oversight

U.S. Customs Service: Budget Authorization Issues

Published by the Government Accountability Office on 1999-04-13.

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

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on Trade
                          Committee on Ways and Means
                          House of Representatives


For Release on Delivery
Expected at
11:00 a.m. EDT
                          U.S. CUSTOMS SERVICE
on Tuesday
April 13, 1999

                          Budget Authorization
                          Issues
                          Statement of Norman J. Rabkin
                          Director, Administration of Justice Issues
                          General Government Division




GAO/T-GGD-99-79
Statement

U.S. Customs Service: Budget Authorization
Issues

                       Mr. Chairman and Members of the Subcommittee:

                       I am pleased to be here today at this Customs oversight hearing to discuss
                       work we have done, mostly for this Subcommittee, addressing Customs’
                       efforts to interdict drugs, combat corruption, and comply with the Results
                            1
                       Act. For the most part, our testimony is based on products we have issued
                       on each of these subjects since 1997. You also asked us to discuss the basis
                       for the $163 million access fee to be charged to nongovernment
                       organizations for the use of Customs’ automation systems as included in
                       the President’s fiscal year 2000 budget. Our discussion of the user fee is
                       based on interviews with the Office of Management and Budget (OMB),
                       the Department of the Treasury, and Customs officials and a review of
                       sections of the President’s fiscal year 2000 budget.

                       Created in 1789, the U.S. Customs Service is one of the federal
                       government’s oldest agencies. Customs is responsible for collecting
                       revenue from imports and enforcing customs and related laws. Customs
                       collects revenues of about $22 billion annually while processing an
                       estimated 15 million import entries and 450 million people who enter the
                       country. A major goal of Customs is to prevent the smuggling of drugs into
                       the country by creating an effective drug interdiction, intelligence, and
                       investigation capability to disrupt and dismantle smuggling organizations.
                       Customs’ workforce totals almost 20,000 employees at its headquarters, 20
                       Customs Management Centers, 20 Special Agent-in-Charge (SAC) offices,
                       and 301 ports of entry around the country.

                       Our work on Customs’ efforts to interdict drugs has focused on four
Drug Interdiction      distinct areas: (1) internal controls over Customs’ low-risk cargo entry
                       programs; (2) the missions, resources, and performance measures for
                       Customs’ aviation program; (3) the development of a specific technology
                       for detecting drugs; and (4) Customs drug intelligence capabilities.

Low-Risk Cargo Entry   In July 1998, at the request of Senator Dianne Feinstein, we reported on
                       Customs’ drug-enforcement operations along the Southwest border of the
Programs                              2
                       United States. Our review focused on low-risk, cargo entry programs in
                       use at three ports—Otay Mesa, California; Laredo, Texas; and Nogales,
                       Arizona. To balance the facilitation of trade through ports and the
                       interdiction of illegal drugs being smuggled into the United States,
                       Customs initiated and encouraged its ports to use several programs to
                       1
                           Government Performance and Results Act of 1993, P.L. 103-62.
                       2
                        Customs Service Drug Interdiction: Internal Control Weaknesses and Other Concerns With Low-Risk
                       Cargo Entry Programs (GAO/GGD-98-175, July 31, 1998).




                       Page 1                                                                        GAO/T-GGD-99-79
Statement
U.S. Customs Service: Budget Authorization Issues




identify and separate low-risk shipments from those with apparently
higher smuggling risk. The Line Release Program was designed to expedite
cargo shipments that Customs determined to be repetitive, high volume,
and low risk for narcotics smuggling. In 1996, Customs implemented the
Land Border Carrier Initiative Program, which required that the Line
Release shipments across the Southwest border be transported by
Customs-approved carriers and driven by Customs-approved drivers. After
the Carrier Initiative Program was implemented, the number of Southwest
Border Line Release shipments dropped significantly. We identified
internal control weaknesses in one or more of the processes used at each
of the three ports we visited to screen Line Release applicants for entry
into the program. These weaknesses included (1) an absence of specific
criteria for determining applicant eligibility at two of the three ports, (2)
incomplete documentation of the screening and review of applicants at
two of the three ports, and (3) lack of documentation of supervisory
review and approval of decisions. During our review, Customs
representatives from northern and southern land-border cargo ports
approved draft Line Release volume and compliance eligibility criteria for
program applicants and draft recertification standards for program
participants.

The Three Tier Targeting Program—a method of targeting high-risk
shipments for narcotics inspection—was used at the three Southwest
border ports that we visited. According to officials at the three ports, the
Three Tier program had two operational problems that contributed to their
loss of confidence in the program’s ability to distinguish high- from low-
risk shipments. First, there was little information available in any database
for researching foreign manufacturers. Second, local officials doubted the
reliability of the designations. They cited examples of narcotics seizures
from shipments designated as “low-risk” and the lack of a significant
number of seizures from shipments designated as “high-risk.” Customs
suspended this program until more reliable information is developed for
classifying low-risk importations.

One low-risk entry program—the Automated Targeting System—was being
pilot tested at Laredo. It was designed to enable port officials to identify
and direct inspectional attention to high-risk shipments. The Automated
Targeting System is designed to assess shipment entry information for
known smuggling indicators and thus enable inspectors to target high-risk
shipments more efficiently. Customs is evaluating the Automated
Targeting System for expansion to other land-border cargo ports.




Page 2                                                       GAO/T-GGD-99-79
                     Statement
                     U.S. Customs Service: Budget Authorization Issues




Aviation Program     In September 1998, we reported on Customs’ aviation program missions,
                                                           3
                     resources, and performance measures. Since the establishment of the
                     Customs Aviation Program in 1969, its basic mandate to use air assets to
                     counter the drug smuggling threat has not changed. Originally, the
                     program had two principle missions:

                   • border interdiction of drugs being smuggled by plane into the United
                     States and
                   • law enforcement support to other Customs offices as well as other federal,
                     state, and local law enforcement agencies.


                     In 1993, the administration instituted a new policy to control drugs coming
                     from South and Central America. Because Customs aircraft were to be
                     used to help carry out this policy, foreign counterdrug operations became
                     a third principal mission for the aviation program. Since then, the program
                     has devoted about 25 percent of its resources to the border interdiction
                     mission, 25 percent to foreign counterdrug operations, and 50 percent to
                     other law enforcement support.

                     Customs Aviation Program funding decreased from about $195 million in
                     fiscal year 1992, to about $135 million in fiscal year 1997—that is, about 31
                     percent in constant or inflation-adjusted dollars. While available funds
                     decreased, operations and maintenance costs per aircraft flight hour
                     increased. Customs Aviation Program officials said that this increase in
                     costs was one of the reasons they were flying fewer hours each year. From
                     fiscal year 1993 to fiscal year 1997, the total number of flight hours for all
                     missions decreased by over one-third, from about 45,000 hours to about
                     29,000 hours.

                     The size of Customs’ fleet dropped in fiscal year 1994, when Customs took
                     19 surveillance aircraft out of service because of funding reductions. The
                                                                  4
                     fleet has remained at about 115 since then. The number of Customs
                     Aviation Program onboard personnel dropped steadily, from a high of 956
                                                                               5
                     in fiscal year 1992 to 745 by the end of fiscal year 1997.

                     3
                      Customs Service: Aviation Program Missions, Resources, and Performance Measures (GAO/GGD-98-
                     186, Sept. 9, 1998).
                     4
                      Customs’ fleet will increase because additional aircraft were funded in the Fiscal Year 1999 Omnibus
                     Consolidated and Emergency Supplemental Appropriations Act, P.L. 105-277, 112 Stat 2681-553, 2681-
                     583.
                     5
                      Staffing for the Aviation program is expected to grow to 817 in fiscal year 2000, according to Customs’
                     latest budget justification.




                     Page 3                                                                             GAO/T-GGD-99-79
                             Statement
                             U.S. Customs Service: Budget Authorization Issues




                             Customs has been using traditional law enforcement measures to evaluate
                             the aviation program (e.g., number of seizures, weight of drugs seized,
                             number of arrests). These measures, however, are used to track activity,
                             not measure results or effectiveness. Until 1997, Customs also used an air
                             threat index as an indicator of its effectiveness in detecting illegal air
                                     6
                             traffic. However, Customs has discontinued use of this indicator, as well
                             as selected other performance measures, because Customs determined
                             that they were not good measures of results and effectiveness. Having
                             recognized that these measures were not providing adequate insights into
                             whether the program was producing desired results, Customs says it is
                             developing new performance measures in order to better measure results.
                             However, its budget submission for fiscal year 2000 contained no new
                             performance measures.

Pulsed Fast Neutron          The pulsed fast neutron analysis (PFNA) inspection system is designed to
                             directly and automatically detect and measure the presence of specific
Analysis Inspection System   materials (e.g., cocaine) by exposing their constituent chemical elements
                             to short bursts of subatomic particles called neutrons. Customs and other
                             federal agencies are considering whether to continue to invest in the
                             development and fielding of this technology.

                             The Chairman and the Ranking Minority Member of the Subcommittee on
                             Treasury and General Government, Senate Committee on Appropriations,
                             asked us to provide information about (1) the status of plans for field
                             testing a PFNA system and (2) federal agency and vendor views on the
                             operational viability of such a system. We are issuing our report on that
                                         7
                             work today.

                             Customs, the Department of Defense (DOD), the Federal Aviation
                             Administration (FAA), and Ancore Corporation—the inspection system
                             inventor—recently began planning to field test PFNA. Because they are in
                             the early stage of planning, they do not expect the actual field test to begin
                             until mid to late 1999 at the earliest. Generally speaking, agency and
                             vendor officials estimated that a field test covering Customs’ and DOD’s
                             requirements will cost at least $5 million and that the cost could reach $8
                             million if FAA’s requirements are included in the joint test. Customs
                             officials told us that they are working closely with the appropriate
                             applicable congressional committees and subcommittees to decide

                             6
                              The air threat index used various indicators, such as the number of stolen and/or seized aircraft, to
                             determine the potential threat of air drug smuggling.
                             7
                              Terrorism and Drug Trafficking: Testing Status And Views on Operational Viability of Pulsed Fast
                             Neutron Analysis Technology (GAO/GGD-99-54, Apr. 13, 1999).




                             Page 4                                                                              GAO/T-GGD-99-79
                            Statement
                            U.S. Customs Service: Budget Authorization Issues




                            whether Customs can help fund the field test, particularly given the no-
                                                                              8
                            federal-cost language of Senate Report 105-251. In general, a complete
                            field test would include (1) preparing a test site and constructing an
                            appropriate facility; (2) making any needed modifications to the only
                                                                          9
                            existing PFNA system and its components; (3) disassembling, shipping,
                            and reassembling the system at the test site; and (4) conducting an
                            operational test for about 4 months. According to agency and Ancore
                            officials, the test site candidates are two seaports in California (Long
                            Beach and Oakland) and two land ports in El Paso, Texas.

                            Federal agency and vendor views on the operational viability of PFNA
                            vary. While Customs, DOD, and FAA officials acknowledge that laboratory
                            testing has proven the technical feasibility of PFNA, they told us that the
                            current Ancore inspection system would not meet their operational
                            requirements. Among their other concerns, Customs, DOD, and FAA
                            officials said that a PFNA system not only is too expensive (about $10
                            million to acquire per system), but also is too large for operational use in
                            most ports of entry or other sites. Accordingly, these agencies question the
                            value of further testing. Ancore disputes these arguments, believes it can
                            produce an operationally cost-effective system, and is proposing that a
                            PFNA system be tested at a port of entry. The Office of National Drug
                            Control Policy has characterized neutron interrogation as an “emerging” or
                            future technology that has shown promise in laboratory testing and thus
                            warrants field testing to provide a more informed basis for deciding
                            whether PFNA has operational merit.

Federal Counterdrug         At the request of the Subcommittee on National Security, International
                            Affairs, and Criminal Justice, House Committee on Government Reform
Intelligence Coordination                    10
                            and Oversight, in June 1998 we identified the organizations that collect
Efforts                     and/or produce counterdrug intelligence, the role of these organizations,
                            the federal funding they receive, and the number of personnel that support
                                          11
                            this function. We noted that more than 20 federal or federally funded
                            organizations, including Customs, spread across 5 cabinet-level
                            departments and 2 cabinet-level organizations, have a principal role in
                            8
                              Senate Report 105-251 (July 1998) on the fiscal year 1999 Treasury and General Government
                            Appropriations bill directs the Commissioner of Customs to enter into negotiations with the private
                            sector to conduct a field test of the PFNA technology at no cost to the federal government.
                            9
                                 The existing (prototype) PFNA system is located at the vendor’s plant in Santa Clara, CA.
                            10
                              This is now the Subcommittee on National Security, Veterans’ Affairs, and International Relations of
                            the House Committee on Government Reform.
                            11
                              Drug Control: An Overview of U.S. Counterdrug Intelligence Activities (GAO/NSIAD-98-142, June 25,
                            1998).




                            Page 5                                                                                GAO/T-GGD-99-79
             Statement
             U.S. Customs Service: Budget Authorization Issues




             collecting or producing counterdrug intelligence. Together, these
             organizations collect domestic and foreign counterdrug intelligence
             information using human, electronic, photographic, and other technical
             means.

             Unclassified information reported to us by counterdrug intelligence
             organizations shows that over $295 million was spent for counterdrug
             intelligence activities during fiscal year 1997 and that more than 1,400
             federal personnel were engaged in these activities. The Departments of
             Justice, the Treasury, and Defense accounted for over 90 percent of the
             money spent and personnel involved.

             Among its many missions, Customs is the lead agency for interdicting
             drugs being smuggled into the United States and its territories by land, sea,
             or air. Customs’ primary counterdrug intelligence mission is to support its
             own drug enforcement elements (i.e., inspectors and investigators) in their
             interdiction and investigation efforts. Customs is responsible for producing
             tactical, operational, and strategic intelligence concerning drug-smuggling
             individuals, organizations, transportation networks, and patterns and
             trends. In addition to providing these products to its own drug
             enforcement elements, Customs is to provide this information to other
             agencies with drug enforcement or intelligence responsibilities. Customs is
             also responsible for analyzing the intelligence community’s reports and
             integrating them with its own intelligence. Customs’ in-house collection
             capability is heavily weighted toward human intelligence, which comes
             largely from inspectors and investigators who obtain information during
             their normal interdiction and investigation activities.

             On March 30, 1999, we issued a report to the Chairman of the Senate
Corruption   Caucus on International Narcotics Control on the efforts of Customs and
             the Immigration and Naturalization Service to address employee
                                                 12
             corruption on the Southwest border. We said that both agencies could do
             more to prevent drug-related employee corruption. The following reflects
             our findings and recommendations relative to Customs and Customs’
             response to our report.

             Customs has policies and procedures designed to ensure the integrity of its
             employees. These policies and procedures consist mainly of mandatory
             background investigations for new staff and 5-year reinvestigations of
             employees, as well as basic integrity training. As required, Customs

             12
               Drug Control: INS and Customs Can Do More to Prevent Drug-Related Employee Corruption
             (GAO/GGD-99-31, Mar. 30, 1999).




             Page 6                                                                      GAO/T-GGD-99-79
  Statement
  U.S. Customs Service: Budget Authorization Issues




  generally had completed background investigations for new hires by the
  end of their first year on the job. However, reinvestigations were typically
  overdue, in some instances by as many as 3 years. Customs officials said
  that the basic training that new employees are to receive includes integrity
  training. Agency records for 88 of 100 randomly selected Customs
  employees on the Southwest border showed that they received several
  hours of integrity training as part of their basic training. According to
  Customs officials, the remaining employees likely received basic training,
  but it was not documented in their records.

  However, Customs was not taking full advantage of these policies and
  procedures, as well as the lessons it should have learned from closed
  corruption cases, to address fully the increased threat of employee
  corruption on the Southwest border. Some Customs employees on the
  Southwest border have engaged in a variety of illegal drug-related
  activities, including waving drug loads through ports of entry, coordinating
  the movement of drugs across the Southwest border, transporting drugs
  past Border Patrol checkpoints, selling drugs, and disclosing drug
  intelligence information. Customs’ Office of Internal Affairs is required to
  formally report internal control weaknesses identified from closed
  corruption cases, but has not done so. Our review of nine cases involving
  Customs employees assigned to the Southwest border who were convicted
  of drug-related crimes between fiscal years 1992 and 1997, revealed
  internal control weaknesses that were not formally reported and/or
              13
  corrected. These weaknesses included instances where

• drug smugglers chose the inspection lane at a port of entry,
• employees did not recuse themselves from inspecting individuals with
  whom they had close personal relationships, and
• employees disclosed drug intelligence information.


  Also, Customs had not formally evaluated its integrity procedures to
  determine their effectiveness. For example, we determined that financial
  information required for background investigations and reinvestigations
                          14
  was not fully reviewed.



  13
       If employees entered guilty pleas, we considered them to have been convicted of the crime.
  14
   The Department of the Treasury’s Office of Professional Responsibility published a report on
  corruption with findings that are consistent with ours. See An Assessment of Vulnerabilities to
  Corruption and Effectiveness of the Office of Internal Affairs, U.S. Customs Service (Feb. 1999).




  Page 7                                                                              GAO/T-GGD-99-79
                         Statement
                         U.S. Customs Service: Budget Authorization Issues




                         We recommended that Customs

                       • evaluate the effectiveness of integrity assurance efforts, including training,
                         background investigations, and reinvestigations;
                       • comply with policies that require employment reinvestigations to be
                         completed when they are due;
                       • document that policies and procedures were reviewed to identify internal
                         control weaknesses in cases where an employee is determined to have
                         engaged in drug-related criminal activities;
                       • strengthen internal controls at Southwest border ports of entry; and
                       • fully review financial disclosure statements to identify financial issues,
                         such as cases in which employees appear to be living beyond their means.


                         Customs generally concurred with our recommendations and indicated
                         that it is taking steps to implement them. However, Customs requested
                         that we reconsider our recommendation that it fully review the financial
                         disclosure statements provided by employees as part of the background
                         and reinvestigation process. Customs indicated that implementing this
                         recommendation may violate the provisions of the Computer Matching
                             15
                         Act. Our recommendation expects Customs to make a more thorough
                         examination of the financial information it collects to determine whether
                         employees appear to be living beyond their means. We leave it to Customs’
                         discretion to determine the type of examination to be performed. Since
                         implementing the recommendation does not require electronically
                         matching financial disclosure information with other data, the Computer
                         Matching Act would not apply.

                         In the past 18 months, we have reported on Customs’ compliance with
Strategic Planning       provisions of the Government Performance and Results Act. We have also
                         reported on how it has determined its need for inspectors and how it has
                         allocated inspectional positions to ports around the country.

Performance Planning     Under the Results Act, executive agencies are to develop strategic plans in
                         which they, among other things, define their missions, establish results-
                         oriented goals, and identify strategies they plan to use to achieve those
                         goals. In addition, agencies are to submit annual performance plans
                         covering the program activities set out in the agencies’ budgets (which

                         15
                           The Computer Matching and Privacy Protection Act of 1988, P.L. 100-503, generally requires that
                         agencies engaging in computer matching must do so pursuant to written matching agreements that
                         state such things as the purpose and legal authority of the match, the justification for the matching
                         program, its anticipated results, a description of the records to be matched, as well as other
                         information on the program.




                         Page 8                                                                              GAO/T-GGD-99-79
    Statement
    U.S. Customs Service: Budget Authorization Issues




    began with plans for fiscal year 1999); and the plans are to describe the
    results the agencies expect to achieve with the requested resources and
    indicate the progress the agency expects to make during the year in
    achieving its strategic goals.

    The strategic plan developed by the Customs Service addressed the six
    requirements of the Results Act. Concerning the elements required, the
    mission statement was results oriented and covered Customs’ principal
    statutory mission—ensuring that all goods and persons entering and
    exiting the United States do so in compliance with all U.S. laws and
    regulations. The plan’s goals and objectives covered Customs’ major
    functions—processing cargo and passengers entering and cargo leaving
    the United States. The plan discussed the strategies by which Customs
    hopes to achieve its goals. The strategic plan discussed, in very general
    terms, how it related to annual performance plans. The plan discussed
    some key factors, external to Customs and beyond its control, that could
    significantly affect achievement of the strategic goals, such as the level of
    cooperation of other countries in reducing the supply of narcotics.
    Customs’ strategic plan also contained a listing of program evaluations
    used to prepare the plan and provided a schedule of evaluations to be
    conducted in each of the functional areas.

    In addition to the required elements, Customs’ plan discussed the
    management challenges it was facing in carrying out its core functions,
    including information and technology, finance, and human resources
    management. However, the plan did not adequately recognize Customs’
    need to improve

•   financial management and internal control systems,
•   controls over seized assets,
•
                                           16
    plans to alleviate Year 2000 problems, and
•
                                        17
    plans to improve computer security.


    We reported that these weaknesses could affect the reliability of Customs’
    performance data.
    16
      Customs has established effective Year 2000 program management controls, including structures and
    processes for Year 2000 testing, contingency planning, and Year 2000 status reporting. See Year 2000
    Computing Crisis: Customs Has Established Effective Year 2000 Program Controls (GAO/AIMD-99-37,
    Mar. 29, 1999).
    17
      See Customs Service: Comments on Strategic Plan and Resource Allocation Process (GAO/T-GGD-98-
    15, Oct. 16, 1997) and Results Act: Observations on Treasury’s Fiscal Year 1999 Annual Performance
    Plan (GAO/GGD-98-149, June 30, 1998).




    Page 9                                                                          GAO/T-GGD-99-79
                        Statement
                        U.S. Customs Service: Budget Authorization Issues




                        Further, our initial review of Customs’ fiscal year 2000 performance plan
                        showed that it is substantially unchanged in format from the one presented
                        for 1999. Although the plan is a very useful document for decisionmakers,
                        it still does not recognize Customs’ need to improve its internal control
                        systems, control over seized assets, or plans to improve computer security.

Resource Allocation     Regarding Customs’ resource allocation process, in April 1998 we reported
                        on selected aspects of the Customs Service’s process for determining its
                        need for inspectional personnel—such as inspectors and canine
                        enforcement officers—for its commercial cargo or land and sea passengers
                                                18
                        at all of its 301 ports.

                        Customs officials were not aware of any formal agencywide efforts prior to
                        1995 to determine the need for additional cargo or passenger inspectional
                        personnel for its 301 ports. However, in preparation for its fiscal year 1997
                                                                                                   19
                        budget request and a new drug enforcement operation called Hard Line,
                        Customs conducted a formal needs assessment. The needs assessment
                        considered (1) fully staffing all inspectional booths and (2) balancing
                        enforcement efforts with the need to move complying cargo and
                        passengers quickly through the ports. Customs conducted two subsequent
                        assessments for fiscal years 1998 and 1999. These assessments considered
                        the number and location of drug seizures and the perceived threat of drug
                        smuggling, including the use of rail cars to smuggle drugs. However, all
                        these assessments were

                      • focused exclusively on the need for additional personnel to implement
                        Hard Line and similar initiatives,
                      • limited to land ports along the southwest border and certain sea and air
                        ports considered to be at risk from drug smuggling,
                      • conducted each year using generally different assessment factors, and
                      • conducted with varying degrees of involvement by Customs’ headquarters
                        and field units.


                        We concluded that these limitations could prevent Customs from
                        accurately estimating the need for inspectional personnel and then

                        18
                          Customs Service: Process for Estimating and Allocating Inspectional Personnel (GAO/GGD-98-107,
                        Apr. 30, 1998); Customs Service: Inspectional Personnel and Workloads (GAO/GGD-98-170, Aug. 14,
                        1998); and Customs Service: Inspectional Personnel and Workloads (GAO/T-GGD-98-195, Aug. 14,
                        1998).
                        19
                          Operation Hard Line was Customs’ effort to address border violence and drug smuggling through
                        intensified inspections, improved facilities, and advances in technology.




                        Page 10                                                                        GAO/T-GGD-99-79
                     Statement
                     U.S. Customs Service: Budget Authorization Issues




                     allocating them to ports. We further concluded that, for Customs to
                     implement the Results Act successfully, it had to determine its needs for
                     inspectional personnel for all of its operations and ensure that available
                     personnel are allocated where they are needed most.

                     We recommended that Customs establish an inspectional personnel needs
                     assessment and allocation process, and it is in the process of responding to
                     that April 1998 recommendation. Customs awarded a contract for the
                     development of a resource allocation model. Customs officials told us that
                     the model was delivered in March 1999 and that they are in the early stages
                     of deciding how to use the model and implement a formal needs
                     assessment system.

                     Customs plans to spend more than $1 billion over the next few years to
Proposed Automated   modernize its systems environment for certain core missions, including
Systems User Fee     facilitating international trade, enforcing laws governing the flow of goods
                     across the borders, and assessing and collecting about $22 billion annually
                     on imported merchandise. To pay for the development and implementation
                     of new automated systems, the President’s budget for fiscal year 2000
                     proposes a Customs automation systems access fee to be charged to
                     nongovernment organizations using the system—generally, importers or
                     their brokers. As currently proposed by the administration, the fee will
                     amount to $1.80 per 1,000 bytes of information processed by Customs for
                     commercial users and should generate an estimated $163 million in
                     revenue per year. Collection of this fee is tentatively scheduled to start in
                     fiscal year 2000 and to continue for at least the following 4 or 5 years.

                     You asked us to discuss the basis for the $163 million estimate. According
                     to Treasury officials, the estimate is based on the following three
                     assumptions:

                     •    Customs will develop and implement the Automated Commercial
                          Environment (ACE) over a 4-year period (from fiscal year 2001 to fiscal
                                                                        20
                          year 2004) at a total cost of over $1 billion.
                     •    Treasury will develop and implement its new International Trade Data
                          System (ITDS) over the same period at a cost of about $256 million.
                     •    The federal government and the trade community will share the cost of
                          these systems. Therefore, the $325 million annual cost ($1.3 billion / 4
                          years, the period to develop and implement the two systems) would be
                          split—$162.5 million each.

                     20
                       In 1997, Customs developed a $1.05 billion estimate to develop, operate, and maintain ACE over the
                     15-year period from 1994 to 2008, and it is still Customs’ current official life cycle cost estimate.




                     Page 11                                                                           GAO/T-GGD-99-79
Statement
U.S. Customs Service: Budget Authorization Issues




In addition to the $163 million generated by the user fee, additional funds
would be needed from other sources, including direct appropriations, in
each of the four fiscal years beginning in 2001. OMB and Treasury officials
told us that additional appropriated funds already in the budget base will
be directed to the development and implementation of the systems. These
officials also said that current estimates are preliminary and are likely to
change when a contract to develop the systems is awarded.

Customs projected that it will process about 90.5 billion bytes of data
annually for commercial users of its system. Dividing the $163 million
annual cost proposed to be borne by the trade community by the expected
volume yields a charge of $1.80 per 1,000 bytes of information.

Mr. Chairman, this completes my statement. I would be pleased to answer
any questions.




Page 12                                                      GAO/T-GGD-99-79
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