have used in making its decision to restructure regional operations.
FTC officials said they considered these factors but decided not to use
them for a variety of reasons. For example, FTC officials said that they did
not use productivity because, among other things, it is difficult to measure.
Likewise, they said they did not use future population growth because they
did not believe it would have changed the relative ranking of regions by
population.

FTC presented a single approach for restructuring its regional operations
because, according to FTC officials, it considered other options to be
impractical or unrealistic. Our review of a prior FTC restructuring study
and discussions with the Boston and Denver regional officials identified 10
possible options that FTC could have considered, such as closing different
offices, shifting all regional competition resources to headquarters,
seeking additional resources from Congress, or maintaining the status quo.
FTC officials said that they considered several of these options but did not
deem them to be acceptable or realistic because they either (1) did not
sufficiently balance FTC’s dual mission of consumer protection and
competition, (2) were more disruptive of FTC’s regional operations than
the proposed restructuring, (3) called for additional resources that FTC did
not believe would likely be forthcoming, or (4) did not sufficiently address
the underlying rationale for undertaking the current restructuring effort.

Stakeholders’ views about the potential effects of FTC office closures were
mixed. Some of the external stakeholders we contacted refrained from
commenting on the potential effect of the closures of the Boston and
Denver regional offices. Concerning consumer protection matters, most of
the external stakeholders who expressed a view said that they believed the
closures would have a negative impact. These views primarily involved
concerns that (1) FTC staff from different regions of the country would not
be able to devote the time to or did not have knowledge of regional issues
and (2) FTC would not be able to adequately replace the service and



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             assistance provided by the FTC Boston and Denver regional offices.
             However, of those external stakeholders who had views on competition
             matters, opinions were more varied. Some stated that they supported the
             proposal, whereas others said that competition matters would be
             negatively affected. In addition, Boston and Denver FTC officials said they
             believed consumer protection and competition matters would be
             negatively affected. In September 1998, FTC headquarters officials
             provided us with plans for continuing services in the New England and
             Rocky Mountain areas. These officials said they believed these plans
             would mitigate the perceived negative impacts on both consumer
             protection and competition matters.

             Congress established FTC in 1914 as an independent administrative
Background   agency. FTC is responsible for enforcing federal statutes to protect the
             public against unfair and deceptive acts and practices and to promote
                           1
             competition. The Commission is composed of five members, all of whom
             are appointed by the President and confirmed by the Senate to staggered 7-
             year terms. No more than three Commissioners may be from any one
             political party. One Commissioner is designated by the President as
             Chairman of the Commission and is responsible for its administrative
             management.

             FTC carries out its mission through the work of three bureaus. The Bureau
             of Competition (BC), FTC’s antitrust arm, works to promote competition
             by preventing anticompetitive mergers and other anticompetitive business
                       2
             practices. BC investigates alleged violations of law and when appropriate,
             recommends that FTC take formal enforcement action. If FTC decides to
             take action, BC may take such action through litigation in federal district
             court or before agency administrative law judges. BC is also responsible
             for reviewing certain mergers and acquisitions under the Hart-Scott-
                                                                 3
             Rodino (HSR) Antitrust Improvements Act of 1976. In general, parties to
             mergers or acquisitions covered by the act must file their proposals with
             FTC and the Antitrust Division of the DOJ prior to consummating the

             1
              FTC was established under the FTC Act of 1914, as amended (15 U.S.C. 41-58). FTC is responsible for
             enforcing section 5 of the act, which prohibits unfair or deceptive acts or practices in or affecting
             commerce, unfair methods of competition in or affecting commerce, and the Clayton Act. Congress has
             also enacted over time, a number of other special statutes relating to consumer protection and trade
             regulation, which FTC also enforces.
             2
              BC shares its mission with DOJ’s Antitrust Division. According to FTC, the two agencies consult
             before opening any case in order to prevent duplication of effort. In general, the Antitrust Division
             concentrates on such matters as price fixing that may warrant criminal prosecution, and on certain
             specific industries that are not within FTC’s jurisdiction.
             3
                 15 U.S.C. 18a.




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                4
transaction. The two agencies generally are allowed up to 30 days to
request additional information from either or both parties. This request
extends the waiting period for a specified period of time, generally 20 days,
and allows FTC or DOJ to determine whether it will challenge the merger.
Appendix II provides additional information on the HSR Act and FTC’s
associated responsibilities.

Another FTC bureau, the Bureau of Consumer Protection (BCP), works to
protect consumers through the prevention of deceptive and unfair
practices in the marketplace. BCP enforces a variety of consumer
protection laws enacted by Congress. BCP actions include individual
company and industrywide investigations, administrative and federal court
litigation and rulemaking proceedings, and consumer and business
education. The third FTC bureau, the Bureau of Economics (BE), provides
economic analyses and support to consumer protection and antitrust
casework and rulemaking; analyzes the impact of government regulation
on competition and consumers; and, when requested, provides Congress
and the executive branch with economic analyses of various aspects of the
American economy. BE supports BC and BCP in carrying out FTC’s
competition and consumer protection work.

FTC’s regional offices are to conduct investigations and litigation, provide
advice to state and local officials, recommend cases, provide local
outreach services to consumers and businesspersons, and coordinate
activities with federal, state, and local officials. The regional offices also
are to sponsor conferences for small businesses, local officials, and
consumer groups. Although regional consumer protection and competition
activities are to be cleared through FTC’s bureaus—BCP and BC—in
Washington, D.C., regional offices report to FTC’s Office of Executive
Director (OED). FTC has reorganized its regional structure numerous
times since FTC was established. The current 10-region structure has been
in place since 1978. However, since then, FTC has twice considered
regional restructuring before the 1998 effort—once in the early 1980s and
again in 1987. The 1987 effort culminated in an extensive study of resource
allocation issues. Appendix III provides greater detail on FTC’s analyses of
restructuring during the 1980s, including FTC’s 1987 resource allocation
study.

FTC is largely self-financed by fees that companies must pay when they
file required merger notification documentation in compliance with the

4
 Whether a certain acquisition or merger is subject to HSR Act requirements depends on the value of
the acquisition and the size of the parties as measured by their sales and assets.




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              HSR Act. Even though FTC is largely self-financed by fees, it must receive
              congressional authorization to spend its revenues. For fiscal year 1998,
              FTC received budget authority of about $106.5 million, of which $88
              million resulted from filing fees. FTC was authorized 960 full-time
                                5           6
              equivalent (FTE) positions, of which 502 were dedicated to carrying out
              FTC’s consumer protection mission. The remaining 458 FTEs were
              dedicated to the competition mission. In fiscal year 1998, FTC allocated
              792 FTEs to headquarters and 168 FTEs to its 10 regional offices.

              To gather the information required to meet our objectives, we obtained
Scope and     and reviewed FTC statutes relating to its authority, FTC reports,
Methodology   Commission internal correspondence, and congressional appropriation
              hearings for FTC; the proposed regional restructuring plan and supporting
              FTC data and analyses; and documentation related to FTC’s mission, goals,
              and objectives. We interviewed FTC headquarters officials in Washington,
              D.C., and regional officials in the Boston and Denver offices. We also
              interviewed officials in the regional offices that are slated to take over the
              responsibilities of the Boston and Denver regions—Chicago, New York,
              San Francisco, and Seattle. In addition, we interviewed external
              stakeholders in selected federal, state, and local organizations that work
              with the Boston and Denver regions and selected organizations that work
              with FTC headquarters. We did not verify information provided by FTC
              officials or information provided by representatives of other organizations
              we contacted. We did not draw any conclusions about whether FTC’s
              proposal was necessary or appropriate or based on sound management
              because there are no established criteria regarding federal office
                              7
              restructuring. We did our work in Washington, D.C., Boston, Denver, and
              Dallas between June 1998 and January 1999, in accordance with generally
              accepted government auditing standards. Appendix IV discusses our
              objectives, scope, and methodology in greater detail.



              5
               An FTE generally consists of one or more employed individuals who collectively complete 2,080 work
              hours in a given year. Therefore, either one full-time employee or two half-time employees equal one
              FTE.
              6
               The authorized level of FTEs referred to by FTC is the level of FTEs approved by the Office of
              Management and Budget, and not necessarily a level of FTEs set in law or committee report.
              7
               In our report entitled Facilities Location Policy: GSA Should Propose a More Consistent and
              Businesslike Approach (GAO/GGD-90-109, Sept. 28, 1990), we noted that while there were several laws
              and executive branch orders that frame the government’s general policy on location decisions, there
              was no consistent and cost-conscious federal location policy. We recommended that General Services
              Administration (GSA) develop such a policy for congressional consideration. In March 1997, GSA
              issued an interim rule concerning the physical location of facilities and space in urban areas. The rule
              did not address internal agency organization and restructuring issues.




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                            We requested comments on a draft of this report from FTC’s Chairman.
                            These comments are discussed near the end of this letter and are reprinted
                            as appendix VIII. We also verified with the federal, state, and local
                            organizations we contacted that we had properly characterized their
                            views.

                            FTC’s rationale for developing its proposal to restructure its regional
FTC’s Rationale Was to      operations was to address its growing concerns about an increased and
Manage Its Workload         more complex workload in the face of limited staffing resources.
More Efficiently            Specifically, according to FTC officials, the proposal was to accommodate
                            increased and more complex workloads for both competition and
                            consumer protection matters. Headquarters officials said they believed
                            staff resources were not allocated efficiently to regions—that is, regions
                            were too small for efficiently carrying out FTC’s mission—given its
                            workload. Boston and Denver regional officials disagreed that the size of
                            the regions prevented them from contributing effectively to FTC’s
                            competition and consumer protection missions and said that regions have
                            made significant contributions to both areas of work.

FTC Intended Its Proposal   One reason FTC proposed the regional restructuring was to better manage
                            its large and complex merger workload under the HSR Act. According to
to Address an Increased     BC officials, its current regional allocation of competition resources—5
Competition Workload        FTEs in each of the 10 regional offices—did not meet its needs. BC
                            officials said that they needed more resources in headquarters and a
                            sufficient number of experienced staff located in fewer regions to best
                            manage these potentially large and complex HSR merger cases. They said
                            that the proposal to shift most of the regional competition resources either
                            to headquarters or to three regional antitrust centers—most probably
                            located in San Francisco, Cleveland, and New York City—would allow
                            FTC to assign more of the HSR workload currently performed by
                            headquarters staff to the regions. The proposal, according to the BC
                            Director, would enable FTC to have a “critical mass” of experienced staff
                            to work on resource-intensive and deadline-sensitive HSR merger cases in
                            the three regions. According to BC officials, having fewer regions involved
                            in competition work would better enable FTC to manage the workload and
                            would also reduce the amount of BC resources needed to manage the
                            regions.

                            Although FTC has not finalized its plans for reallocating regional
                            resources, the Executive Director said that she had prepared a draft
                            resource allocation plan to implement the restructuring proposal. She said
                            that as of January 1999, the draft plan had not been presented to or
                            approved by FTC’s Commissioners. Under this plan, some of the 33 staff



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                                     positions or FTEs from the Boston and Denver regions would shift to BC
                                     in headquarters, and the remaining FTEs would shift to the three regions
                                     designated as having antitrust centers. In the draft allocation plan, the
                                     number of FTEs at the 3 proposed antitrust centers would increase from 5
                                     to as many as 11, while BC headquarters staff allocation would increase by
                                     13 FTEs. The resource allocation plan would reduce the amount of
                                     competition work performed by the remaining regions, with the number of
                                     competition FTEs in the remaining regions each decreasing from five to
                                     one. According to FTC officials, the one remaining FTE in each of the
                                     regions that are not designated as having an antitrust center would be
                                     assigned to perform activities such as monitoring competition issues in
                                     those regions, alerting the antitrust centers to potential anticompetitive
                                     activities, and maintaining contact with the state attorneys general. Table 1
                                     shows the current and proposed allocation of competition resources by
                                     regional office as of July 1998.

Table 1: Current and Proposed
Allocation of Regional Competition                                                                  Competition FTEs
                                                                                                                                                    a
FTEs                                 Regional office                                                 Current                         Proposed
                                      Atlanta                                                              5                                 1
                                                                                                                                                    b
                                      Boston                                                               5
                                      Chicago                                                              5                                     1
                                                c
                                      Cleveland                                                            5                                    10
                                      Dallas                                                               5                                     1
                                                                                                                                                    b
                                      Denver                                                               5
                                                  d
                                      Los Angeles                                                          5                                     0
                                               c
                                      New York                                                             5                                    10
                                                    c
                                      San Francisco                                                        5                                    11
                                      Seattle                                                              5                                     1
                                                                                                                                                  e
                                     Total                                                                50                                   35

                                     Note: As discussed earlier, the names of the regions would change under the proposed restructuring.
                                     For purposes of this table, however, we present the current regional office names.
                                     a
                                     Proposed as of July 1998. OED officials said that the FTC Commissioners have not yet approved this
                                     draft allocation of FTEs.
                                     b
                                         Under the proposed restructuring, the Boston and Denver regional offices would be closed.
                                     c
                                      Designated as having an antitrust center under the FTC restructuring proposal. According to BC
                                     officials, to staff the antitrust centers, it is likely that FTC will need to hire from the outside and also
                                     allow staff currently working in regions not designated as having antitrust centers to transfer to the
                                     regions having antitrust centers.
                                     d
                                      Under the proposed restructuring, the Los Angeles office would report to the Western region, located
                                     in San Francisco.
                                     e
                                      The proposed reallocation would transfer 13 competition FTEs in the regions to BC headquarters. In
                                     addition, it would transfer 2 competition FTEs in the regions to consumer protection in the regions,
                                     leaving a total of 35 regional competition FTEs.
                                     Source: OED, FTC.

                                     FTC officials said that one of the reasons for transferring competition
                                     resources was to address the increased number of HSR merger filings
                                     given its relatively flat resources. FTC provided data that showed that the


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number of competition FTEs has fluctuated between 312 and 343 FTEs
over fiscal years 1991 to 1998. Over the same period, HSR merger filings
more than tripled from 1,529 in fiscal year 1991 to 4,728 in fiscal year 1998.
FTC officials consider this growth to be part of an increase in merger
activity that began after a decline of such activity in the early 1990s.
According to an FTC press release, the United States is in the midst of the
largest merger wave ever, with the value of mergers exceeding $1 trillion in
fiscal year 1998. A BE official said that she could not predict whether
mergers would continue to increase at their current pace because merger
activity is a function of numerous factors, including technological changes
to domestic and global markets. Nonetheless, the official said that she
expects the general trend in merger activity and FTC’s HSR filing caseload
to be on the rise. Appendix II provides information on FTC’s
responsibilities under the HSR Act, overall merger activity and its
unpredictability, and the cyclical variations in HSR merger filings for fiscal
years 1979 through 1998.

However, increases or decreases in the number of HSR merger filings
alone may not be a good indicator of changes to FTC’s HSR workload. In a
1992 hearing before FTC’s House Appropriations Subcommittee, the FTC
Commissioner stated that

“In the Commission’s experience, there does not appear to be an absolute correlation
between the number of HSR filings and the number of merger investigations. Thus, the
overall number of filings is not an accurate predictor of the number of merger
investigations that will be undertaken.”

To illustrate the Commissioner’s point, we compared HSR filings in 2
separate years. Of the 4,728 HSR merger filings in fiscal year 1998, FTC
initiated 46 in-depth investigations, or “second requests” for information.
In contrast, in fiscal year 1995, of the 2,816 HSR merger filings, FTC
initiated 58 second requests. FTC officials said, however, that a decrease in
second requests is not necessarily indicative of a smaller workload. These
officials said that FTC invests a considerable amount of work in
preliminary merger investigations prior to deciding to issue a second
request.

FTC officials said that the increased complexity of mergers was another
reason for transferring competition resources under the restructuring
proposal. They said that merger transactions in general have become more
complex and the volume and complexity of information associated with
merger filings has increased. At the same time, federal courts that deal
with merger cases have an increasing need for more sophisticated
analyses, which in turn has forced FTC to adopt a more complex and


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rigorous approach to merger analyses. Thus, FTC officials stated that FTC
needs more data, more evidence, and significantly more sophisticated
analyses of merger information. They stated that this complexity increases
FTC’s workload in that FTC needs more resources for investigations and
litigation than it did in the past. FTC’s strategic plan for fiscal years 1997 to
2002 recognizes the increased workload in HSR merger filings. According
to the strategic plan, the continued growth of the merger wave and of
competitive forces for change in important sectors of the economy strain
the agency’s ability to meet its goal of maintaining competition.

Although FTC points to the volume and complexity of merger filings as key
reasons for developing its proposal, OED officials said they would
continue to move forward with their proposal even if the number of
mergers were to decline. The officials said they believe that regional
offices are not currently configured to make the best use of limited
resources. The BC Director said that headquarters staff perform most of
the HSR merger work because this is the only location where FTC has
sufficient numbers of experienced staff to manage HSR cases. The director
said that headquarters divisions responsible for reviewing HSR mergers,
which each consisted of about 30 staff, have the flexibility to handle the
resource-intensive and deadline-sensitive HSR work. However, he also said
that, in some cases, he must assign staff from other areas of FTC to handle
the workload during the second request phase. The director said that with
the increased HSR merger workload, headquarters staff are currently
under continuous stress and must frequently work beyond normal working
hours to handle the workload.

Although regional offices each have about five competition FTEs allocated
to them, the director said that this level is not sufficient to successfully
manage large HSR merger cases. As a result, according to the director, BC
can only assign regional offices a few small and less complex HSR merger
cases and nonmerger work, such as investigations of anticompetitive
behavior. He also said that the small number of competition FTEs
allocated to each region has resulted in regional offices not being able to
develop sufficient experience and expertise in conducting large HSR
merger cases.

As discussed earlier, as proposed, each of the three regional antitrust
centers would have as many as 11 FTEs to perform competition work.
According to the BC Director, 9 to 11 FTEs are needed in a location to
manage HSR merger cases. While FTC has not performed any formal study
of what it refers to as the “critical mass” necessary to perform work at
each proposed antitrust center, BC officials said that having 9 to 11 FTEs



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                               at each center would allow the agency to annually assign each regional
                               antitrust center as many as 2 to 3 HSR merger cases that progress to the
                               “second request” stage. According to BC officials, this would reduce the
                               workload currently carried out by BC headquarters staff and would allow
                               staff in the three antitrust centers to develop the expertise needed to
                               perform HSR work. The proposed restructuring would also shift 13
                               regional FTEs to BC headquarters, which, according to BC officials, would
                               better enable FTC to manage the large HSR workload. Also, according to
                               these officials, reducing the number of regions that BC manages from 10 to
                               3 would reduce the amount of administration and management resources
                               needed to be spent by BC officials.

                               FTC headquarters officials said that if the restructuring is implemented, it
                               would probably take FTC a few months, perhaps a year, to fully staff the
                               three antitrust centers, and a few years to gradually phase out the merger
                               work currently performed by the other regional offices. The BC Director
                               said that FTC would likely need to hire from the outside to staff the
                               Cleveland and New York offices, but he said that FTC should have enough
                               transfers from other regions and other offices for staffing the San
                               Francisco office. BC officials acknowledged that staff performing
                               competition work in the regions not designated as having antitrust centers
                               may not be content with the gradual phase-out of antitrust work at those
                               locations. However, BC officials said that staff interests can change and
                               staff can transfer.

Boston and Denver FTC Staff    Boston and Denver regional staff disagreed with FTC headquarters
Disagreed With FTC About the   officials’ position that regions were currently too small to perform a
Number of Regional Staff       significant amount of HSR merger work. They also questioned
Needed to Work on HSR Merger   headquarters officials’ position that the current structure did not enable
Cases                          regions to develop sufficient expertise. In particular, the Boston and
                               Denver staff said that they believe a larger number of staff, or a “critical
                               mass,” is not necessary for regional offices to fully participate in
                               conducting HSR merger work. Boston officials said that HSR merger work
                               can be successfully accomplished with the five FTEs allocated to each
                               region to do competition work and that regional offices have successfully
                               settled large merger cases, including the Boston office, which recently
                               settled a case. The officials further stressed the contribution of other
                               regional offices that have litigated merger cases, including Denver, which
                               has litigated one case and assisted another region in litigating one case.

                               Further, the Boston officials said that regional offices generate their own
                               nonmerger cases and review essentially all regional health care mergers.
                               Boston officials said that regional offices are valuable in that they generate



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                            non-HSR merger work, including investigations of small, local mergers and
                            other anticompetitive activity. Boston officials said they spent
                            approximately 40 percent of their time in fiscal year 1998 on competition
                            matters—primarily mergers. Denver regional officials also said that in the
                            period July 1997 through June 1998, Denver staff conducted five HSR
                            merger investigations, four non-HSR merger investigations, and three
                            nonmerger investigations. Further, they stated that Denver is one of only
                            two regional offices to have litigated a preliminary injunction action in a
                            federal court. The Denver officials told us that regional offices spend more
                            of their competition resources on nonmerger cases, which is an area that
                            they believe BC headquarters has not devoted many resources to.
                            Appendix V contains information on the number of HSR, non-HSR, and
                            nonmerger cases that regions and headquarters managed in fiscal years
                            1993 through 1998.

FTC Intended Its Proposal   Another reason FTC developed the regional restructuring proposal was to
                            address its increasing consumer protection workload. According to BCP
to Address Increased        officials, the proposed restructuring would concentrate slightly more
Consumer Protection         consumer protection resources in fewer regional offices. In their view,
Workload                    having a larger number of consumer protection staff in each of the
                            remaining regions would better enable the regions to work on larger, more
                            labor-intensive consumer protection cases. Furthermore, these officials
                            said that by focusing the regional competition work primarily in three
                            antitrust centers, as discussed earlier, regional consumer protection
                            resources would be better insulated from the demands of the time-
                            sensitive HSR work.

                            The Executive Director’s proposed resource allocation plan to implement
                            FTC’s regional restructuring proposal would increase consumer protection
                            resources in the remaining eight offices by as many as seven FTEs and the
                            total number of consumer protection FTEs in the regional offices by two.
                            According to the Executive Director, these two FTEs would be reallocated
                            from regional competition FTEs. Table 2 shows the current and proposed
                            allocation of consumer protection FTEs by regional office as of July 1998.




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Table 2: Current and Proposed
Allocation of Regional Consumer                                                           Consumer protection FTEs
                                                                                                                            a
Protection FTEs                   Regional office                                             Current              Proposed
                                  Atlanta                                                          12                     19
                                                                                                                            b
                                  Boston                                                           12
                                  Chicago                                                          12                     17
                                  Cleveland                                                        12                     13
                                  Dallas                                                           12                     16
                                                                                                                            b
                                  Denver                                                           11
                                  New York                                                         12                     16
                                              c
                                  Los Angeles                                                      11                     12
                                  San Francisco                                                    12                     11
                                  Seattle                                                          12                     16
                                                                                                                            d
                                  Total                                                           118                   120

                                  Note: As discussed earlier, the names of the regions would change under the proposed restructuring.
                                  For purposes of this table, however, we present the current regional office names.
                                  a
                                  Proposed as of July 1998. OED officials said that FTC Commissioners have not yet approved the
                                  draft allocation of FTEs.
                                  b
                                      Under the proposed restructuring, the Boston and Denver regional offices would be closed.
                                  c
                                   Under the proposed restructuring, the Los Angeles office would report to the Western region, located
                                  in San Francisco.
                                  d
                                   The proposed reallocation would transfer 2 competition FTEs in the regions to consumer protection in
                                  the regions, increasing the total regional FTEs dedicated to consumer protection to 120.
                                  Source: OED, FTC.


                                  According to the BCP Director, FTC’s consumer protection workload has
                                  increased just as the competition workload has increased. She said that
                                  increases have occurred because of (1) the explosive growth of the
                                  Internet with associated increases in deception, privacy violations, and
                                        8
                                  spam; (2) the globalization of commerce, with increasing incidence of
                                  international fraud, and a growing international concern about privacy and
                                  electronic commerce; and (3) changes in telecommunications, specifically
                                                               9
                                  deregulation and cramming. According to FTC officials, unlike BC’s
                                  workload of HSR merger filings, BCP’s workload is less easily measured.
                                  However, an OED official said that through November 1998, FTC had
                                  undertaken 41 Internet cases. FTC resources for Internet work have
                                  increased from 4 percent of BCP FTEs in fiscal year 1996 to an estimated
                                  17 percent in fiscal year 1998. According to the BCP Director, these factors
                                  have increased BCP’s workload and strained its staff. FTC headquarters


                                  8
                                      Spam is unsolicited commercial electronic mail over the Internet.
                                  9
                                   Cramming is the practice of companies billing consumers on their telephone bills for services the
                                  consumers did not order or use.




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provided data that showed actual consumer protection FTEs were 339 in
fiscal year 1995 and 375 in fiscal year 1998.

According to the BCP Director, the restructuring proposal will enable FTC
to shift to the regions some of the work that is currently being performed
in BCP headquarters. She said that currently, BCP headquarters staff
perform work that inherently must be performed in Washington, D.C., such
as rulemaking, preparing testimony and special reports to Congress,
developing centralized consumer protection databases, and developing
and organizing nationwide consumer education and outreach programs. In
addition, she said that headquarters staff are often required to participate
in work that is more conducive to regional operations, such as conducting
investigations and initiating enforcement actions, especially on larger,
more labor-intensive cases.

The BCP Director said that under the restructuring, she envisions being
able to assign regions responsibility for managing specific consumer
protection issues—thus freeing up BCP headquarters staff from these
responsibilities. She suggested, for example, that one regional office could
be assigned to focus on consumer credit rules. Furthermore, she said that
reducing the number of regions responsible for consumer protection work
would enable FTC to reduce the number of headquarters staff needed to
manage the regions.

According to the BCP Director, recent technological innovations—FTC’s
Internet web site, a consumer complaint handling center, and a related
consumer fraud database—reduce FTC’s need to have 10 regional offices
spread across the country. According to FTC officials, its consumer
education materials were accessed through the Internet over a million
times over the past year. The FTC’s consumer complaint handling center,
located in headquarters, consists of staff who receive calls from
consumers across the nation concerning complaints or requests for
educational materials. The officials said that a toll-free telephone number,
anticipated as being functional in the spring of 1999, and additional
personnel will make the center more effective. The BCP Director told us
that a consumer fraud database, using data compiled from the consumer
complaint handling center as well as from federal, state, and local law
enforcement agencies and offices in the United States and Canada, will
assist BCP in better targeting its limited resources.

According to BCP officials, the proposed restructuring is compatible with
BCP efforts to strategically plan its consumer protection work. These
officials said that BCP developed a strategic plan that attempts to



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                               prioritize, plan, and allow BCP to centrally manage the consumer
                               protection work to be undertaken each year by both headquarters and
                               regional offices. They said that such central planning and management
                               would allow the agency to address its most pressing consumer protection
                               issues and use its limited resources more efficiently.

Boston and Denver Staff Said   Boston and Denver regional officials said they believe that regions overall
They Believe Regions Have      have made significant contributions to FTC’s consumer protection
Contributed Significantly to   mission. They told us that regions have accounted for a greater percentage
FTC’s Consumer Protection      of consumer redress and civil penalties and a greater share of consumer
Mission                        protection enforcement work than headquarters, given regional staffing
                               levels. Denver regional staff provided data that showed, for fiscal year
                               1998, regions and headquarters accounted for about the same number of
                               cases in which there was at least a proposed settlement and that regions
                               accounted for about 70 percent of the total redress and civil penalties
                               during this same time period. They said that both the case with the largest
                               amount of consumer redress—$60 million—and the case with the largest
                               civil penalty—$800,000—were handled by regional offices. FTC
                               headquarters officials said that the Chicago and San Francisco regions,
                               respectively, handled these cases.

                               Boston regional staff also provided data that showed that, although regions
                               only accounted for about 35 percent of the consumer protection FTEs
                               during the period January 1997 through June 1998, regions handled 59
                               percent of the consumer protection enforcement actions. According to
                               FTC headquarters officials, breaking down regional and headquarters
                               accomplishments in this manner does not reflect the fact that much of
                               FTC’s consumer protection work is collaborative. Appendix V presents
                               information the Boston regional office provided on the number of
                               enforcement actions filed by regions and headquarters and the percentage
                               of consumer protection FTEs used, respectively, for January 1997 through
                               June 1998. Appendix V also presents the same type of information for
                               fiscal years 1993 through 1998, as provided by FTC headquarters officials.

                               FTC’s decisionmaking process for developing its proposal consisted of
FTC’s Decisionmaking           deliberations among headquarters officials, including the Commissioners,
Process Did Not                Executive Director, and officials from BC and BCP during the early
Include Coordination           months of 1998. However, although FTC officials said they had previously
                               alerted regions to the possibility of a restructuring, the process for
With Regions and               developing the current proposal did not include discussions with staff or
External Organizations         managers in its Boston or Denver offices. In addition, FTC’s process for
                               developing its proposal did not include external stakeholders that work
                               with these regions. In its strategic plan, FTC identified some of these



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stakeholders as partners in helping it carry out its mission. According to
FTC officials, after FTC developed the restructuring proposal but prior to
submitting it to the Commissioners for approval, FTC briefed concerned
Members of Congress and officials of DOJ’s Antitrust Division about the
proposal. FTC officials also said FTC contacted other external
stakeholders concerning the proposal after the Commissioners had voted
on and approved the proposal.

According to FTC’s Executive Director, in January 1998, the Chairman
directed that she study how to better integrate regional resources into
                      10
FTC’s overall mission. In response to the Chairman’s directive, the
Executive Director held internal discussions between January and March
1998 with the BCP and BC Directors as well as their staff. These
discussions focused on the nature and type of work, the respective
workloads of the two bureaus, regional office workloads, regional
strengths and weaknesses, and possible options for restructuring regional
operations.

The Executive Director, after discussion with senior officials and
Commissioners, decided on which factors to use as a basis for
restructuring regional operations and developed a proposal that included
closing the Boston and Denver regional offices and transferring the
associated resources to other regions and headquarters. According to FTC
officials, after developing the proposal in March 1998 but prior to
submitting it to the Commissioners for approval, FTC officials briefed
concerned Members of Congress, including staff and/or Members of FTC’s
Appropriations and Authorization Committees and selected senators and
representatives from states in the Boston and Denver regions, as well as
officials from DOJ’s Antitrust Division, about the proposal.

On June 1, 1998, the FTC Commissioners approved a nine-page proposal—
four pages of narrative and five pages of charts and graphics—for
restructuring regional operations. Other than some analyses of state
population, GSP, and consumer protection fraud cases used in developing
the proposal, OED officials said that they had no other formal
documentation or analyses reflecting FTC’s deliberations in arriving at the
proposal. In developing the restructuring proposal, FTC did not contact
federal, state, or local organizations that work with the Boston and Denver

10
  According to FTC officials, the current proposal was part of an effort FTC began in 1995 to
streamline its operations. As a result of that effort, (1) OED reduced 15 percent of its FTEs and
transferred them to BCP and BC, (2) BC converted lawyer positions into more cost effective paralegal
and investigator positions, and (3) BCP transferred consumer contact representatives from various
headquarters units to FTC’s consumer complaint handling center.




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regions, some of which FTC identified as partners in its strategic plan for
fiscal years 1997 to 2002. These partners include organizations such as the
state attorneys general and the American Association of Retired Persons
(AARP). After the Commissioners voted on the proposal, however,
according to FTC officials, FTC contacted concerned Members of
Congress, representatives of the American Bar Association’s Antitrust Law
Section, and officials in almost all of the affected offices of state attorneys
general.

FTC also did not request information from its Boston and Denver regions
in developing the restructuring proposal. According to the Executive
Director, FTC management had alerted all the regional offices about the
possibility of FTC’s restructuring regional operations, in light of FTC’s
overall effort to improve agency efficiencies, as early as March 1997. The
Executive Director said that FTC management reinforced this message
during meetings held with regional officials in the fall of 1997 and again in
the spring of 1998. OED officials said that while FTC management
originally had intended to include regional officials in deliberations on
restructuring FTC operations, management was concerned about (1) the
morale of all regional employees and the impact on regional productivity if
regions were actively involved in deliberations over potential regional
office closings and (2) the inability of regional office personnel to
objectively contribute to discussions about whether their own or other
individual offices should be closed. Furthermore, OED officials said that
FTC formed a task force a few years ago to brainstorm the best use of
regional resources but that no permanent solutions were developed as a
result of that effort. These officials also said that the former Executive
Director had understood from regional liaisons that regions did not want
to play a role in discussions about which regional offices should be closed.

The acting regional directors in both the Boston and Denver regions said
that they were aware of FTC’s efforts to become more efficient and
reorganize operations. However, they said that FTC management did not
clearly communicate its desire to close any regional offices. They also said
that they were not aware of the regional restructuring proposal effort until
mid-May 1998. According to a Boston regional official, not only was FTC
management unclear about its intentions, FTC management sent mixed
signals about its intentions concerning the possible closure of regional
offices. For example, in October 1997, FTC management advertised to fill
vacant regional director positions in four regional offices, including Boston
and Denver. These announcements did not close until December 1997—a
month before the Chairman’s directive to develop a regional restructuring
proposal.



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                           According to FTC’s proposal, the decision to close the Boston and Denver
FTC Based its Decision     regional offices and to retain the remaining eight offices was based on
on Three Factors and       three factors—population, GSP, and the percentage of consumer fraud
Could Have Used            cases FTC filed in federal courts within each region. According to FTC
                           headquarters officials, FTC also considered staff expertise and geographic
Others                     location as factors for retaining offices in San Francisco and Seattle. In
                           addition, FTC officials said that FTC used geographic location as a
                           principal factor in deciding where to locate the three proposed regional
                           antitrust centers. Discussions with FTC staff from the Boston and Denver
                           offices and our review of FTC documents identified other factors—
                           productivity, future population growth, and cost—that FTC could have
                           used in making its decision. FTC officials said they considered these
                           factors but decided not to use them for a variety of reasons. For example,
                           FTC officials said that they did not use productivity because, among other
                           things, it is difficult to measure. Likewise, the officials said they did not
                           use future population growth because they did not believe it would have
                           changed the relative ranking of regions by population.

Population, GSP, and the   FTC’s initial nine-page proposal cited three factors—population, GSP, and
                           the number of consumer fraud cases FTC filed in federal courts within
Percentage of Consumer     each region—as the key factors in deciding which offices to close and
Fraud Cases Filed by FTC          11
                           retain. On the basis of its analysis of these factors, FTC concluded that
Were Central to FTC’s      the Boston and Denver regions represented disproportionately low levels
Decision                   of population and GSP and that those regions did not have a high number
                           of consumer protection fraud cases filed in federal courts as compared
                           with the other regions. For example, the Boston and Denver regions each
                           included approximately 5 percent of the U.S. population, while the other
                           regions, except for San Francisco and Seattle, included substantially more,
                           as of July 1997. Table 3 shows the U.S. Census Bureau estimates of the
                           population and percentage of population for each of FTC’s 10 regional
                           offices as of July 1997 that FTC used in its analysis.




                           11
                              The narrative in FTC’s restructuring proposal refers to Gross National Product (GNP) as one factor
                           that FTC used in determining how to restructure its regional operations. The proposal also refers to
                           Gross Domestic Product and Gross State Product, which are similar to GNP. In addition, the charts in
                           FTC’s restructuring proposal included data that showed the percent of geographic area for each of
                           FTC’s current and proposed regions relative to the total U.S. geographic area. The narrative proposal
                           did not include a discussion of how FTC used these data in deciding how to restructure regional
                           operations.




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Table 3: Population and Percent of
Population for FTC’s 10 regions as of   (Population in thousands)
July 1997                               Region                                         Population             Percent of population
                                         Atlanta                                          52,477                               19.6
                                         Cleveland                                        41,151                               15.4
                                         Chicago                                          39,778                               14.9
                                         Dallas                                           31,361                               11.7
                                         New York                                         26,190                                9.8
                                         Los Angeles                                      26,067                                9.7
                                         San Francisco                                    13,620                                5.1
                                         Boston                                           13,379                                5.0
                                         Denver                                           12,942                                4.8
                                         Seattle                                          10,672                                4.0
                                        Total                                            267,637                              100.0

                                        Source: FTC analysis of Estimates of the Population of States: Annual Time Series, July 1, 1990, to
                                        July 1, 1997, U.S. Census Bureau, Department of Commerce.


                                        Similarly, FTC concluded that both the Boston and Denver regions
                                        accounted for relatively low levels of GSP in comparison to most other
                                        regions. Specifically, Boston accounted for approximately 6 percent of
                                        total GSP in 1994, while Denver accounted for approximately 5 percent of
                                        GSP. Table 4 shows the Department of Commerce GSP data for 1994 and
                                        FTC’s analysis of GSP for its 10 regions.

Table 4: GSP and Percent of GSP for
FTC’s 10 regions as of 1994             (Dollars in millions)
                                        Region                                                      GSP                  Percent of GSP
                                         Atlanta                                              $1,154,783                            17.7
                                         Cleveland                                               997,849                            15.3
                                         Chicago                                                 957,544                            14.7
                                         New York                                                786,920                            12.1
                                         Dallas                                                  706,927                            10.8
                                         Los Angeles                                             645,406                             9.9
                                         Boston                                                  369,654                             5.7
                                         San Francisco                                           354,273                             5.4
                                         Denver                                                  294,705                             4.5
                                         Seattle                                                 251,758                             3.9
                                        Total                                                 $6,519,819                           100.0

                                        Source: FTC analysis of total GSP using chained (1992) dollars as reported by the Regional
                                        Economic Analysis Division, Bureau of Economic Analysis, Department of Commerce.


                                        Finally, FTC’s restructuring proposal also showed that 5 percent and 3
                                        percent of FTC’s consumer fraud cases were filed in federal courts in the
                                        Boston and Denver regions, respectively. FTC’s restructuring proposal did
                                        not specify the period for which these percentages were calculated, but an
                                        OED official said the period was fiscal year 1979 through the second



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                                        quarter of fiscal year 1998—March 31, 1998. Table 5 presents the number
                                        of consumer fraud cases filed in federal courts in each of FTC’s regions
                                        and the related percentages as presented in FTC’s restructuring proposal.

Table 5: Number and Percent of                                                                a
Consumer Fraud Cases Filed by FTC in    Region                   Cases filed in the region             Percent of cases filed in the region
Federal Courts in Each FTC Region for   Atlanta                                        182                                               24
Fiscal Year 1979 Through the Second     Los Angeles                                    140                                               18
Quarter of Fiscal Year 1998             Cleveland                                        82                                              11
                                        Chicago                                          76                                              10
                                        San Francisco                                    75                                              10
                                        New York                                         66                                               9
                                        Dallas                                           63                                               8
                                        Boston                                           36                                               5
                                        Seattle                                          27                                               4
                                        Denver                                           20                                               3
                                                                                                                                           b
                                        Total                                          767                                             100
                                        Note: FTC’s restructuring proposal presented the percentages of consumer fraud cases filed in each
                                        FTC region, but did not specify the period for which the percentages were calculated. An OED official
                                        said the period covered was fiscal year 1979 through the second quarter of fiscal year 1998.
                                        Furthermore, the proposal did not present the numbers of cases filed in each region, as shown in this
                                        table. FTC officials provided supporting documentation that showed how they arrived at the
                                        percentages included in the proposal, but noted that the data they used were not complete because of
                                        an incomplete database. These officials said they knew that some cases were missing from the
                                        database but believed the missing data would not materially affect the percentages. These officials
                                        later provided data that they stated were complete. The data showed a larger number of cases filed, but
                                        the percent of cases filed in each region was essentially the same as shown in this table.
                                        a
                                         A case may be filed by FTC officials in the region in which the court is located or by FTC officials from
                                        another region or headquarters office.
                                        b
                                            FTC’s percentages for the regions do not add to 100 percent due to rounding.

                                        Source: OED, FTC.


                                        FTC officials acknowledged that the Seattle region ranked as the lowest
                                        region with respect to both population and GSP and ranked as the second
                                        to the lowest region with respect to number of consumer fraud cases filed
                                        in courts in that region. However, these officials said that the Seattle
                                        regional office was not selected as one that should be closed instead of
                                        Boston or Denver because (1) of its past and continuing consumer
                                        protection efforts and (2) it contained the largest geographic area of any
                                        FTC region. According to FTC officials, telemarketing fraud involving
                                        companies located in Canada that call and defraud U.S. citizens has
                                        become a growing problem. These officials also told us that joint FTC-
                                        Canadian law enforcement efforts have become an important tool in
                                        fighting cross-border fraud. They said they decided to keep the Seattle
                                        office open because FTC Seattle regional officials have developed good
                                        working relationships with Canadian law enforcement officials.




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While the Executive Director also acknowledged that the San Francisco
region was relatively low in population and percentage of GSP, she said
that staff in the San Francisco office had developed a level of expertise in
high-technology issues and was close to Silicon Valley. She also said FTC
wanted to further develop this expertise. In addition, she stated that, by
combining the management of the San Francisco and Los Angeles offices,
the population and GSP of the combined region would match those of the
other larger FTC regions. OED officials said they decided to retain the Los
Angeles office—instead of closing it and having only one office in
California—because, according to these officials, the Los Angeles region
has covered an area in which fraudulent companies have typically tended
to locate. Consequently, these officials said FTC has filed a large
percentage of its consumer fraud cases in federal courts located in that
area. FTC’s proposal states that approximately 15 percent of the consumer
fraud cases that FTC filed in fiscal year 1997 were filed in the Southern and
Central Districts of California, which have been covered by FTC’s Los
Angeles region. According to OED officials, even though staff from offices
other than the Los Angeles office have filed some of these cases, the Los
Angeles office needed to remain open because the Los Angeles regional
officials (1) had knowledge of the local courts and were familiar with local
court officials and (2) could assist with cases filed by other regions to
ensure that the cases progressed smoothly through the courts.

Our interviews with Boston and Denver regional officials indicated that
they believed the selective factors FTC used to justify retaining other
regions could have been used to justify retaining their offices. For
example, Boston regional officials stated that they believed their region
has more experience in dealing with Internet fraud issues than other FTC
regional offices and has experience with health care mergers in the New
England area. OED officials disagreed with the Boston regional officials’
claims of Internet fraud experience and noted that Boston has worked on
two of FTC’s Internet-related cases. As discussed earlier, as of November
1998, FTC had undertaken 41 Internet-related cases.

Boston regional officials also said that the Boston region accounted for the
fourth largest number of FTC consumer protection fraud filings for the
period January 1997 through June 1998 and that Boston regional officials
were responsible for filing seven of the eight FTC cases in New England
                          12
courts during that period. Denver officials said that Denver staff were
12
   FTC’s proposal showed that the Boston region ranked eighth out of the 10 FTC regions in terms of
the percentage of FTC consumer fraud cases filed in federal courts in those regions. An OED official
said that in calculating the percentages in the proposal, FTC used cases filed in fiscal years 1979
through the second quarter of fiscal year 1998.




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                             also familiar with the fraud and privacy issues challenging FTC in dealing
                             with the Internet and other high-technology industries. These officials said
                             that many high-technology industries are located in Denver, and regional
                             office staff have worked closely with those industries to help them
                             formulate a program of self-regulation. In addition, Denver regional
                             officials said they also have expertise in numerous areas such as franchise
                             and business opportunity fraud, telemarketing, advertising, funeral rule
                             enforcement, and antitrust cases in the health care area.

FTC Used Geographic          Concurrent with FTC’s decision to close the Boston and Denver regional
                             offices, FTC officials determined that FTC should retain antitrust work in
Location to Select Which     selected regional offices and used geographic location as a principal factor
Regions Would Be Antitrust   in selecting which offices should have regional antitrust centers.
Centers                      According to OED officials, FTC decided to retain a regional presence for
                             antitrust work to address some local issues and to continue to work with
                             state attorneys general.

                             According to the BC Director, FTC decided to maintain a regional
                             presence by creating three antitrust centers—one on the West Coast, one
                             on the East Coast, and one near the middle of the country. FTC proposed
                             San Francisco, New York City, and Cleveland as the most likely locations
                             for the antitrust centers. The BC Director told us that San Francisco was
                             selected because, as noted earlier, the San Francisco regional officials had
                             experience with high-technology issues, given San Francisco’s proximity to
                             Silicon Valley, and FTC officials considered San Francisco a business hub
                             with many antitrust attorneys located there. New York City was also
                             selected, according to BC officials, because it was considered a business
                             hub with many of the law firms FTC routinely works with located there.
                             According to BC officials, the Cleveland office was selected because of its
                             location in the U.S. interior and also because FTC recognized it could fill
                             the existing vacancy for Regional Director in the Cleveland region with an
                             individual having considerable antitrust experience.

FTC Could Have Used          FTC officials from the Boston and Denver regional offices and our review
                             of FTC documents identified other factors—productivity, future
Other Factors                population growth, and cost—that FTC could have used in making its
                             decision to restructure regional operations. FTC officials said that they
                             considered these factors but decided not to use them for a variety of
                             reasons.

Productivity                 FTC officials in the Boston and Denver regional offices said they believed
                             that FTC should have used productivity in determining whether to
                             restructure operations. FTC’s proposal did not contain analyses of (1)



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                           consumer protection and competition cases filed by regional offices and
                           headquarters or (2) consumer education and outreach activities by those
                           offices and headquarters. OED officials said that they deliberately avoided
                           using hard-to-quantify factors, such as productivity, in determining which
                           offices to close. Further, they chose not to use productivity as a factor
                           because they were concerned that it might have a negative impact on staff
                           morale, both in the regions and in headquarters, now and in the future.
                           They added that problems with using productivity as a factor in deciding
                           which offices to close include (1) selecting an appropriate measure of
                           productivity, such as the number of cases or investigations an office
                           recommends for filing or the impact a case might have; (2) deciding
                           whether, and if so how, to adjust for differences in the complexity of cases
                           an office undertakes; (3) accounting for any assistance provided by other
                           FTC offices, such as BC assistance on regional office cases or regional
                           assistance on BC cases; and (4) adjusting for other factors, such as the
                           impact that unfilled positions or employees’ extended leave might have on
                           productivity. Furthermore, OED officials said that FTC attempted to use
                           data, such as the number of enforcement cases filed by a region or a
                           bureau, to measure performance under the Government Performance and
                                                13
                           Results Act of 1993, but neither the regions nor the BC or BCP staff
                           supported such use.

                           FTC’s 1987 Resource Allocation Study also discussed the issue of
                           productivity as a factor to allocate resources. Among other things, the
                           study showed that using productivity was problematic because any
                           number of factors, such as FTEs, enforcement activities, and the
                           complexity of cases, could be used to conclude either that regions were
                           more productive than headquarters or that headquarters was more
                           productive than regions. Furthermore, the study pointed out that
                           headquarters and regional staff have collaborated on various issues,
                           making it difficult to distinguish who deserves credit for accomplishments.
                           Appendix V contains more detailed information on the productivity issue
                           discussed in the 1987 Resource Allocation Study.

Future Population Growth   Denver regional officials said that FTC could have used future population
                           growth as a factor in deciding whether it should restructure its regional
                           operations. They stated that even though the Denver region’s current
                           population ranked among the lowest of the regions, with the general
                           westward shift of population over the last 2 decades, a large part of the
                           region has experienced explosive growth. Between 1990 and 1997,

                           13
                            The act requires agencies to set goals, measure performance, and report on the degree to which their
                           goals are met.




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       according to Denver regional officials, the five fastest growing states in the
       country have been either located in or bordered on the area served by
       FTC’s Denver Regional Office. The officials said these states include
       Arizona, Colorado, Idaho, Nevada, and Utah. Further, regional officials
       stressed that the region serves eight of the U.S. counties classified as the
       fastest growing counties in the United States between the years 1990 and
       1997.

       OED officials said that they considered using future population growth as
       a factor in determining which regional offices to close because they were
       aware that the population in the United States is shifting from the
       northeast to the south and southwest. They said that FTC decided not to
       use future population growth as a factor because some FTC regions were
       currently so low in population that even spectacular growth over the next
       10 to 15 years would not significantly change the regional percentage of
       total U.S. population relative to other FTC regions. Subsequent to our
       discussion about future population growth with headquarters officials, the
       Executive Director asked BE to make population projections based on
       growth. FTC’s projections showed that, whereas the Denver region
       included 4.84 percent of the population in 1997, it was expected to grow to
       4.94 percent by the year 2002 and to 5.03 percent in 2007. The FTC
       estimates showed that the Boston region would be expected to shrink
       from 5 percent of the total population in 1997 to 4.82 percent in 2002 and
       4.65 percent in 2007.

Cost   Our review of FTC documents showed that another factor FTC could have
       used was cost. FTC’s 1987 Resource Allocation Study was done to focus on
       two issues: (1) the distribution of resources between the enforcement
       bureaus and the regional offices, given the then-current budget context,
       and (2) options for regional office structure. The study indicated that when
       closing regional offices, FTC would have realized nonpersonnel cost
       savings—such as office space rent and telecommunications and equipment
       costs—associated with the closings. However, although the study
       recognized that there would be costs associated with a significant
       redeployment of personnel in consolidating or closing offices, according to
       OED officials, FTC did not fully analyze the implications of these costs.

       We asked FTC officials if they considered cost to be a factor in developing
       their current restructuring plan. The officials said they considered cost but
       believed the restructuring would essentially be “budget neutral” in fiscal
       year 1999 and beyond. To cover possible fiscal year 1998 costs, in June
       1998 FTC requested $365,000 in unobligated carryover funds from its
       Appropriations Subcommittee to pay for, according to OED officials,



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                       moving costs for any Boston and Denver regional staff who wished to
                       move during the summer of 1998. FTC’s estimates showed that, at that
                       time, it could have cost about $1.4 million to move an estimated one-third
                       of the staff from Boston and Denver to other locations and sever the
                                                                                               14
                       remaining two-thirds of the staff who may not have chosen to move.
                       While FTC estimated that it would have saved about $188,000 in office rent
                       in Boston and Denver if it closed the offices on December 1, 1998, as it
                       originally had planned, it did not consider the cost of additional office
                       rental space for the remaining larger regional offices. FTC estimates also
                       did not consider the increased travel costs that might be incurred by other
                       regional offices whose geographic coverage would be increased by the
                       restructuring.

                       FTC presented a single approach for restructuring its regional operations
FTC Considered Other   because, according to FTC officials, it considered other options to be
Options to Be          impractical or unrealistic. Our review of FTC’s 1987 Resource Allocation
Impractical or         Study and discussions with the Boston and Denver regional officials
                       identified 10 possible options that FTC could have considered. These
Unrealistic            options were as follows: (1) transfer all competition work to headquarters,
                       (2) shift staff from BCP to BC, (3) request increased funding to address the
                       increased workload, (4) limit resources to more traditional competition
                       work, (5) maintain the status quo and allow regional offices to pool
                       resources, (6) increase the number of staff in each regional office, (7)
                       redistribute consumer protection and competition resources within
                       regional offices, (8) relocate BCP headquarters staff to the regions, (9)
                       keep Boston and Denver regions open at reduced staffing levels, and (10)
                       adopt a regional structure with fewer offices.

                       FTC officials said they considered several of the identified options.
                       However, the officials said that they did not deem them to be acceptable or
                       realistic because the options (1) did not sufficiently balance FTC’s dual
                       mission of consumer protection and competition, (2) were more disruptive
                       of FTC’s regional operations than the proposed restructuring, (3) called for
                       additional resources that FTC did not believe would likely be forthcoming,
                       or (4) did not sufficiently address the underlying rationale for undertaking
                       the current restructuring effort. FTC officials had no documentation to
                       show that they considered these other options.

                       Appendix VI contains a discussion of the 10 options and FTC’s comments
                       about each.

                       14
                        This latter cost would include severance pay and any accumulated annual leave for those employees
                       who do not transfer to another federal government agency.




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                             Stakeholders’ views about the potential effects of FTC office closures were
Stakeholders’ Views on       mixed. Some of the external stakeholders we contacted refrained from
the Potential Effects of     commenting on the potential effect of the closures of the Boston and
Office Closures Were         Denver regional offices. Concerning consumer protection matters, most of
                             the external stakeholders who expressed a view said that they believed the
Mixed                        closures would have a negative impact. These views primarily involved
                             concerns that (1) FTC staff from different regions of the country would not
                             be able to devote the time to or have the knowledge of regional issues and
                             (2) FTC would not be able to adequately replace service and assistance
                             provided by the FTC Boston and Denver regional offices. However, of
                             those external stakeholders who had views on competition matters,
                             opinions were more varied. Some stated that they supported the proposal,
                             whereas others said that competition matters would be negatively
                             affected. In addition, Boston and Denver FTC officials said they believe
                             consumer protection and competition matters would be negatively
                             affected. FTC headquarters officials said they have plans that would
                             mitigate the perceived negative impacts on both consumer protection and
                             competition matters.

Most External Stakeholders   Officials from the offices of the Better Business Bureau (BBB), AARP, and
                             Federal Bureau of Investigation (FBI) responsible for Boston and Denver
Who Expressed Opinions       and 7 of the 14 offices of state attorneys general, located in the states
Said Office Closures Would   covered by the Boston and Denver FTC offices, said that the effect of the
Negatively Affect Consumer   office closures on consumer protection would be negative. Among other
Protection                   things, the officials who told us that there would be a negative impact on
                             consumer protection said that they doubted that FTC staff from different
                             regions of the country would be able to provide the same level of service
                             the regional staffs were currently providing. Officials from the AARP
                             Midwest and West regional offices, the National Association of Attorneys
                             General (NAAG), and the remaining offices of state attorneys general
                             either declined to comment, were neutral, or stated that consumer
                             protection issues would not be negatively affected. Many of these officials
                             said they had not worked extensively with either the Boston or Denver
                             FTC office. Table 6 presents a summary of the comments obtained from
                             the external stakeholders we contacted.




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Table 6: External Stakeholder Views on
Effect of FTC Regional Office Closures                                          Number of   Made no Predicted no         Predicted
                                                                                                     a
on Consumer Protection                   Stakeholders                            contacts prediction negative effect negative effect
                                                                                         b
                                         AARP                                          4            1              1               2
                                         BBB                                            2           0              0               2
                                         FBI                                            2           0              0               2
                                         NAAG                                           1           1              0               0
                                         State attorneys general
                                         New England                                      6               1                  1                     4
                                         Rocky Mountain                                   8                4                 1                     3
                                         Subtotal                                        14                5                 2                     7
                                                                                                            c
                                         Total                                           23               7                  3                    13
                                         a
                                         External stakeholders who made no prediction either had no comment or were neutral about the
                                         effect of FTC’s regional restructuring proposal.
                                         b
                                             The Boston and Denver FTC regional offices cover states that fall into four AARP regional offices.
                                         c
                                         Includes four external stakeholders who had no comment and three who were neutral concerning
                                         FTC’s proposal to restructure regional operations.
                                         Source: GAO analysis of external stakeholder views.


External Stakeholders Believed           One of the primary concerns expressed by external stakeholders centered
That More Distant FTC Regional           on whether FTC regional staff from more distant locations could provide
Offices May Not Be Able to               the same level of service currently provided by Boston and Denver staff.
Provide the Same Level of                For example, BBB officials in Boston and Denver said that the closure of
Service                                  the FTC offices in those two cities and the transfer of responsibility for
                                         them to locations outside the New England and Rocky Mountain areas
                                         would likely result in a lower level of service for the two regions. Boston
                                         BBB officials said that they work closely with the Boston FTC office in
                                         sharing information and pursuing possible fraudulent activities. They said
                                         that because their organization lacks enforcement capability, they forward
                                         relevant complaints, cases, and research on possible fraudulent companies
                                         to the Boston FTC office. They stated that this working relationship has
                                         been particularly important because the state attorneys general cannot
                                         generally follow cases outside their state borders; as a result, many
                                         fraudulent companies set up operations in one state to reach consumers in
                                         another state in order to avoid prosecution. Boston BBB officials said that
                                         FTC is unique among locally based agencies because state borders do not
                                         constrain its enforcement capabilities; and thus it is able to pursue
                                         fraudulent companies whose businesses transcend state lines.

                                         Boston BBB officials also said that if the Boston FTC office were to close,
                                         they did not believe that FTC’s New York office would have the resources
                                         to pursue New England-based complaints because they would give priority
                                         to New York cases. Similarly, an official from the Denver BBB said he
                                         believed it would be unlikely for San Francisco FTC staff to be as



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responsive to consumer fraud problems in Colorado as the Denver FTC
staff have been. This official said that the BBB had built a personal
working relationship with FTC Denver staff and that the benefits of this
relationship would be lost because the San Francisco office would not be
likely to have the financial resources or time to continually send someone
to the Rocky Mountain area.

Officials from AARP expressed similar views. An AARP Southwest
regional official said that her office is concerned about the distance
between San Francisco and Denver and the different character of the two
regions. She emphasized Colorado’s high population growth rate and the
need for FTC to maintain a local presence, both to assist law enforcement
in combating fraud and to continue providing education and outreach. The
AARP Southwest official emphasized the Denver FTC office’s importance
as a member of a local seniors advocacy group. According to the official,
this group meets regularly to exchange information on fraudulent
activities, holds public outreach conferences, and produces educational
materials for distribution.

AARP Northeast regional officials also expressed their views that senior
citizens in Boston would be less likely to contact their new FTC office in
New York City concerning their complaints or questions. These officials
said that they believed this was due, in part, to regional differences and the
long distance between Boston and its newly designated FTC office. AARP
Northeast officials also pointed out that they do not believe that New York
staff can provide the working knowledge of the New England region as
well as the Boston FTC staff. They said that FTC’s Boston regional staff
have a special role, bank of knowledge, and expertise and that AARP
frequently refers consumers directly to the Boston FTC office.

The Boston FBI official we spoke with told us that he works closely with
the Boston FTC office, sharing information and jointly investigating cases.
He said that it is unlikely that he will be able to work as closely with New
York FTC staff because the New York FTC office will be busy with New
York consumer protection cases. The Denver FBI official said that he also
works closely with the Denver FTC office in investigating cases and
sharing information and that he believed there would be a negative impact
if the Denver office were to close.

We also contacted officials from the state attorneys general offices
covered by the Boston and Denver FTC regions. Of the 14 state attorneys
general offices in these 2 regions, 5 were not willing to comment or were
neutral on the issue; and 2 stated that there would be no negative impact



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                                  on their states. The remainder generally recognized the importance of
                                  FTC’s presence in the region for consumer protection. For example,
                                  officials from New England state attorneys general offices emphasized the
                                  importance of the regular meetings with their offices that the FTC Boston
                                  office coordinates. One of these officials said she would not be able to
                                  attend these meetings if they were to be held in New York City because of
                                  the travel time and cost involved. Two of the officials from the offices of
                                  state attorneys general in the New England area also said that it is unlikely
                                  that staff in the New York office would be as knowledgeable of issues in
                                  New England as staff in the Boston office. Similarly, state attorney general
                                  officials from two states that work with the Denver FTC office said that
                                  the Rocky Mountain region is very different from the FTC regions that are
                                  designated to assume the Denver FTC region’s responsibilities (Midwest,
                                  Western, and Northwest). Several state attorneys general officials from
                                  states in the Denver FTC region also said that they did not believe that
                                  these other offices would be able to serve the Rocky Mountain area
                                  consumers as well as the Denver FTC region has done.

External Stakeholders Said They   FTC’s proposal emphasizes technological developments and recent
Believed That Technological       innovations, including the consumer complaint handling center and the
Developments Cannot Replace       FTC Internet site, which, according to FTC’s proposal, would allow FTC to
FTC Regional Office Staff         reach and respond more easily to consumers across the country and would
                                  lessen the need for multiple regional offices. Many of the external
                                  stakeholders that we spoke with, however, expressed the view that these
                                  technologies and innovations would not be adequate replacements for FTC
                                  regional officials in Boston and Denver.

                                  For example, Boston and Denver BBB officials emphasized that it is their
                                  opinion that the FTC’s Internet site cannot be considered as a replacement
                                  for a local FTC office because many consumers who are victims of fraud
                                  do not have access to computers or the Internet. Furthermore, AARP
                                  Northeast officials said that they believed it is not realistic to expect most
                                  senior citizens to call a telephone center and attempt to negotiate an
                                  automated telephone tree. They said that it is their opinion that these
                                  consumers and others would prefer to speak to a local contact that is
                                  knowledgeable about local businesses and regional matters and who can
                                  offer more personalized advice immediately. Certain officials from the
                                  offices of state attorneys general in both regions expressed similar
                                  concerns that FTC’s consumer complaint handling center, the Internet web
                                  site, and a proposed toll-free telephone number would not be an adequate




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                                         replacement for the knowledge and services provided by local FTC
                                                   15
                                         officials.

External Stakeholders Who                The external stakeholders we spoke with who work with FTC on
                                         competition matters and were willing to express an opinion had mixed
Expressed an Opinion Had                 views on the impact of the office closures. These stakeholders included
Mixed Views on the Effect                officials from the offices of state attorneys general in the states under the
of Office Closures on                    jurisdiction of the Boston and Denver FTC offices, NAAG, the DOJ
Competition Matters                      Antitrust Division, and the American Bar Association.

                                         Officials from three of the six offices of state attorneys general covered by
                                         the Boston FTC region and from two of the eight such offices covered by
                                         the Denver FTC region predicted that competition matters would be
                                         negatively affected. The remaining offices of state attorneys general either
                                         made no prediction or stated that competition issues in their state would
                                         not be negatively affected by the FTC’s regional office restructuring
                                         proposal. Most of those officials that did not foresee a negative impact for
                                         their state said they typically did not work closely with either the Boston
                                         or Denver FTC office on competition issues. An official from NAAG
                                         declined to give an opinion on the FTC’s restructuring proposal, stating
                                         that it was an internal FTC matter. Table 7 presents a summary of the
                                         comments obtained from the external stakeholders we contacted.

Table 7: External Stakeholder Views on
Effect of FTC Regional Office Closures                                  Number of         Made no    Predicted no               Predicted
                                                                                                  a
on Competition                           Stakeholders                    contacts       prediction negative effect          negative effect
                                         State attorneys general
                                         New England                               6                2                   1                       3
                                         Rocky Mountain                            8                5                   1                       2
                                         Subtotal                                 14                7                   2                       5
                                         NAAG                                      1                1                   0                       0
                                         DOJ Antitrust Division                    1                0                   1                       0
                                         ABA Chair of Antitrust Law                1                0                   1                       0
                                                                                                     b
                                         Total                                    17               8                    4                       5
                                         a
                                         External stakeholders who made no prediction either made no comment or were neutral about the
                                         affect of FTC’s regional restructuring proposal.
                                         b
                                         Includes five external stakeholders who had no comment and three who were neutral concerning
                                         FTC’s proposal to restructure regional operations.
                                         Source: GAO analysis of external stakeholder views.



                                         15
                                            After our conversations with these stakeholders, Congress passed FTC’s fiscal year 1999
                                         appropriations, which provided $3.9 million more than the $112.8 million requested by the President.
                                         The FTC Executive Director said that the agency plans to use a portion of the additional funds to
                                         establish a toll-free telephone number for the consumer complaint handling center, which was
                                         included in FTC’s 1999 conference report that accompanied its appropriation. The Executive Director
                                         said the toll-free telephone number would be operational in the spring of 1999.




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Some of the officials from the offices of state attorneys general who
believed there would be a negative impact if the FTC offices were to close
said that they valued a local FTC presence because of the information-
sharing opportunities that it provided. They stated that a local FTC office
afforded them the opportunity to meet with FTC staff and take advantage
of their knowledge of regional issues and companies. These officials
expressed concern that this relationship would be lost if, for example, FTC
responsibility for New England were to be transferred from the Boston to
the New York office. In addition, an official from one of the New England
area offices of state attorneys general pointed out that the New York office
of the DOJ Antitrust Division, which covers New England as well as New
York, concentrates on what is nearer to its office. Consequently, he
suspected a similar result from a New York FTC office with responsibility
for New England.

Certain external stakeholders who work on antitrust matters rather than
consumer protection matters expressed their support for the proposal. For
example, officials from the DOJ Antitrust Division stated that FTC’s
proposal would not affect DOJ’s operations but that FTC’s competition
work will likely benefit by creating the antitrust centers, as opposed to
having the FTEs spread out. They emphasized the importance of having a
critical mass of attorneys working on merger enforcement cases. However,
the DOJ Antitrust Division officials said that most of the DOJ merger work
is performed in headquarters and not in its regional offices.

The Chair of Antitrust Law at the American Bar Association expressed his
personal view that the proposal will positively affect FTC’s antitrust work.
He told us that he had worked on merger cases that were headed by
regional offices and that the regional staff in some instances did not have
sufficient experience or “particularized” expertise in merger matters. He
commented that the consolidation of FTC’s antitrust work into three
centers is sensible, in that the expertise and experience of the attorneys
working in each center would likely be enhanced. He also said that he
believed that three centers would be easier to manage. In addition, the
American Bar Association published a report in 1989 stating that FTC may
have disproportionately allocated resources to its regional offices in the
past and that the Commission should have the ability to reduce the number
of its regional offices to prevent an undue drain on agency resources.




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Boston and Denver             Boston and Denver FTC officials said they believed the restructuring
                              proposal would negatively affect both consumer protection and
Regional Officials Believed   competition matters in New England and in the Rocky Mountain areas.
Closures Would Have a         According to these officials, with the closure of the two offices, consumers
Negative Impact on Both       would have to rely on more distant FTC offices to address their concerns.
Consumer Protection and       The officials said that by not having a more closely aligned regional
                              presence, FTC would lose its capability to (1) address regional consumer
Competition Matters           protection issues and regional characteristics, (2) partner with local law
                              enforcement agencies on enforcement efforts, (3) network and share
                              mutual concerns and law enforcement information with other local and
                              regional organizations, (4) provide consumer outreach and education, and
                              (5) monitor and investigate regional competition issues.

                              The Boston officials said that they believed the restructuring proposal
                              would decrease FTC’s attention to New England consumer protection
                              cases and did not take into account differences in regional cultures. They
                              said that they believed it is unlikely that FTC’s New York regional office,
                              even with an increase in staff, would view New England consumer
                              protection cases as a priority, given the consumer protection workload in
                              New York and New Jersey. They also said they believed the New England
                              area, specifically eastern Massachusetts and southern New Hampshire, is a
                              highly concentrated, emerging area of business and technology and that
                              not having an FTC office in Boston would hamper efforts to protect
                              consumers. Likewise, Denver officials told us they did not believe that
                              Rocky Mountain residents would be likely to call Washington, D.C., San
                              Francisco, Seattle, or Cleveland to lodge consumer complaints or to
                              request information. They also said that they believed it would be unlikely
                              that elderly residents in their region would feel comfortable calling
                              someone unfamiliar with the Rocky Mountain area or that such residents
                              would use the Internet. OED officials provided data that showed that
                              about 50 percent of the consumers in the states covered by FTC’s Boston
                              regional office that telephoned FTC during the period January 1 through
                              July 18, 1998, telephoned offices other than the Boston regional office;
                              however, about 27 percent of the consumers in the states covered by FTC’s
                              Denver regional office telephoned FTC through offices other than the
                              Denver regional office.

                              Officials from both regions said they believed that the restructuring
                              proposal would reduce FTC’s ability to partner effectively with local law
                              enforcement agencies. Boston officials said that enforcement efforts, such
                              as its recent work with one state attorney general office on compliance
                              with its credit repair rules, could suffer under the proposed restructuring.




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                             These officials said they did not believe that a more distant FTC region or
                             FTC headquarters could work as effectively.

                             In addition, Boston and Denver officials said they believed that networking
                             and information sharing with law enforcement agencies as well as other
                             local organizations would be negatively affected by the restructuring
                             proposal. For example, Boston officials said that because of transportation
                             and logistical difficulties, they believed it is unlikely that the New York
                             FTC office would continue holding the quarterly meetings that the Boston
                             office has held with state attorneys general officials in the Boston region.
                             They said the reorganization could affect the close working relationships
                             that the Boston region has developed with state attorneys general in the
                             region and other law enforcement and consumer protection organizations.
                             Denver officials also said they believed that the closures would cause FTC
                             to lose its ability to network locally. They said that these networks are
                             invaluable in providing information on potential consumer fraud issues.

                             The Boston and Denver FTC officials also said they believed that
                             consumer education and outreach efforts in their respective regions would
                             suffer if the two regional offices were closed. They also said that officials
                             from their regions have participated in numerous local speaking
                             engagements and educational events and that they did not believe another
                             region would assign staff to attend these engagements. Appendix V
                             contains a summary of recent consumer education and outreach activities
                             as reported by Boston and Denver regional officials.

                             Lastly, Boston and Denver officials stated that non-HSR merger work in
                             their respective regions would also be negatively affected by closing the
                             two offices. For example, Denver officials said that they review small,
                             local mergers and investigate anticompetitive behavior, such as price
                             fixing, and the fact that they live in the region and the community allows
                             them to hear about and become aware of such cases. Similarly, the Boston
                             officials stated that having a local presence allows them to become aware
                             of anticompetitive practices in the Boston area. Further, they said that they
                             investigate mergers of local or regional hospitals or health maintenance
                             organizations.

FTC Headquarters Officials   FTC officials said they believed they would be able to mitigate the
                             concerns about the regional office restructuring plan cited by many of the
Believed Their Plans Would   stakeholders we contacted. In September 1998, FTC officials presented us
Address Stakeholders’        with written implementation plans for the continuation of services for both
Concerns                     the New England and Rocky Mountain states. These plans call for outreach
                             to the law enforcement community; consumers, consumer organizations,



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  and the media; and the business community and bar associations in the
  states affected by the closures. Among other things, this outreach, which
  FTC said affirms its commitment to continuing services, is to take the form
  of

• news releases, speaking engagements, and media appearances;
• town meetings, meetings with federal and state agencies and industry
  groups, and meetings with consumer advocacy groups; and
• formal and informal meetings with officials from the offices of state
  attorneys general.

  Under the plans, the regional offices that are slated to assume
  responsibility for the Boston and Denver regions—the Northeast region in
  New York City, the Midwest region in Chicago, the Western region with
  offices in San Francisco and Los Angeles, and the Northwest region in
  Seattle—are to hold the quarterly meetings with the offices of state
  attorneys general from the states under their respective jurisdictions.
  Although not specifically stated in the plan, FTC officials said the new
  Northeast Region would hold the quarterly meetings in New England
  rather than in New York City. In addition, these officials said they have
  designated the Assistant Regional Director in the current New York
  regional office to be the New England Coordinator for the new Northeast
  Region. According to the officials, this individual is to serve as a contact
  point for the New England states.

  Despite FTC’s efforts to articulate its commitment toward a continuation
  of services to the New England and Rocky Mountain states, it is unclear
  how the restructuring effort will be managed by the offices that are to take
  on the consumer protection responsibilities currently managed by the
  Boston and Denver regions. For example, we spoke with the regional
  directors of the New York, Chicago, San Francisco, and Seattle FTC offices
  under the condition that we do so in the presence of an FTC BCP
  headquarters official. These directors said they had not developed any
  formal plans to prepare for the increased consumer protection workload
  that would result from the acquisition of the new states. The New York and
  San Francisco regional directors said that this was because the regional
                                                                 16
  restructuring was on hold, pending the outcome of our review.



  16
     According to OED officials, the Chairman asked regional directors in a June 10, 1998, memorandum to
  develop a transition plan to evaluate their current resources and propose ways to handle their new
  responsibilities. The OED officials also said the effort to develop, review, and implement these
  transition plans was put on hold in deference to our review.




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Nonetheless, FTC Chicago, San Francisco, and Seattle regional officials
said they had previously participated in conferences with offices of state
attorneys general from the affected states and had developed contacts
with officials in these states. In addition, officials from FTC’s New York
office said they plan to meet with the state attorneys general from the New
England states, both to foster a working relationship and to get their
assessments of important enforcement issues in New England. Their
preliminary ideas for establishing a presence in the region include making
themselves available to the local media, taking multiple purpose trips to
New England, and subscribing to New England’s prominent newspapers in
order to gauge local issues and monitor advertisements for potential fraud
cases.

The San Francisco regional official said his office would have to become
more efficient because under FTC’s restructuring plan, no additional
resources are proposed for the increased consumer protection workload
resulting from the new responsibilities. Under the proposed restructuring,
his region would also include Colorado and Utah and provide
administration and management for the responsibilities of the Los Angeles
office, which covers southern California and Arizona. To compensate, he
said that FTC might have to leverage resources. For example, the official
stated that the San Francisco office could partner with state and local
agencies and reach constituents through the consumer complaint handling
center and the FTC Internet web site.

The Chicago regional official said he planned to visit each of the new
states that would fall under the office’s jurisdiction, which include North
Dakota, South Dakota, Kansas, and Nebraska. He said that the Chicago
regional office has already worked with the offices of state attorneys
general in Kansas, North Dakota, and South Dakota on antitrust issues. In
addition, according to this official, the Chicago region has previously
collaborated with the AARP Midwest office.

An official with the Seattle regional office stated that the outreach strategy
for the incoming states of Wyoming and Montana would involve a
combination of travel and communication by telephone, with the type of
outreach varying by state. He said the office would make an effort to
develop a close relationship with the state attorneys general and consumer
organizations in these states.




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FTC Said It Reaches Out to      One of the concerns stakeholders expressed during our review centered
Seniors and Low-Income          on FTC’s reliance on recent technological innovations, such as FTC’s
Citizens in a Variety of Ways   Internet web site, a consumer complaint handling center, and a related
                                consumer fraud database, to compensate for the potential effect of the
                                proposed office closures. In particular, stakeholders voiced concern that
                                individuals 65 years of age and older and low-income citizens might not be
                                equipped to use FTC’s Internet web site.

                                Recent studies and reports on Internet usage include information on the
                                extent of individuals who are 65 years of age and older who use the
                                Internet. According to a 1997 study by Baruch College-Harris Poll
                                conducted for Business Week, about 21 percent of the individuals in the
                                United States who are 18 years of age and older use the Internet, the World
                                Wide Web, or both. Using the Baruch College-Harris Poll and Census
                                population numbers, we found that, of those individuals between the ages
                                of 18 and 50, more than 25 percent use the Internet. Our analysis of these
                                data also showed that about 15 percent of individuals who are 50 to 64 use
                                the Internet. However, only about 6 percent of individuals who are 65
                                years of age and older use the Internet, making this age group the lowest
                                proportion of Internet users.

                                We were able to find only limited information on low-income individuals’
                                use of the Internet. According to a 1997 Business Week article, adult
                                Internet users are more affluent than the U.S. population as a whole. For
                                example, the article stated that more than 42 percent of adult Internet
                                users have household incomes that are greater than $50,000, compared
                                with 33 percent of the population as a whole. The Business Week article
                                also stated that 18 percent of individuals who access the Internet have
                                incomes of $25,000 or less. However, it pointed out that because the lower
                                income category probably includes many students, it may have overstated
                                Internet participation by the nation’s low-income households.

                                While FTC officials told us that its Internet web site has been very
                                successful—with over one million accesses to the site over the past year—
                                they also said FTC plans to reach out to seniors and low-income
                                individuals in a variety of ways, many of which do not depend on any
                                particular level of income or technological sophistication.

                                First, FTC officials said they expect the level of service FTC provides to all
                                consumers to improve with the approval of fiscal year 1999 funds to
                                establish a toll-free telephone number for its consumer complaint handling
                                center. As of November 1998, according to FTC officials, they had already
                                obtained a toll-free telephone number and plan to make it available to



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                      B-281687




                      consumers by the spring 1999. These officials said they were drafting a
                      request for proposals for call center providers to assist in handling this
                      work and that by January 1999, they plan to expand the physical call
                      center space at FTC headquarters from 18 work stations to 32.

                      Second, FTC officials said FTC has repeatedly partnered with a wide
                      variety of other law enforcement organizations to coordinate efforts to
                      combat a variety of scams targeting seniors and low-income people, such
                      as bogus prize promotions, credit repair scams, and advance fee loan
                      frauds. According to FTC officials this coordinated approach draws media
                      attention to the problems addressed, thereby educating the public through
                      radio, television, and newspapers on how to protect themselves. In
                      addition, FTC officials said FTC has partnered with organizations
                      throughout the United States to leverage its impact in educating
                      consumers. These officials said FTC did so under the premise that no
                      headquarters or regional office acting alone has even a fraction of the
                      impact that FTC can have by using other organizations to amplify its
                      message.

                      Finally, FTC officials said that they have communicated consumer
                      information materials in a variety of formats--brochures, bookmarks,
                      flyers, radio public service announcements, posters, bumper stickers, and
                      postcards. They added that they distribute or communicate this material
                      broadly and, in their view, often creatively and unconventionally. For
                      example, they said that by working with a range of organizations FTC has
                      placed its messages in locations such as grocery stores, bookstores, and
                      delicatessens; billing statements and community, professional, and trade
                      association newsletters; classified advertising sections of newspapers
                      throughout the country; as well as on the Internet.

                      We received written comments on a draft of this report from the FTC
Agency Comments and   Commissioners in a letter dated January 8, 1999 (see app. VIII). In their
Our Evaluation        comments, the Commissioners clarified their position on five points
                      related to the restructuring plan. First, the Commissioners pointed out that
                      the regional office restructuring plan is responsive to where they and their
                      stakeholders say markets and mergers are today and where they will be in
                      the foreseeable future. Second, the Commissioners stated that the regional
                      office restructuring is part of a broader FTC-wide effort to efficiently and
                      effectively deploy limited staff resources to make FTC’s operations more
                      responsive to consumer’s needs. Third, the Commissioners said that fewer
                      regional offices will not diminish FTC’s effectiveness in addressing
                      consumer problems in any region of the country and stated that they
                      believe the restructuring will provide FTC the opportunity to better serve



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consumers through its partnerships with various law enforcement
organizations throughout the country. Fourth, the Commissioners stated
that the restructuring will improve FTC’s ability to handle its antitrust
workload. Finally, the Commissioners pointed out that, to the extent
possible, the plan takes into account human costs of such changes and
does not call for anyone to be terminated.

Concerning the first point, we have no basis to agree or disagree with
where FTC and its stakeholders believe markets and mergers are today
and will be in the foreseeable future. We do not dispute that FTC may have
considered the views of a wide range of stakeholders in the context of
“hearings and workshops on the emerging global high tech marketplace
held at the FTC in 1995.” However, as pointed out in our report, FTC did
not obtain or consider the views of stakeholders that work with the Boston
and Denver offices as it developed its proposal to restructure its regional
offices.

Concerning the second point, in our report we characterize FTC’s
restructuring proposal as part of an effort FTC began in 1995 to streamline
its operations, which is consistent with FTC’s comments. Concerning the
third point, we have no basis to judge how the proposed restructuring will
affect FTC’s effectiveness in addressing consumer protection problems in
any region. In this report, we provide the opinions of FTC stakeholders
that worked with the Boston and Denver regional offices concerning this
matter, but their views varied; also there is no empirical basis on which to
assess future consumer protection performance. In regard to the fourth
point, we have no basis to judge the effect restructuring will have on FTC’s
ability to handle its antitrust workload. In regard to the final point, our
report states that FTC’s June 1998 restructuring proposal calls for
transferring 33 staff positions from the Boston and Denver regions and
allows all staff in the offices that are proposed to close to transfer to other
regional offices and headquarters.

We also obtained written and oral technical comments from FTC’s
Executive Director and her staff. We made changes to the report on the
basis of these comments as appropriate.

As arranged with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from the
date of this letter. At that time, we will send copies to the Chairman of the
Federal Trade Commission; the Chairmen and Ranking Minority Members
of the Senate and House Appropriations Subcommittees on Commerce,
Justice, State, the Judiciary, and Related Agencies; the Chairman and



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Ranking Minority Member of the House Commerce Subcommittee on
Telecommunications, Trade and Consumer Protection; and the Chairman
and Ranking Minority Member of the Senate Commerce Subcommittee on
Consumer Affairs, Foreign Commerce and Tourism. We will also make
copies available to other interested parties upon request.

Please contact me at (202) 512-8676 if you or your staff have questions.
Major contributors to this report are listed in appendix IX.




Laurie E. Ekstrand
Associate Director
Federal Management
  and Workforce Issues




Page 39                              GAO/GGD-99-25 FTC's Proposed Restructuring
Contents



Letter                                                                                               1


Appendix I                                                                                          44

Current and Proposed
FTC Regional
Structures
Appendix II                                                                                         46
                         The HSR Act’s Requirements and FTC’s Process to                            46
FTC’s Hart-Scott-          Address HSR Act Work
Rodino Work              HSR Mergers Have Increased                                                 47
                         Merger Activity and Associated HSR Filings Occur in                        48
                           Unpredictable Waves


Appendix III                                                                                        51

FTC’s Prior Analyses
of Regional
Restructuring
Appendix IV                                                                                         53

Objectives, Scope, and
Methodology
Appendix V                                                                                          57
                         Boston and Denver Officials Believe Regions Are More                       58
Productivity and           Productive Than BCP in Filing Enforcement Actions
Workload of FTC          Boston Regional Officials Said They Believe Regions                        59
                           Have Contributed to FTC’s Competition Work
Regions and              Boston and Denver Regional Officials Believe They Have                     62
Headquarters               Made Significant Contributions to Consumer Education
                           and Outreach


Appendix VI                                                                                         69
                         Option 1 - Transfer All Competition Work to                                69
Other Possible             Headquarters
Restructuring Options    Option 2 - Shift Staff From BCP to BC                                      69




                         Page 40                             GAO/GGD-99-25 FTC's Proposed Restructuring
                        Contents




                        Option 3 - Request Increased Funding to Address the                        70
                          Increased Workload
                        Option 4 - Limit Resources to More “Traditional”                           70
                          Competition Work
                        Option 5 - Maintain the Status Quo and Allow Regional                      71
                          Offices to Pool Resources
                        Option 6 - Increase the Number of Staff in Each Regional                   71
                          Office
                        Option 7 - Redistribute Consumer Protection and                            71
                          Competition Resources Within Regional Offices
                        Option 8 - Relocate BCP Headquarters Staff to the                          72
                          Regions
                        Option 9 - Keep Boston and Denver Regions Open at                          72
                          Reduced Staffing Levels
                        Option 10 - Adopt a Regional Structure With Fewer                          72
                          Offices


Appendix VII                                                                                       73
                        FTC Officials Said Their Proposal Was About Efficient                      73
Selected Information      Use of Resources and Not About Funding
on FTC’s Funding and
FTE History
Appendix VIII                                                                                      76

Comments From the
Federal Trade
Commission
Appendix IX                                                                                        82

Major Contributors to
This Report
Tables                  Table 1: Current and Proposed Allocation of Regional                        8
                          Competition FTEs
                        Table 2: Current and Proposed Allocation of Regional                       13
                          Consumer Protection FTEs
                        Table 3: Population and Percent of Population for FTC’s                    19
                          10 regions as of July 1997




                        Page 41                             GAO/GGD-99-25 FTC's Proposed Restructuring
          Contents




          Table 4: GSP and Percent of GSP for FTC’s 10 regions as                     19
            of 1994
          Table 5: Number and Percent of Consumer Fraud Cases                         20
            Filed by FTC in Federal Courts in Each FTC Region for
            Fiscal Year 1979 Through the Second Quarter of Fiscal
            Year 1998
          Table 6: External Stakeholder Views on Effect of FTC                        27
            Regional Office Closures on Consumer Protection
          Table 7: External Stakeholder Views on Effect of FTC                        30
            Regional Office Closures on Competition
          Table II.1: Selected HSR Merger Statistics, 1979-1998                       47
          Table V.1: FTC Consumer Protection Enforcement                              58
            Actions Taken and Percentage of Consumer Protection
            FTEs Used by Regions and Headquarters, January
            1997-June 1998
          Table V.2: Percentage of Enforcement Actions (EA)                           59
            Taken and Consumer Protection FTEs Used by FTC
            Regions and Headquarters, Fiscal Years 1993-1998
          Table V.3: Number of FTC Competition Cases Handled                          61
            by Regions and Headquarters, Fiscal Years 1993-1998
          Table V.4: Percentage of Competition FTEs Used by                           61
            Regions and Headquarters, Fiscal Years 1993-1998
          Table VII.1: FTC’s FTE Budget Data, Fiscal Years 1995-                      75
            1999


Figures   Figure I.1: Current FTC Regional Structure                                  44
          Figure I.2: Proposed FTC Regional Structure                                 45
          Figure II.1: Trend in HSR Filings, Fiscal Years 1979-1998                   49




          Page 42                              GAO/GGD-99-25 FTC's Proposed Restructuring
Contents




Abbreviations

AARP        American Association of Retired Persons
BBB         Better Business Bureau
BC          Bureau of Competition
BCP         Bureau of Consumer Protection
BE          Bureau of Economics
BRO         Boston Regional Office
DOJ         Department of Justice
DRO         Denver Regional Office
EA          enforcement actions
FBI         Federal Bureau of Investigation
FTC         Federal Trade Commission
FTE         full-time equivalent
GSP         gross state product
HSR         Hart-Scott-Rodino
ICC         Internet Chamber of Commerce
IRS         Internal Revenue Service
NAAG        National Association of Attorneys General
OED         Office of Executive Director
SAFE        Seniors Against Fraud and Exploitation
SEC         Securities and Exchange Commission


Page 43                               GAO/GGD-99-25 FTC's Proposed Restructuring
Appendix I

Current and Proposed FTC Regional
Structures

Figure I.1: Current FTC Regional Structure

                                                                                                      Boston
                                                                                                      Region

                                                                                          New York
                                                                                          Region


   Seattle Region
   (plus Alaska)

                                      Denver Region
                                                                                   Cleveland Region
    San Francisco
    Region                                                    Chicago Region
    (plus Hawaii)




          Los Angeles
          Region                                                               Atlanta Region


                                              Dallas Region




                                             Page 44                       GAO/GGD-99-25 FTC’s Proposed Restructuring
                                         Appendix I
                                         Current and Proposed FTC Regional Structures




Figure I.2: Proposed FTC Regional Structure




                                         Page 45                                   GAO/GGD-99-25 FTC's Proposed Restructuring
Appendix II

FTC’s Hart-Scott-Rodino Work


                       Part of the Federal Trade Commission’s (FTC) rationale for its regional
                       restructuring proposal was to address an increased workload in the
                       Bureau of Competition (BC) as a result of FTC’s responsibilities under the
                       Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976. This
                       appendix provides information on the act’s requirements and the process
                       FTC is to follow to address this work, selected statistics on FTC’s HSR
                       merger work, and a discussion of the nature of HSR merger filings.

                       The HSR Act requires that companies file a notification of certain
The HSR Act’s          proposed acquisitions of stock or assets to FTC and the Department of
Requirements and       Justice’s (DOJ) Antitrust Division before such transactions are completed.
FTC’s Process to       The parties must then wait a specified period, usually 30 days (15 days in
                       the case of a cash tender offer) before they may complete the transaction.
Address HSR Act Work   Whether a particular acquisition is subject to these requirements depends
                       on the value of the acquisition and the size of the parties, as measured by
                       their sales and assets. Certain acquisitions involving small parties and
                       other classes of acquisitions that are less likely to raise antitrust concerns
                       are excluded from the HSR Act’s coverage.

                       The primary purpose of this premerger notification is to provide FTC and
                       DOJ—the antitrust enforcement agencies—with the opportunity to review
                       mergers and acquisitions before they occur. The premerger notification
                       program, with its filing and waiting period requirements, provides the two
                       agencies with the time and the information necessary to conduct this
                       antitrust review. According to FTC officials, some information that is
                       necessary for the two agencies to review the proposed transaction is
                       included in the notification filed by the merging parties. These officials
                       said that when there appears to be a competition problem with the merger,
                       FTC staff “obtain clearance” from DOJ to conduct a more extensive review
                       during the initial waiting period. In “obtaining clearance,” the two agencies
                       must decide which of them will review the transaction. The FTC officials
                       also said that FTC staff contact as many customers and competitors of the
                       merging parties as possible to obtain information and to discuss the likely
                       impact of the merger on competition.

                       If either agency determines during the waiting period that further inquiry is
                       necessary beyond the waiting period, it is authorized to request additional
                       information or documentary materials from either or both of the parties to
                       a reported transaction. This further inquiry is known as a “second request.”
                       A second request extends the waiting period, usually for 20 days (10 days
                       in the case of a cash tender offer), after all parties have complied with the
                       request. According to the BC Director, the second request process often
                       involves hundreds of boxes of documents and computer data, and the



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                                  Appendix II
                                  FTC’s Hart-Scott-Rodino Work




                                  compressed time frame of a second request means that the investigating
                                  staff must devote considerable resources to preparing the case. FTC
                                  officials said they may need to assign extra staff to the case to ensure that
                                  all documents are reviewed within the required time frames. The
                                  additional time provided for the second request gives the agency doing the
                                  review the opportunity to analyze the information and to take appropriate
                                  action before the transaction is completed. If FTC or DOJ believes that a
                                  proposed transaction may violate the antitrust laws, it may seek an
                                  injunction in federal district court to prohibit the consummation of the
                                  transaction.

                                  According to FTC officials, while the number of HSR Act merger filings has
HSR Mergers Have                  increased in recent years, the number of FTC resources for competition
Increased                         work has remained relatively flat. The number of FTC second requests and
                                  FTC merger enforcement actions, however, have varied. Table II.1
                                  presents the number and dollar value of HSR Act merger filings, the
                                  number of second requests, the number of FTC merger enforcement
                                  actions, and the number of competition resources FTC has dedicated to
                                  the program from fiscal year 1979 to 1998.

Table II.1: Selected HSR Merger
Statistics, 1979-1998                                                                 Value of                          Number of
                                                     Number of Number of           HSR filings        Number of        FTC merger
                                                    competition HSR Act             (dollars in      FTC second       enforcement
                                                a             b                                c                                  d
                                  Fiscal year           FTEs      filings             billions)        requests           actions
                                                                                                 e
                                  1979                     594        861                                    63                 29
                                                                                                 e
                                  1980                     584        784                                    31                 16
                                                                                                 e
                                  1981                     567        996                                    34                 13
                                                                                                 a
                                  1982                     507     1,203                    74.0             39                 16
                                                                                                 a
                                  1983                     445     1,093                    80.6             12                  4
                                                                                                 a
                                  1984                     421     1,340                  153.3              25                  9
                                  1985                     408     1,603                   189.6             24                 13
                                                                                                 e
                                  1986                     376     1,949                                     32                  7
                                  1987                     342     2,533                   577.9             18                 12
                                  1988                     335     2,746                   350.7             39                 24
                                  1989                     304     2,883                   503.5             35                 19
                                  1990                     307     2,262                   302.6             55                 35
                                  1991                     343     1,529                   168.7             33                 24
                                  1992                     328     1,589                   165.4             26                 14
                                  1993                     324     1,846                   222.3             40                 21
                                  1994                     317     2,305                   372.0             46                 28
                                  1995                     322     2,816                   508.9             58                 43
                                  1996                     314     3,087                   677.4             36                 27
                                  1997                     312     3,702                   776.6             45                 27
                                  1998                     337     4,728                 1,436.1             46                 34
                                  a
                                   According to FTC, the value of HSR filings for 1979 through 1984, are available only on a calendar-
                                  year basis.




                                  Page 47                                           GAO/GGD-99-25 FTC's Proposed Restructuring
                         Appendix II
                         FTC’s Hart-Scott-Rodino Work




                         b
                          According to FTC, actual competition FTEs for fiscal years 1979 through 1990 are not available. FTC
                         estimated competition FTEs for those years based on the average ratio (34 percent) of actual
                         competition to actual total FTEs between fiscal years1991 and 1997.
                         c
                          According to FTC, the dollar amounts were tallied from information submitted on the premerger
                         notification form submitted by reporting parties. The dollar value of mergers shown in the table is for a
                         lesser, adjusted number of transactions than are shown in the table. The adjusted transactions
                         eliminate transactions: (1) reported under section (c)(6) and section (c)(8), involving certain regulated
                         industries and financial businesses; (2) followed by separate notification for one or more additional
                         transactions between the same parties during the fiscal or calendar year; (3) found to be
                         nonreportable; (4) found to be incomplete transactions (only one party in each transaction filed a
                         compliant notification); or (5) withdrawn before or during the initial waiting period.
                         d
                         Merger enforcement includes preliminary injunctions authorized, consents accepted for comment,
                         administrative complaints, and premerger filings withdrawn.
                         e
                             According to FTC, these data are not available.
                         Source: Office of the Executive Director, FTC.


                         During the twentieth century, there have been several merger waves in
Merger Activity and      which the number of mergers increased, reached a peak, and declined. In
Associated HSR Filings   more recent years, since the passage of the HSR Act, the United States has
Occur in Unpredictable   experienced two waves that resulted in fluctuations in the number of HSR
                         filings received by FTC and DOJ. During the 1980s, merger activity and
Waves                    associated HSR filings generally increased from the start of the decade to a
                         peak of about 2,900 HSR filings during 1989. After declining in the early
                         1990s, HSR filings rose again, this time to a record level of 4,728 HSR
                         filings in fiscal year 1998. Figure II.1 shows fluctuations in HSR filings
                         since 1979, 3 years following passage of the HSR Act.




                         Page 48                                               GAO/GGD-99-25 FTC's Proposed Restructuring
                                            Appendix II
                                            FTC’s Hart-Scott-Rodino Work




Figure II.1: Trend in HSR Filings, Fiscal
Years 1979-1998




                                            Source: Office of the Executive Director, FTC.


                                            According to an FTC press release, the United States is in its largest
                                            merger wave and FTC recently reported mergers exceeding $1 trillion over
                                            the past 12 months. Although FTC expects the trend toward increased
                                            merger activity to continue, the FTC Associate Director for Special
                                            Projects in the Bureau of Economics (BE) would not predict whether
                                            merger activity and corresponding HSR filings will increase, decrease, or
                                            remain the same because merger activity is heavily influenced by
                                            unpredictable events in the economic and regulatory environment. In
                                            addition, the BE official said that the various waves of mergers have been
                                            caused by structural changes in the economy, such as technological
                                            changes in domestic and global markets.

                                            Despite the recent increase in HSR filings, the BE official would not
                                            predict future levels of such filings because the underlying events that
                                            cause merger waves or the underlying general level of merger activity is
                                            uncertain. Academic research on previous merger waves shows that these
                                            waves have been caused by changes in the economic or regulatory




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Appendix II
FTC’s Hart-Scott-Rodino Work




                 1
environment. Unless it were possible to accurately predict future changes
in either of these environments and how such changes would affect the
level of merger activity, the future level of merger activity cannot be
predicted, except in the most general terms. Some research has shown that
merger waves tend to be self-sustaining. According to this research, a
change in the economic or regulatory environment that causes a merger
wave is likely to cause higher than normal merger levels for several years
before tailing off. For example, the merger wave of the 1980s was
sustained for several years. Merger activity has again increased, but it is
difficult to predict whether such activity will continue or decline, whether
or when a future decrease in HSR filings might occur, or the level to which
merger activity will revert.




1
 For a further discussion, see, for example, “Waves and Persistence in Merger and Acquisition
Activity,” an academic working paper by John T. Barkoulas, Christopher F. Baum, and Atreya
Chakraborty or “Merger Waves and the Structure of Merger and Acquisition Time-Series,” by R. J.
Town as published in the Journal of Applied Econometrics, 7 (1992).




Page 50                                          GAO/GGD-99-25 FTC's Proposed Restructuring
Appendix III

FTC’s Prior Analyses of Regional
Restructuring

                           The Federal Trade Commission’s (FTC) basic 10-region structure has been
                           in place since 1978. Since that time, FTC has analyzed its regional
                           structure twice before the current effort—once in the early 1980s and
                           again in 1987. However, neither of these efforts resulted in any major
                           restructuring. The following briefly discusses both of these efforts.

FTC’s Analysis of a Six-   In October 1981, FTC’s Commissioners voted to consolidate FTC’s 10-
                           office regional operations into a 6-office regional configuration based on
Region Structure in the    150 total staff years. Under this plan, the Boston, Denver, Los Angeles, and
Early 1980s                Seattle offices would have been closed. The Commissioners also directed
                           the Executive Director to analyze how FTC could manage its workload
                           under this scenario. The Executive Director subsequently developed a
                           study that, among other things, (1) described past and then current
                           functions performed by regional offices and provided data on the
                           allocation of regional resources in years prior to the analysis; (2) discussed
                           a model for future resource use, including a discussion of the skill mix
                           needed to carry out regional office functions in the six regions; (3)
                           presented proposed geographic boundaries for a six-office structure based
                           on an analysis of census data in relation to potential FTC enforcement
                           workload; and (4) explored the potential cost savings resulting from such a
                           change.

                           According to an FTC document on regional restructuring initiatives, the
                           Commission’s decision to adopt a six-office regional structure resulted in
                           numerous discussions between FTC and Congress. According to FTC,
                           several senators and representatives corresponded with FTC about its
                           decision to restructure regional operations, and the Subcommittee on
                           Commerce, Consumer, and Monetary Affairs, House Committee on
                           Government Operations held a hearing on the subject. By February 1983,
                           after receiving advice from its House and Senate Appropriations
                           Committees, FTC’s Commissioners decided to retain the 10-office regional
                           structure with a total of 169 staff years.

The 1987 Resource          In January 1987, the FTC Chairman directed the Executive Director to
                           undertake a study pertaining to the allocation of resources in the
Allocation Study           enforcement bureaus—the Bureau of Competition and the Bureau of
                           Consumer Protection. The study was to focus on two areas—the
                           distribution of resources between these bureaus and the regional offices,
                           given the budget context, and options for regional office structure. In April
                           1987, the Executive Director completed the study, which, among other
                           things, (1) provided information on FTC enforcement and related activity
                           and presented data on FTC’s budget, (2) analyzed statistics on
                           demographic factors relative to regional operations, and (3) discussed the



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Appendix III
FTC’s Prior Analyses of Regional Restructuring




views of regional and enforcement bureau directors on the major
accomplishments of their organizations and articulated their perspectives
on a number of management issues bearing on the organization of FTC’s
enforcement resources. The study did not argue for any particular
outcome. Instead, it presented possible scenarios or observations for
organizing FTC’s regional operations.

For example, the 1987 study concluded that a minimal regional office
configuration would include five regions covering the following areas of
the country: the Northeast, the Mid-continent area, the West Coast, the
Southeast, and the Southwest. The report stated that logical locations for
these offices would be New York City, Chicago, California (either Los
Angeles or San Francisco), Atlanta, and Dallas (or possibly Houston). The
study also stated that an advantage of a five-office regional scenario would
be that FTC could then significantly increase the resources devoted to
each office, giving each about 30 workyears, while providing adequate
coverage across the country. According to the study, staffing regional
offices at this level would provide significant opportunities for
specialization, thus increasing the effectiveness of the offices. The study
also pointed out that there would be significant costs associated with a
                           1
shift from 10 to 5 offices. Under this scenario, several dozen employees in
offices that would have been closed under the five-region structure—
Boston, Cleveland, Denver, Los Angeles and Seattle—would have been
affected, either by relocations or reductions in force. In addition, the five-
office configuration would have nearly doubled the size of the remaining
offices.

The 1987 study pointed out that FTC regional offices needed a minimum of
18 to 25 staff to do both consumer protection and competition work. The
study concluded that, given FTC’s budget situation at the time, FTC could
retain 8 offices of approximately the same size, each containing about 18
to 20 workyears. The study recommended that FTC consolidate its 10-
office structure into no more than 9 regions, with the staff years from its
Denver office reallocated to other regions. It further suggested that FTC
strongly consider an eight-office regional configuration whereby staff
years from Denver and Seattle would be reallocated among the remaining
regional offices. However, FTC decided to retain all 10 of its regional
offices but closed its only remaining field station, which was located in
Honolulu and staffed with 1 person.
1
 The report noted that closing five regional offices could also produce annual nonpersonnel cost
savings of as much as $875,000. However, the report also notes that this figure is probably overstated
because it does not consider the likely need for additional office space in the remaining regional offices
to accommodate higher staffing levels.




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Appendix IV

Objectives, Scope, and Methodology


              The objectives of this report are to provide information on (1) the Federal
              Trade Commission’s (FTC) rationale for proposing the regional
              restructuring, (2) the process FTC followed in developing its restructuring
              proposal, (3) factors FTC used and could have used in deciding how to
              restructure, (4) other options to the proposed restructuring identified in
              prior FTC studies or by Boston and Denver regional officials, and (5) the
              views of selected stakeholders regarding the impact the proposed
              restructuring could have in the areas covered by the Boston and Denver
              regional offices. On September 18, 1998, we briefed your offices on the
              results of our work. On October 2, 1998, you requested that we provide
              additional information. We agreed to provide additional information and to
              summarize the results of all of our work on FTC restructuring in this
              report.

              In general, to meet our objectives, we obtained and reviewed FTC statutes
              relating to its authority, FTC reports, FTC internal correspondence, and
              congressional appropriations hearings for FTC; the proposed regional
              restructuring plan and supporting FTC data and analyses; and
              documentation related to FTC’s mission, goals, and objectives. We
              interviewed officials in FTC’s Office of the Executive Director (OED),
              Bureau of Consumer Protection (BCP), Bureau of Competition (BC), and
              Bureau of Economics (BE) and the Boston and Denver regional offices.
              We also interviewed officials at the regions which FTC proposed to take
              over the responsibilities of the Boston and Denver regions. However, the
              Executive Director allowed us to interview officials from these regions—
              Chicago, New York, San Francisco, and Seattle—only in the presence of a
              BCP headquarters official. In addition, we interviewed external
              stakeholders in selected federal, state, and local organizations that work
              with the Boston and Denver regions and, at the request of OED officials,
              selected organizations that work with FTC headquarters offices.

              To obtain information on the rationale FTC used for initiating a project for
              restructuring its regional operations, we obtained and reviewed the
              regional restructuring proposal and supporting FTC data and
              documentation related to FTC’s mission, goals, and objectives. We
              interviewed OED, BCP, BC, and BE officials to obtain their views on the
              rationale for developing the proposal and on the issue of productivity of
              FTC headquarters and regional offices. In addition, we obtained and
              reviewed data on the Hart-Scott-Rodino (HSR) Antitrust Improvements Act
              of 1976 and merger filings under the act. We also interviewed FTC Boston
              and Denver regional officials to obtain their views on FTC’s rationale for
              the restructuring proposal and on the issue of productivity of FTC
              headquarters and regional offices.



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Objectives, Scope, and Methodology




To provide information on the process that FTC followed in developing its
May 1998 proposal, we interviewed officials in OED, BCP, and BC and in
the Boston and Denver regional offices. We also collected and examined
pertinent documents provided by these officials.

To provide information on the factors that FTC used in deciding how to
restructure, we interviewed OED, BCP, and BC officials and obtained and
reviewed supporting FTC data. To identify other factors that FTC could
have used in deciding how to restructure, we reviewed prior FTC
restructuring efforts and interviewed Boston and Denver regional officials.
To provide information on using productivity as a factor in determining
how to restructure and on the difficulties in measuring and comparing
consumer education, outreach, and enforcement activities, we (1)
interviewed OED and Boston and Denver regional officials; (2) reviewed
prior FTC restructuring efforts; (3) gathered data on the number of
consumer protection enforcement actions and competition cases worked
on by headquarters and regional offices, for fiscal years 1993 through 1998;
and (4) gathered data on recent consumer education and outreach
activities in which the Boston and Denver regional officials said they had
participated.

To provide information on other options that FTC might have used in lieu
of the proposed restructuring, we obtained and reviewed prior FTC
regional restructuring documents, interviewed officials in Boston and
Denver regional offices, and reviewed documents they provided us. In
addition, we asked OED, BCP, and BC officials why they did not select
these other options for their restructuring proposal, and we obtained and
reviewed any documentation related to FTC’s consideration of these other
options. We also gathered information from OED on FTC’s past use of its
funded full-time equivalent (FTE) positions and on FTC’s recent requests
for additional funding. In addition, we interviewed the Director on how
FTC would use possible future increases in FTEs and whether or not an
increase in funding or FTEs would change FTC’s proposal to restructure
its regional operations.

To provide information on the impact that stakeholders said the proposed
restructuring could have on consumer protection and competition matters,
we interviewed officials from selected organizations that work with the
Boston and Denver regional offices. We contacted representatives of the
Boston and Denver chapters of the Better Business Bureaus (BBB); the
Northeast, Southwest, Midwest, and West regions of the American
Association of Retired Persons (AARP); the Boston and Denver offices of
the Federal Bureau of Investigation (FBI); and offices of the state



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Appendix IV
Objectives, Scope, and Methodology




attorneys general for which the Boston and Denver regions cover. We
selected the BBB and AARP offices because officials from both the Boston
and Denver regional offices said they work with these organizations and
because these organizations are widely recognized consumer protection
groups that cover consumers in both Boston and Denver regions. We
interviewed officials from the FBI because officials in both Boston and
Denver regions said they work with this agency. We selected the offices of
the state attorneys general because of your offices’ particular interest that
we interview these officials. At the request of FTC’s Executive Director,
we also interviewed officials from the Department of Justice’s Antitrust
Division, the National Association of Attorneys General, the Council of
Better Business Bureaus, and the American Bar Association Antitrust Law
Section.

We also interviewed officials in FTC’s Boston and Denver regional offices
to obtain their views on the impact that the restructuring proposal could
have on consumer protection and competition. To obtain information on
plans FTC might have in addressing concerns raised by stakeholders, we
interviewed officials in OED, BCP, and BC in FTC headquarters and
officials in the Chicago, New York, San Francisco, and Seattle regional
offices. We specifically questioned FTC headquarters officials about how
greater reliance on recent technological changes at FTC would impact
senior and low-income citizens. We also gathered available statistics on the
demographics of Internet usage by senior and low-income citizens.

We did not draw any conclusions about whether FTC’s proposal was
necessary and appropriate or based in sound management because of the
                                                                    1
lack of established criteria regarding federal office restructuring. We were
not able to project the likelihood that the number of HSR mergers would
continue to increase in the future. We did not verify information, including
budget information, provided by FTC officials or information provided by
representatives of other organizations we contacted regarding FTC’s
proposal. Because of limited time and as agreed with your offices, we did
not contact all organizations with which the FTC Boston and Denver
regions partner. We did not conclude whether FTC’s restructuring
proposal was likely to improve or maintain the level of FTC services in the
New England and Rocky Mountain areas or whether the implementation
plans that FTC has developed will address the concerns of the state
attorneys general.
1
 Facilities Location Policy: GSA Should Propose a More Consistent and Businesslike Approach
(GAO/GGD-90-109, Sept. 28, 1990).




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Objectives, Scope, and Methodology




We conducted our work in Washington, D.C., Boston, Denver, and Dallas
between June 1998 and January 1999, in accordance with generally
accepted government auditing standards.




Page 56                              GAO/GGD-99-25 FTC's Proposed Restructuring
Appendix V

Productivity and Workload of FTC Regions
and Headquarters

              While considering regional restructuring in 1987, the Federal Trade
              Commission (FTC) conducted a study, which, among other things,
              addressed the issue of regional and headquarters productivity. The 1987
              study compared regions and headquarters by examining productivity or
              workload measures, such as the number of administrative complaints,
              consent orders, final litigated orders, court actions, and initial and full
              phase investigations. The study stated that any attempt to compare the
              workload data of bureaus and regional offices is compromised by a
              number of measurement difficulties. The study stated that depending on
              how adjustments were made to staff years to account for, among other
              things, complexity of cases and consumer impact, one could either
              conclude that the regional offices were more productive than headquarters
              or that headquarters was more productive than the regions. The study did
              not conclude which—the regions or headquarters—was more productive.
              Rather, the study stated that both headquarters and the regions contribute
              significantly to FTC’s accomplishments and any observed differences in
              the workloads of the different organizations were not, of themselves,
              sufficient to compel a reallocation of resources.

              During our review, FTC headquarters officials told us that because of the
              difficulties in measuring productivity, such as those discussed earlier, and
              because of the impact it could have on morale, they chose not to use
              productivity in deciding how to restructure operations. However, Boston
              and Denver regional officials said they believe that productivity should
              have been used in determining how to restructure operations. They also
              said that the regions have been productive with regard to consumer
              protection enforcement, competition activities, and consumer education
              and outreach activities, and they provided data supporting their views.

              We did not verify information provided by FTC headquarters or regional
              officials.




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                                       Appendix V
                                       Productivity and Workload of FTC Regions and Headquarters




                                       Boston and Denver regional officials said that regions are more productive
Boston and Denver                      than BCP headquarters offices in filing enforcement actions. Data provided
Officials Believe                      by Boston regional officials showed that although regions only accounted
Regions Are More                       for slightly more than one-third of FTC’s consumer protection full-time
                                                                                                1
                                       equivalent (FTE) positions in fiscal years 1997 and 1998, regions handled
Productive Than BCP                    68 percent of the preliminary injunctions and 48 percent of the
in Filing Enforcement                  administrative actions. Table V.1 shows the data provided by Boston
Actions                                regional officials on the number and percentage of enforcement actions
                                       taken by regions and headquarters between January 1997 and June 1998
                                       and the percentage of consumer protection FTEs used, respectively, for
                                       fiscal years 1997 and 1998.

Table V.1: FTC Consumer Protection
Enforcement Actions Taken and                                                                                                 Percentage of
Percentage of Consumer Protection                                   Consumer protection enforcement actions
                                                                                                                      a         consumer
FTEs Used by Regions and                                                                                                       protection
Headquarters, January 1997-June 1998                             Injunctive     Administrative                                   FTEs by
                                                                  actions         actions           Total                      fiscal year
                                                                                                                                   b       c
                                       Office                 Number Percent Number Percent Number Percent                    1997    1998
                                       Regions                   69.5      68.0     40      48.0 109.5    59.0                   35.9    34.4
                                       Headquarters              32.5      32.0     44      52.0  76.5    41.0                   64.1    65.6
                                       Total                      102     100.0     84 100.0       186 100.0                   100.0 100.0

                                       Note: Headquarters FTEs include all BCP FTEs.
                                       a
                                        Enforcement actions include injunctive actions filed in federal district court and administrative actions
                                       filed in FTC.
                                       b
                                           Includes data for the last 9 months of fiscal year 1997.
                                       c
                                           Includes data for the first 9 months of fiscal year 1998.
                                       Source: FTC Boston regional officials’ analysis of FTC’s Litigation Guide and FTC press releases.




                                       The OED officials stated that enforcement data were not a good measure
                                       of productivity of headquarters and regional offices because breaking
                                       down regional and headquarters accomplishments in this manner does not
                                       reflect the fact that much of FTC’s consumer protection work is
                                       collaborative. However, if enforcement data were to be used, the
                                       Executive Director said that using such data for a longer period of time
                                       would be more appropriate than using the Boston data, which were for a
                                       shorter period of time. Table V.2 presents information that we calculated
                                       based on data provided by OED on enforcement actions taken and
                                       consumer protection FTEs used by regions and headquarters for fiscal
                                       years 1993 through 1998. The data indicated, for example, that in fiscal

                                       1
                                        An FTE generally consists of one or more employed individuals who collectively complete 2,080 work
                                       hours in a given year. Therefore, either one full-time employee or two half-time employees equal one
                                       FTE.




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                                       Appendix V
                                       Productivity and Workload of FTC Regions and Headquarters




                                       year 1995, FTC’s regions had about 40 percent of the consumer protection
                                       FTEs and took about 33 percent of the enforcement actions. In contrast,
                                       during fiscal year 1998, FTC’s regions had about 39 percent of the FTEs
                                       and took about 62 percent of the consumer protection enforcement
                                       actions.


Table V.2: Percentage of Enforcement Actions (EA) Taken and Consumer Protection FTEs Used by FTC Regions and
Headquarters, Fiscal Years 1993-1998
                                            1993          1994        1995          1996         1997        1998
                                              a
                                           EA FTEs       EA FTEs     EA FTEs       EA FTEs      EA FTEs      EA FTEs
Regions                                   42.6 42.0 49.2 42.5 32.9 40.1 42.6 43.1 46.4 40.7 62.2 38.6
Headquarters                              57.4 58.0 50.8 57.5 67.1 59.9 57.4 56.9 53.6 59.3 37.8 61.4

                                       Note: OED officials said that headquarters FTEs in this table include only those FTEs in BCP’s
                                       litigating divisions. They said that BCP also has a director’s office, a consumer and business
                                       education office and a consumer response center and that the FTEs for these offices are not included
                                       in this table. Although the data in this table exclude FTEs for consumer complaint handling and
                                       consumer education and outreach activities from the headquarters numbers, according to Boston
                                       regional officials, the data include FTEs for these activities in the regional numbers. The Boston
                                       officials said that the data in this table are “internally inconsistent.” We were unable to resolve the
                                       disagreement between FTC headquarters and regions on which FTEs should be included in
                                       comparing regions and headquarters.
                                       a
                                       Enforcement actions include permanent and preliminary injunctions in federal district court, civil
                                       penalties, and administrative actions.
                                       Source: GAO analysis based on data provided by OED, FTC.




                                       OED and BCP officials said that it is not appropriate to conclude that
                                       regions are more productive than headquarters on the basis of numbers of
                                       enforcement actions and percentages of FTEs, as shown in the above
                                       tables. They said that these numbers do not reflect other activities
                                       performed by BCP headquarters staff, which are not related to
                                       enforcement. According to these officials, BCP staff devote time to
                                       activities such as preparing testimonies and special reports to Congress,
                                       developing a consumer fraud database, drafting rules, and managing the
                                       review of FTC guides and rules. Boston officials said that regions have also
                                       participated in some of these activities.

                                       Boston regional officials also stressed the regional contribution to carrying
Boston Regional                        out FTC’s competition mission. Boston regional officials stated that
Officials Said They                    Boston staff recently negotiated a consent agreement on an HSR merger
Believe Regions Have                   case—1 of only 19 cases in which a consent agreement was obtained since
                                       July 1997. Boston officials also stressed the contribution of other regional
Contributed to FTC’s                   offices in litigating merger cases for FTC, including the Denver regional
Competition Work                       office, which has litigated one merger case and assisted another region in
                                       litigating one case. Further, Boston officials said that regional offices




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Productivity and Workload of FTC Regions and Headquarters




generate their own nonmerger cases and essentially review all healthcare
mergers within their regions.

BC officials acknowledged that regional offices are productive and
contribute to FTC’s competition mission. They said, however, that FTC
needs to ensure that all of its resources, both in the field and headquarters,
are positioned to be capable of conducting the nature and type of litigation
associated with fast-paced large merger cases at all times. Concerning a
large case that Boston settled last year, an FTC headquarters official stated
that while the regional staff did a good job on the case, the case was
atypical. The official stated that the regional staff did not have to invest the
resources or meet the same time pressures associated with many merger
cases. For example, the companies seeking to merge did not require FTC
to comply with the statutory time frames under the Hart-Scott-Rodino
(HSR) Antitrust Improvements Act of 1976; and as a result, according to
this headquarters official, the region was able, with a few staff, to handle
         2
the case. The headquarters official also said FTC is not able to predict
how cooperative parties involved in a merger will be or if the parties will
remain cooperative as an investigation proceeds. As a result, the official
said FTC is not able to consistently assign these types of cases to regions.
According to Boston regional officials, however, few merging companies
require FTC to strictly adhere to the tight time frames established by the
HSR Act. BC officials said they did not have data on how often companies
waive the statutory time requirements but that this was not the usual
situation.

OED officials provided data showing that the number of competition cases
handled by regions and BC headquarters has varied widely by the type of
case—HSR merger, non-HSR merger, or nonmerger—and by year. Tables
V.3 and V.4 show the number of competition cases handled by the regions
and headquarters for fiscal years 1993 through 1998 and the percentage of
competition FTEs used, respectively.




2
 Under the HSR Act, in general, parties involved in mergers or acquisitions covered by the act must file
their proposal with FTC and the Antitrust Division of the Department of Justice (DOJ) prior to
consummating the transaction. The two agencies generally have up to 30 days to request additional
information from either or both parties. This request extends the waiting period for a specified period
of time, generally 20 days, and allows FTC or DOJ to determine whether it will challenge the merger.




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                                         Productivity and Workload of FTC Regions and Headquarters




Table V.3: Number of FTC Competition Cases Handled by Regions and Headquarters, Fiscal Years 1993-1998
                                     1993           1994           1995            1996             1997                                  1998
Accomplishments
 HSR mergers
  Clearances granted
    Regions                            10              26            30               17              28                                     60
    Headquarters                      221            187            224             229              195                                    202
  Second requests
    Regions                             3               6            12                3               5                                     11
    Headquarters                       37              40            46               33              40                                     35
  Consent agreements
    Regions                             0               0             1                2               0                                      2
    Headquarters                        6              13            26               17              13                                     17
 Non-HSR mergers
  Clearances granted
    Regions                            24              15            20               21              26                                     25
    Headquarters                       42              67            56               63              50                                     57
  Investigations opened
    Regions                            11               3             8                7              15                                     25
    Headquarters                        8               6            12                6               9                                     55
  Consent agreements
    Regions                             1               0             1                1               0                                      0
    Headquarters                        2               2             2                0               4                                      4
 Nonmergers
  Initial phase investigations
    Regions                            43              42            23               26              18                                     20
    Headquarters                       35              35            35               23              18                                     23
  Consent agreements
    Regions                             5               3             6                3               0                                      3
    Headquarters                        4               8             5                3               3                                      8

                                         Note: According to FTC headquarters officials, for the past several years, BC has allocated
                                         approximately 75 percent of the competition resources to merger work and 25 percent to nonmerger
                                         work. Of the 75 percent in the merger category, FTC officials estimated that less than 5 percent of the
                                         resources have gone to non-HSR mergers, while over 70 percent have gone to HSR mergers.
                                         Source: OED, FTC.



Table V.4: Percentage of Competition FTEs Used by Regions and Headquarters, Fiscal Years 1993-1998
Office                                          1993         1994         1995           1996                            1997             1998
Regions                                         13.5          13.2         16.2           12.8                           10.8             12.7
Headquarters                                    86.5          86.8         83.8           87.2                           89.2             87.3

                                         Source: GAO analysis based on data provided by OED, FTC.

                                         As shown in table V.4, in fiscal year 1996, regions accounted for about 13
                                         percent of the competition FTEs while headquarters accounted for about
                                         87 percent. During this same year, as shown in table V.3, regions were
                                         responsible for 3 HSR merger second requests, while headquarters was



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                           Appendix V
                           Productivity and Workload of FTC Regions and Headquarters




                           responsible for 33; regions obtained 2 HSR merger consent agreements and
                           headquarters obtained 17. In fiscal year 1997, regions accounted for about
                           11 percent of the FTEs, while headquarters accounted for about 89
                           percent. During this year, regions were responsible for 5 HSR merger
                           second requests and headquarters was responsible for 40; regions obtained
                           no HSR consent agreements and headquarters obtained 13.

                           Concerning nonmerger work, in fiscal year 1996, regions were responsible
                           for 26 of the initial phase investigations and headquarters was responsible
                           for 23; regions obtained 3 consent agreements and headquarters obtained
                           3. In fiscal year 1997, regions and headquarters were each responsible for
                           18 initial phase investigations; regions obtained no consent agreements
                           and headquarters obtained 3.

                           Boston and Denver regional staff said they believe that they have also
Boston and Denver          made significant contributions to FTC’s mission through other activities,
Regional Officials         such as providing consumer education and outreach and working with
Believe They Have          consumer groups and law enforcement officials. The Boston and Denver
                           staff provided descriptive information about many of these activities over
Made Significant           the last few years. FTC headquarters officials recognized that Boston and
Contributions to           Denver officials have performed numerous education and outreach
Consumer Education         activities, but they said that these types of activities are also carried out by
and Outreach               other regions and headquarters staff. They further stated that many of
                           these activities are initiated by headquarters and implemented by regional
                           staff.

                           The following sections summarize the information Boston and Denver staff
                           provided about their consumer education and outreach activities.

Boston Regional Office     According to Boston Regional Office (BRO) staff, BRO engages in outreach
                           and partnership activities on a daily basis by counseling consumers and
Outreach and Partnership   handling complaints and by conducting informal exchanges with consumer
Activities                 groups and law enforcement officials. Although BRO staff stated that not
                           all of these activities lend themselves to quantification, they also stated
                           that they believe that historically, BRO has been one of the stronger
                           regional offices in outreach activity. For example, they noted that statistics
                           compiled in 1996 showed that in that year, BRO spent (1) three times as
                           many hours on consumer education as the average FTC regional office, (2)
                           almost twice the average on industry education, and (3) two and one-half
                           times the average on working with state and local governments. The
                           following are examples BRO staff provided on the types of consumer and
                           industry outreach and law enforcement partnership performed by BRO
                           over the past few years.



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                                      Productivity and Workload of FTC Regions and Headquarters




Ongoing Consumer Protection           BRO staff stated that they participate in numerous, ongoing consumer
Partnerships With Federal, State,     protection partnerships with other organizations. For example, BRO has
and Local Organizations               hosted quarterly “common ground” meetings with the consumer protection
                                      staffs of the New England state attorneys general offices. In addition, BRO
                                      staff stated that they initiated a series of individual meetings with each of
                                      the New England states’ consumer protection and antitrust officials.
                                      Another example of BRO’s outreach activity in the consumer protection
                                      area is a series of three conferences that were held to discuss
                                      telemarketing fraud issues and to train state, local, and federal officials on
                                      enforcement of the telemarketing sales rule. BRO staff stated they also
                                      participate in numerous other activities with federal, state, and local
                                      organizations, including

                                    • the Connecticut Telemarketing Task Force,
                                    • the Federal Reserve Bank of Boston’s annual consumer information
                                      conferences,
                                    • meetings with other New England consumer protection authorities and
                                      groups,
                                    • the Connecticut AIDS Health Fraud Task Force, and
                                    • numerous interviews with local television and radio stations and print
                                      media.

General Outreach and                  BRO staff stated that they conduct general outreach and partnership
Partnerships                          activities on Internet issues, subjects of interest to students and older
                                      Americans, and fraud awareness in general, as discussed below.

                                      BRO staff indicated that they conduct numerous outreach and partnership
                                      activities regarding the Internet. For example, BRO gave a presentation on
                                      “New Issues in Internet Marketing and Advertising” at the Internet
                                      Commerce Exposition in Boston, a national conference showcasing state-
                                      of-the-art Internet products. BRO also gave a presentation on FTC Internet
                                      enforcement activities at a training session for the Boston Federal Bureau
                                      of Investigation (FBI) office’s Fraud Against Government/Computer Squad.
                                      In addition, BRO staff stated they hold training conferences on use of the
                                      Internet as an investigative tool, including one for attorneys and
                                      investigators from state attorneys general offices. BRO has also partnered
                                      with Internal Revenue Service (IRS) officials to train and assist their New
                                      England criminal division in use of the Internet.

                                      BRO staff stated that they provided consumer education materials to area
                                      colleges, particularly on the topic of consumer credit, which has become a
                                      great concern in light of the problems that have arisen from credit card
                                      companies heavily marketing to college students. For example, BRO



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officials stated they visited local colleges during orientation week to
distribute brochures and answer students’ questions. BRO also partnered
with the New England Board of Higher Education to provide copies of a
new consumer alert brochure on travel fraud aimed at college students to
over 250 colleges and universities in New England. BRO staff indicated
they also worked with several New England state education officials to
distribute “The Real Deal,” a consumer education brochure designed for
school children.

In conjunction with the FBI and the Massachusetts attorney general’s
office, BRO staff stated they participated in the training of American
Association of Retired Persons (AARP) local “Fraud Fighters,” volunteers
who organize local seminars for senior citizens on how to avoid
telemarketing scams. They also noted that they participated in other
programs educating older Americans on telemarketing fraud, credit laws,
and other FTC topics. For example, BRO participated in Senior Fraud
Awareness Day in Springfield, Massachusetts, and a State Conference on
Aging, sponsored by the Massachusetts Association of Councils on Aging
and Senior Center Directors.

BRO staff indicated they conduct numerous other outreach and
partnership activities, including giving speeches and presentations before
conferences and association meetings. For example, they participated in a
conference in New Hampshire by giving a presentation on telemarketing
fraud that was attended by representatives of New England sheriff’s
offices, police departments, state attorneys general offices, Elder Services
agencies, AARP, and the Department of Justice (DOJ). They also
sponsored a Media Screening Workshop, cosponsored with the New
England Newspaper Association, to educate and train 50 classified ad
managers and advertising directors from newspapers throughout New
England on how to recognize deceptive and fraudulent advertisements.

BRO staff stated that, together with FTC’s Division of Marketing Practices,
they participated in the National Association of Attorneys General
(NAAG)/FTC/Quebec provincial government meeting in Quebec City on
cross-border telemarketing fraud. BRO staff noted they also researched
and wrote conference materials on the enforcement of foreign judgments
in Canada and the United States for a cross-border fraud conference and
participated in a NAAG meeting with Canadian officials on possible joint
civil and criminal enforcement actions. BRO staff indicated that they have
been active participants in the NAAG Task Force Subcommittee focusing
on civil issues and are working with the New England state attorneys
general to identify potential cross-border fraud targets. In addition, BRO



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                               Productivity and Workload of FTC Regions and Headquarters




                               staff stated they are working with the FBI’s Boston office to identify local
                               victims of Canadian telemarketers.

Joint Investigations and Law   BRO staff stated they conduct joint investigations and law enforcement
Enforcement Actions            actions with other law enforcement agencies. For example, as part of a
                               nationwide federal/state law enforcement effort against fraud and
                               deception in the credit repair industry, BRO and the Massachusetts
                               attorney general’s office filed four cases in federal district court in Boston
                               and obtained settlements in all four cases. Another example is “Operation
                               Yankee Trader,” in which BRO staff stated that they coordinated a sweep
                               with other law enforcement agencies of fraudulent vending machine
                               business opportunities in New England. BRO staff stated they filed
                               complaints against three corporate defendants and two individuals in New
                               Hampshire. The FBI and U.S. Attorney have begun bringing criminal
                               indictments against those defendants and other targets identified by BRO.
                               The states of Connecticut, Maine, and New Hampshire issued seven
                               warning letters, under their business registration statutes, against other
                               targets.

                               BRO staff noted that they have worked with other law enforcement
                               agencies targeting illegal industry practices. For example, in its “Funeral
                               Rule Sweep,” BRO and the Massachusetts attorney general’s office jointly
                               investigated 40 funeral homes and negotiated settlements with 10 of the
                               funeral homes under the Funeral Rule Offenders Program. BRO staff also
                               stated that they conducted joint investigations with Maine on funeral home
                               acquisitions in that state. In addition, BRO conducted joint hospital merger
                               investigations with the state attorneys general offices in Massachusetts
                               and Maine.

Denver Regional Office         FTC’s Denver Regional Office (DRO) staff stated they emphasize consumer
                               education and outreach as a core mission. They also said that they believe
Consumer Education and         that expending resources on consumer education produces a threefold
Outreach Activities            benefit. First, it provides essential information that enables consumers to
                               make prudent buying decisions and protect themselves from making bad
                               investment decisions. Second, by forearming consumers who could be
                               potential victims in fraudulent schemes, it increases the amount of capital
                               for investment in legitimate businesses, thus adding to the productive
                               capacity of the country, rather than draining capital into the coffers of
                               unproductive, illegitimate enterprises. And finally, informed consumers are
                               less likely to become victims, thus reducing the number of law
                               enforcement actions (a much more resource-intensive activity than
                               consumer education) that must be taken to protect consumers.




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                                  Appendix V
                                  Productivity and Workload of FTC Regions and Headquarters




Consumer Education Focused        DRO staff stated that they are particularly active in conducting consumer
Toward Senior Citizens            education projects directed toward senior citizens who frequently are
                                  targets of “quick-buck” artists and telemarketing scams. FTC cited DRO for
                                  its efforts in educating the elderly about the danger of all types of fraud in
                                  its most recent report for 1995 to1996 to the U.S. Congress. The report
                                  points out that DRO teamed with the Colorado attorney general, AARP, the
                                  Denver District Attorney, the Better Business Bureau (BBB), and other
                                  federal, state, and local agencies to sponsor a conference for senior
                                  citizens under a coalition named Seniors Against Fraud and Exploitation.
                                  DRO stated that it was actively involved in planning this event, which was
                                  attended by 1,300 senior citizens. For the second annual conference in
                                  1997, DRO indicated that it sponsored the event, staffed a booth at the
                                  conference, passed out hundreds of brochures, and was featured on a
                                  television newscast covering the event. DRO noted that it also assisted in
                                  drafting a brochure for area senior citizens warning them about the various
                                  types of scams targeting them and listing public and private agency
                                  contacts to assist them. In addition, DRO indicated that it hosted a meeting
                                  of coalition members, where several DRO staff members briefed coalition
                                  members on the FTC’s outreach and law enforcement activities.

Educating Business in Antitrust   DRO staff stated they have also been in the forefront of educating the
Issues                            business community and private antitrust bar on antitrust matters. For
                                  example, they said that DRO sponsored a health care antitrust conference
                                  attended by over 125 members of the Colorado health care business
                                  community and antitrust bar, which served as a model for other regional
                                  offices, and has spoken to numerous business groups on substantive
                                  antitrust issues. They also indicated that they have maintained active
                                  liaisons with the staff of the Antitrust Division of the Colorado attorney
                                  general’s office to foster cooperative strategies in maintaining competition
                                  in the marketplace.

                                  DRO staff said that Internet issues have become an active area for DRO
                                  outreach efforts. The staff said that Denver is the location of the nation’s
                                                                               3
                                  only Internet Chamber of Commerce (ICC). DRO spoke at one of the ICC’s
                                  bimonthly meetings as well as at an Internet conference sponsored by the
                                  ICC, BBB, and Rocky Mountain Internet Users Group. In addition, DRO
                                  staff stated they helped plan an Internet “Summit on Ethical Electronic
                                  Commerce” held in Denver to examine electronic commerce and standards
                                  necessary to stimulate and protect online purchases. FTC, through DRO,
                                  3
                                   According to DRO staff, ICC is an association of businesses interested in applying Internet
                                  applications to their organizations for increased efficiency, greater profitability, or competitive
                                  advantage. The Chamber’s main activities are education (through bimonthly meetings, seminars, and
                                  publications) and networking opportunities. It has about 400 member businesses.




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                                Appendix V
                                Productivity and Workload of FTC Regions and Headquarters




                                served as the public sector cosponsor of this collaborative effort among
                                public, private, and nonprofit sectors and took the lead on determining the
                                appropriate content and format for the summit. DRO staff indicated that
                                they are preparing instructional materials based on the summit to serve as
                                a model for similar summits in the rest of the country. In addition, DRO
                                stated that it provided 600 FTC brochures on Internet-related topics to
                                AARP to be distributed to AARP members enrolled in Microsoft Internet
                                training, and it is developing content on Internet issues to be included in
                                future Microsoft/AARP classes, each of which draws 100 to 200 people.
                                DRO noted that this is another program being considered as a model for
                                other parts of the country.

Consumer Outreach Through the   DRO staff stated that they actively participate in the consumer “help
Media                           center” call-in nights of the local CBS and NBC TV affiliates. On such
                                nights, DRO staff select a consumer topic; a local TV personality discusses
                                it during commercial breaks; and DRO staff handle telephone calls from
                                consumers related to that topic. They noted that this is a new development
                                for the NBC affiliate and a direct result of DRO efforts and encouragement.
                                Past topics have included pyramid schemes, holiday shopping tips,
                                telemarketing, credit repair, debt collection, and credit reporting. On
                                numerous occasions, DRO staff stated they have also appeared on a
                                Boulder, Colorado, public radio station for a consumer call-in show where
                                consumers can have their consumer protection questions answered on the
                                air. DRO’s acting regional director frequently participates in a radio
                                program broadcast from Fargo, North Dakota, that focuses on a range of
                                consumer issues. Most recently, she discussed the “dirty dozen” scams
                                perpetrated on the Internet. To provide further assistance to consumers,
                                DRO staff indicated they have participated in several “ask a lawyer nights”
                                sponsored by the Boulder, Colorado Bar Association, to answer questions
                                about federal consumer protection laws. In addition, DRO staff stated they
                                have provided information to organizations such as (1) the Colorado
                                Coalition for Elder Rights and Adult Protection; (2) the Guardian Coalition
                                (Denver area court-appointed guardians for incompetent adults); (3) an
                                AARP Spanish-speaking fraud group; (4) the Denver chapter of the
                                National Association of Credit Managers; (5) the Combined Federal
                                Campaign, Colorado State University; and (6) members of the dietary
                                supplement industry.

Telemarketing Task Force        DRO staff stated they were instrumental in the formation of a
                                telemarketing fraud task force in Denver. The group is comprised of
                                representatives of the FTC, U.S. Attorney’s Office, FBI, Postal Inspection
                                Service, the Securities and Exchange Commission (SEC), IRS, Colorado
                                attorney general’s office, Colorado Division of Securities, Denver District



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                                 Productivity and Workload of FTC Regions and Headquarters




                                 Attorney’s Office, and other local district attorneys and police
                                 departments. The group meets quarterly to exchange ideas, discuss current
                                 cases, and explore cooperative strategies.

Congressional Workshop           In cooperation with four other agencies, DRO staff indicated that they
                                 organized and conducted a multiagency workshop for Congressional staff
                                 from 10 states (Denver’s 8-state region, plus Oklahoma and New Mexico).
                                 Representatives from 59 different agencies or divisions of departments,
                                 including the FTC, made presentations and staffed booths at the 2-day
                                 event.

Sweep Coordination With States   DRO staff indicated they have regular, extensive contact with staff of 27
                                 states through their coordination of the “Operation Show Time” law
                                 enforcement sweeps. States participate in regular conference calls with
                                 DRO staff. “Project House Call” also involved extensive contact with the
                                 staff of law enforcement agencies in Arizona, Florida, California, New
                                 Jersey, Colorado, and Utah. Finally, as part of FTC’s Bureau of Consumer
                                 Protection efforts to enforce FTC’s funeral rule, the DRO staff stated they
                                 have conducted three funeral rule enforcement sweeps in Colorado. DRO
                                 attorneys and investigators trained staff from the Colorado attorney
                                 general’s office who then assisted with the undercover test-shopping of
                                 funeral homes in selected locales. DRO staff stated that Denver’s fourth
                                 sweep was conducted in another state in the region in cooperation with
                                 that state’s attorney general’s office.

Consumer Investigators’          DRO stated that its investigators attend meetings of the local Consumer
Activities                       Investigators Group, which draws investigators from approximately 60
                                 agencies to discuss cases and emerging issues in law enforcement. DRO
                                 staff also indicated that staff attend “Mountain Time Zone” meetings of the
                                 North American Securities Administration Association where securities
                                 and other investment fraud issues are discussed.




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Appendix VI

Other Possible Restructuring Options


                          Our review of the Federal Trade Commission’s (FTC) 1987 resource
                          allocation study and discussions with Boston and Denver regional officials
                          identified 10 possible options FTC could have used in developing its June
                          1998 restructuring proposal. The following sections discuss the 10 options
                          and FTC headquarters officials’ comments about each.

                          Denver regional officials suggested that FTC could have considered
Option 1 - Transfer All   designating the 10 regions as FTC’s primary consumer outreach and fraud
Competition Work to       litigation units and moving all competition work to headquarters. They
Headquarters              stated that such a proposal would cause minimal disruption because it
                          would shift responsibilities for competition work at only one location—
                          headquarters—where most of the competition resources are currently
                          allocated. According to Denver officials, this option would enable regions
                          to focus more on consumer fraud litigation and consumer outreach
                          activities, allow FTC to continue its 10-region structure, and avert the need
                          for a 2-office Western region managed by 1 director.

                          FTC’s Executive Director told us that FTC considered this option but
                          rejected it because FTC wanted to maintain an antitrust presence in its
                          field operations. Headquarters officials said that some areas of the country
                          are central to merger activity, and it would appear reasonable to have an
                          FTC presence in those locations. Headquarters officials cited San
                          Francisco as one area containing a large number of high-technology
                          companies with numerous mergers occurring among those companies.
                          Office of the Executive Director (OED) officials also said that it would be
                          more disruptive to move the approximately five competition resources
                          currently allocated to each region into Bureau of Competition (BC)
                          headquarters operations, as opposed to relocating staff from the two
                          regions.

                          Boston regional officials suggested that FTC could have considered
Option 2 - Shift Staff    temporarily reassigning headquarters staff from its Bureau of Consumer
From BCP to BC            Protection (BCP) to BC. They said that the reassigned staff could assist BC
                          in meeting its increased merger workload and that when the merger load
                          diminished, FTC could return the staff to BCP.

                          FTC’s Executive Director said that this option was not seriously
                          considered because FTC views the missions of BCP and BC as equally
                          important. FTC decided that it needed to maintain the mix of resources
                          currently allocated to each bureau but that the resources needed to be
                          used more efficiently. According to OED officials, from an overall
                          agencywide perspective, FTC historically has divided its resources equally
                          between its two missions.



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                        Appendix VI
                        Other Possible Restructuring Options




                        Boston and Denver regional officials also suggested that FTC could have
Option 3 - Request      requested increased funding to handle the increased workload. These
Increased Funding to    officials said that they believed this option would have precluded the need
Address the Increased   to close two regional offices.
Workload                FTC’s Executive Director told us that at the time FTC was developing the
                        restructuring proposal, FTC officials believed that additional funding to
                        handle the increased workload was unlikely because the agency’s
                        experience over the past several years had been to receive budget
                        authority, which was less than the amount requested from Congress. She
                        said that the fiscal year 1999 appropriation was the first in years in which
                        FTC received more than it originally requested; the request to Congress
                        was for $112.8 million, and FTC received $116.7 million—$3.9 million more
                        than requested. She said that FTC anticipates using most, if not all, of the
                        $3.9 million increase on a toll-free telephone number for the consumer
                        complaint handling center and enhancements to a consumer fraud
                        database. These items were included in FTC’s 1999 conference report,
                                                                 1
                        which accompanied its appropriation. The Executive Director told us that
                        regardless of the increased funding, FTC would continue to pursue
                        restructuring because its proposal was intended to make the most efficient
                        use of FTC’s resources. She added that no amount of additional funding or
                        full-time equivalents (FTE) would change FTC’s position. Appendix VII
                        provides a more detailed discussion of FTC’s prior requests for funding
                        and its use of FTEs.

                        Boston regional officials suggested that FTC should focus on its
Option 4 - Limit        “traditional” competition mission, rather than pursue new, resource-
Resources to More       intensive, “cutting edge” competition cases at the expense of regional
“Traditional”           coverage and consumer protection. The officials said they believe such an
                        approach would enable FTC to maximize its resources to deal with the
Competition Work        merger workload while continuing to meet regional consumer protection
                        needs.

                        OED and BC officials stated that there is no clear definition of what is
                        “traditional” competition work versus what is “cutting edge” competition
                        work and that the Commissioners and the federal courts have been in
                        agreement with the work that BC has undertaken over the past several
                        years.




                        1
                            H.R. Conf. Rep. No. 105-825, at 1091 (1998).




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                          Appendix VI
                          Other Possible Restructuring Options




                          Boston regional officials said that, in their view, regional offices operate at
Option 5 - Maintain the   an exemplary level on consumer protection matters and that regional
Status Quo and Allow      offices provide irreplaceable, comprehensive consumer education and
Regional Offices to       outreach services and make solid contributions on competition work. They
                          suggested that FTC could maintain the status quo but more formally have
Pool Resources            regional offices pool their resources in order to work on large HSR merger
                          cases, which is similar to the informal resource sharing that regions
                          currently perform.

                          OED officials said that occasionally officials from more than one regional
                          office or from both the regions and BC headquarters offices work jointly
                          on merger cases. However, the Executive Director said that FTC did not
                          consider this as a viable long-term option because FTC could not afford
                          the travel funds needed for attorneys to travel to other locations to work
                          on large, complex cases for extended periods of time. Further, FTC’s
                          Executive Director said that maintaining the status quo was not a viable
                          option because it would not allow FTC to address the underlying reason
                          for developing the proposal—coping with a growing and more complex
                          workload with limited resources.

                          The regional officials suggested that FTC should have considered the
Option 6 - Increase the   option of allocating more staff to the regions. In their view, headquarters
Number of Staff in        staff tend to be specialized; and, if more staff were allocated to the regions,
Each Regional Office      they could be used in a more flexible manner to handle fluctuations in
                          competition or consumer protection activity.

                          FTC’s Executive Director said that this option would cut back resources
                          where the agency needs them most—headquarters. She said that
                          headquarters is best equipped to handle the largest, most complex merger
                          investigations and antitrust litigation, rulemaking, and the largest
                          consumer protection cases. She added that these are the areas that
                          represent the main increase in FTC’s workload.

                          Boston regional office staff suggested that, based on staff expertise or
Option 7 - Redistribute   geographic location, FTC could have some offices place greater emphasis
Consumer Protection       on competition issues as the need arises. They also suggested that
and Competition           competition work could be consolidated into two or three offices, thus
                          eliminating the need to close offices. In fiscal year 1998, FTC devoted
Resources Within          about 75 percent of its regional resources to consumer protection matters
Regional Offices          and approximately 25 percent to competition matters.

                          FTC’s Executive Director said that this alternative would shift resources
                          away from the consumer protection mission, which was not realistic.



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                         Appendix VI
                         Other Possible Restructuring Options




                         Boston regional officials suggested that, given the regional offices’ proven
Option 8 - Relocate      success in generating and litigating consumer protection matters, FTC
BCP Headquarters         should have considered shifting consumer protection resources from
Staff to the Regions     headquarters to the regions. The officials said they believe this would give
                         regional consumer protection staff the ability to relocate to geographic
                         areas they might find attractive and give them the opportunity to work on a
                         wide range of issues.

                         FTC’s Executive Director said that this option would cut back resources
                         where the agency needs them most—headquarters—as discussed under
                         option 6.

                         We also asked FTC officials if they had considered the possibility of
Option 9 - Keep Boston   keeping the Denver and Boston offices open, but at reduced staffing levels
and Denver Regions       so that FTC could continue to address consumer protection work in those
Open at Reduced          areas.
Staffing Levels          The Executive Director said that FTC had not considered this option but
                         that she believed that such an option would still not enable FTC to address
                         its increased workload and the limited resource problem. The BCP
                         Director said that, in her view, it is hard to justify smaller field offices
                         because of the availability and ease of transportation.

                         FTC’s 1987 study included options for different regional structures,
Option 10 - Adopt a      including a five-region structure. According to FTC officials, FTC did
Regional Structure       consider closing more than two regional offices but decided that doing so
With Fewer Offices       would be too disruptive to operations. FTC decided that it could attain the
                         critical mass of staff needed in the antitrust centers and increase the
                         number of staff at headquarters by closing only two offices.




                         Page 72                                GAO/GGD-99-25 FTC's Proposed Restructuring
Appendix VII

Selected Information on FTC’s Funding and
FTE History

                              Boston and Denver regional officials suggested that instead of closing two
FTC Officials Said            regional offices, the Federal Trade Commission (FTC) could have
Their Proposal Was            requested increased funding from Congress to handle the demands of its
About Efficient Use of        increased workload. The Executive Director said the proposed regional
                              office restructuring was not about increased funding and resource levels
Resources and Not             but about the most efficient allocation of those resources. She said that
About Funding                 until recently FTC’s requests for increased funding have not been
                              approved. Further, she said that the fiscal year 1999 increase does not
                              eliminate the need for FTC to restructure its operations as proposed. This
                              appendix presents information on FTC’s recent funding and full-time
                                                        1
                              equivalent (FTE) history.

Until Recently, FTC           The FTC Executive Director said that until the fiscal year 1999
                              appropriations, for the past several years, FTC has asked for larger
Received Appropriations       appropriations than it has received. For example, she said that in 1996, the
That Were Less Than           request to Congress was for $108 million, and the agency received budget
Requested                     authority of just under $99 million; in 1997 the request was for $104
                              million, and FTC received budget authority of under $102 million; and in
                              1998, the request was for $108 million, and the resulting budget authority
                              was $106.5 million. The fiscal year 1999 request to Congress was for $112.8
                              million, and FTC received budget authority of $116.7 million—$3.9 million
                              more than requested. According to the Executive Director, FTC anticipates
                              using most, if not all, of the $3.9 million increase on enhancements to the
                              consumer complaint handling center, including a toll-free number, and on
                              enhancements to a consumer fraud database, which were mentioned in the
                              1999 conference report.

FTC Officials Said the 1999   The Executive Director said she believes the 1999 appropriation will fund,
                              at most, the 979 FTEs that FTC requested. She said that FTC’s budget
Appropriation Will Not        office staff were currently analyzing the appropriation to determine how
Provide a Significant         many FTEs that FTC could fund in fiscal year 1999. She said that the 979
Increase in FTEs              FTE figure represents an increase of 19 FTEs over the fiscal year 1998
                              appropriations—of which 9 FTEs are targeted for the Bureau of Consumer
                              Protection, 9 to the Bureau of Competition and 1 to the Bureau of
                              Economics. She indicated that a potentially complicating factor is that the
                              President’s budget request anticipated only a 3.1 percent salary increase
                              for federal employees, and that it appeared that the actual amount would


                              1
                              An FTE generally consists of one or more employed individuals who collectively complete 2,080 work
                              hours in a given year. Therefore, either one full-time employee or two half-time employees equal one
                              FTE.




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                             Appendix VII
                             Selected Information on FTC’s Funding and FTE History




                                          2
                             be higher. She said that this could potentially decrease the funding
                             available for additional FTEs in fiscal year 1999.

OED Officials Said FTC Has   FTC’s Executive Director said that at times, FTC has not been able to use
                             or hire up to its authorized level of FTEs because the amount funded by
Not Used its Authorized                                                        3
                             Congress has fallen short of the authorized level. However, she also said
FTEs But Has Used Most of    that FTC had used most of its funded FTEs in recent years. She provided
Its Funded FTEs in Recent    the following example relating to FTC’s 1996 reprogramming request and a
Years                        subsequent approval letter between the FTC and its House Appropriations
                             Subcommittee to show the funded FTE level in recent years. The request
                             states,

                             “ (W)hile the FTC’s authorized level of FTE has remained relatively stable at 979, funding
                             levels have consistently supported between 940 and 950 FTE. In fiscal year 1996 the
                             Commission expects to utilize about 940 FTE, compared to 944 FTE in fiscal year 1995. The
                             President’s fiscal year 1997 request for the Commission will support approximately the
                             same FTE level.”

                             According to the Executive Director, the response from the House
                             Appropriations Subcommittee recognized FTC’s funded FTE level as 940 in
                             that additional funds approved for use by the FTC will

                             “augment the level of resources provided in the fiscal year 1996 appropriations bill, so that
                             the FTC can maintain staffing levels of 940 FTE.”

                             The Executive Director provided data showing that FTC exceeded its
                             funded FTE level in fiscal year 1995, was one FTE short of its funded FTE
                             level in fiscal year 1996, was two FTEs short of its funded level in fiscal
                             year 1997, and exceeded its funded FTEs in fiscal year 1998. Table VII.1
                             presents information on FTC’s fiscal year 1995 through 1999 requested,
                             funded, and actual FTEs.




                             2
                             On December 9, 1998, President Clinton signed Executive Order 13106, which established an average
                             of a 3.6 percent salary increase for fiscal year 1999 for federal employees.
                             3
                              The authorized level of FTEs referred to by FTC is the level of FTEs approved by the Office of
                             Management and Budget and not necessarily a level of FTEs set in law or committee report.




                             Page 74                                           GAO/GGD-99-25 FTC's Proposed Restructuring
                                      Appendix VII
                                      Selected Information on FTC’s Funding and FTE History




Table VII.1: FTC’s FTE Budget Data,
Fiscal Years 1995-1999                                                                                                 Actual FTEs
                                                                                                                       over (under)
                                                                            a
                                      Year                 Requested FTEs        Funded FTEs      Actual FTEs         funded FTEs
                                      1995                             979                940             944                     4
                                      1996                             979                940             939                   (1)
                                      1997                             940                940             928                  (12)
                                      1998                             960                960             964.5                 4.5
                                                                                             b                    c               c
                                      1999                             979               975
                                      a
                                          The amount from the President’s Budget Request.
                                      b
                                          FTC estimate.
                                      c
                                          Data not yet available.
                                      Source: Office of the Executive Director, FTC.




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Appendix VIII

Comments From the Federal Trade
Commission




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Comments From the Federal Trade Commission




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Comments From the Federal Trade Commission




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Comments From the Federal Trade Commission




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Comments From the Federal Trade Commission




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Comments From the Federal Trade Commission




Page 81                                 GAO/GGD-99-25 FTC's Proposed Restructuring
Appendix IX

Major Contributors to This Report


                      John F. Mortin, Assistant Director
General Government    Vasiliki Theodoropoulos, Senior Evaluator
Division,             Jeremy Latimer, Evaluator
Washington, D.C.      Patrick R. Mullen, Senior Evaluator
                      Gregory H. Wilmoth, Supervisory Social Science Analyst
                      Rebecca Shea, Social Science Analyst

                      Linda J. Libician, Evaluator-in-Charge
Dallas Field Office   Marcia B. McWreath, Senior Evaluator

                      Michael J. Curro, Assistant Director
Accounting and
Information
Management Division

                      Joseph D. Kile, Assistant Director
Office of the Chief
Economist
                      Susan Michal-Smith, Attorney
Office of General
Counsel




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