    [Senate Hearing 105-757]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 105-757

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 1999

    =======================================================================

                                    HEARINGS

                                    before a

                              SUBCOMMITTEE OF THE

                COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                           ONE HUNDRED FIFTH CONGRESS

                                 SECOND SESSION

                                       on

                               H.R. 4104/S. 2312

     AN ACT MAKING APPROPRIATIONS FOR THE TREASURY DEPARTMENT, THE UNITED
       STATES POSTAL SERVICE, THE EXECUTIVE OFFICE OF THE PRESIDENT, AND
     CERTAIN INDEPENDENT AGENCIES FOR THE FISCAL YEAR ENDING SEPTEMBER 30,
                          1999, AND FOR OTHER PURPOSES

                                   __________

                           Department of the Treasury
                       Executive Office of the President
                           Nondepartmental witnesses
                              U.S. Postal Service

                                   __________

             Printed for the use of the Committee on Appropriations

     Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                     senate

                                     ______

                       U.S. GOVERNMENT PRINTING OFFICE
    46-121 cc                  WASHINGTON : 1999

    _______________________________________________________________________
                For sale by the U.S. Government Printing Office
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                                     20402
                               ISBN 0-16-057868-X

                          COMMITTEE ON APPROPRIATIONS

                         TED STEVENS, Alaska, Chairman
    THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
    ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
    PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
    CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
    SLADE GORTON, Washington             DALE BUMPERS, Arkansas
    MITCH McCONNELL, Kentucky            FRANK R. LAUTENBERG, New Jersey
    CONRAD BURNS, Montana                TOM HARKIN, Iowa
    RICHARD C. SHELBY, Alabama           BARBARA A. MIKULSKI, Maryland
    JUDD GREGG, New Hampshire            HARRY REID, Nevada
    ROBERT F. BENNETT, Utah              HERB KOHL, Wisconsin
    BEN NIGHTHORSE CAMPBELL, Colorado    PATTY MURRAY, Washington
    LARRY CRAIG, Idaho                   BYRON DORGAN, North Dakota
    LAUCH FAIRCLOTH, North Carolina      BARBARA BOXER, California
    KAY BAILEY HUTCHISON, Texas
                       Steven J. Cortese, Staff Director
                     Lisa Sutherland, Deputy Staff Director
                   James H. English, Minority Staff Director
                                     ------

                Subcommittee on Treasury and General Government

                  BEN NIGHTHORSE CAMPBELL, Colorado, Chairman
    RICHARD C. SHELBY, Alabama           HERB KOHL, Wisconsin
    LAUCH FAIRCLOTH, North Carolina      BARBARA A. MIKULSKI, Maryland
    TED STEVENS, Alaska                  ROBERT C. BYRD, West Virginia
      ex officio                           ex officio
                               Professional Staff
                              Patricia A. Raymond
                                  Tammy Perrin
                                  Lula Edwards
                         Barbara A. Retzlaff (Minority)
                               Elizabeth Blevins

                               C O N T E N T S

                                  ----------

                          Thursday, February 26, 1998

                                                                       Page
    Department of the Treasury:
        Bureau of Alcohol, Tobacco and Firearms......................     1
        U.S. Secret Service..........................................     1
        U.S. Customs Service.........................................     1
        Internal Revenue Service.....................................    75
        Federal Law Enforcement Training Center......................    75
        Financial Crimes Enforcement Network.........................    75

                            Thursday, March 5, 1998

    Department of the Treasury: Internal Revenue Service.............   163

                            Thursday, March 12, 1998

    Department of the Treasury: Office of the Secretary..............   269

                            Thursday, March 26, 1998

    Executive Office of the President: Office of National Drug
      Control Policy.................................................   313

                            Thursday, April 30, 1998

    Department of the Treasury: U.S. Customs Service.................   361
    Material submitted subsequent to the conclusion of the hearing...   391

                             Thursday, May 7, 1998

    Executive Office of the President: Office of Administration......   393
    Nondepartmenal witness...........................................   415
    Material submitted subsequent to the conclusion of the hearing...   423

                             Thursday, May 14, 1998

    Department of the Treasury: Bureau of Alcohol, Tobacco and
      Firearms.......................................................   465
    Nondepartmental witnesses......................................465, 485
    Material submitted by independent agency not appearing for formal
      hear- ings.....................................................   519
    Nondepartmental witnesses........................................   523

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 1999

                                  ----------

                          THURSDAY, FEBRUARY 26, 1998

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 1:35 p.m., in room SD-124, Dirksen
    Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)
    presiding.
        Present: Senators Campbell, Faircloth, and Kohl.

                           DEPARTMENT OF THE TREASURY

    STATEMENT OF RAYMOND W. KELLY, UNDER SECRETARY, LAW
                ENFORCEMENT DIVISION

                    Bureau of Alcohol, Tobacco and Firearms

    STATEMENT OF JOHN W. MAGAW, DIRECTOR

                              U.S. Secret Service

    STATEMENT OF LEWIS C. MERLETTI, DIRECTOR

                              U.S. Customs Service

    STATEMENT OF SAMUEL H. BANKS, ACTING COMMISSIONER

                                Opening Remarks

        Senator Campbell. The Treasury Subcommittee will be in
    order.
        Good afternoon. Today is the first hearing on the fiscal
    year 1999 budget for the Subcommittee on Treasury and General
    Government. We are focusing on the law enforcement component of
    the Department of the Treasury, 40 percent of all the Federal
    law enforcement moneys within Treasury.
        There are some new faces with us this morning. Lew Merletti
    was appointed Director of the Secret Service in June of last
    year. We welcome him. Sam Banks is Acting Commissioner of the
    Customs Service, until the President's nominee can be confirmed
    by the Senate. Ralph Basham took over at the helm of the
    Federal Law Enforcement Training Center just this month, and
    William Baity is with us representing the Financial Crimes
    Enforcement Network.
        As you can tell from the witness list this afternoon, the
    Treasury Law Enforcement Bureau will cover a very wide scope.
        As some of you know, I was in law enforcement myself years
    ago as a deputy sheriff and a volunteer counselor in a Federal
    penitentiary, and I was the head of the board of directors for
    a halfway house years ago back in Sacramento. I have perhaps a
    little broader outlook on what we should be doing in law
    enforcement, and it is just as difficult now as it was back
    then for law enforcement officers who face many new threats.
    The technology that is coming online is getting more and more
    expensive.
        Today, we will hear from the agencies on the front lines
    about their needs for fiscal year 1999. Some of them will have
    new initiatives for consideration, while others are requesting
    funding just to continue current operations.
        On our first panel today, they are already seated, are Mr.
    Raymond Kelly, Mr. Magaw, Mr. Banks, and Mr. Merletti.

                               Prepared Statement

        I know that my colleague, Senator Kohl, has to open another
    hearing in a little while. So I am going to put my total
    statement in the record, and I will just go ahead and yield to
    you, Senator.
        [The statement follows:]

                     Prepared Statement of Senator Campbell

        Good afternoon. Today is the first hearing on the fiscal
    year 1999 budget for the Subcommittee on Treasury and General
    Government. We are focusing on the law enforcement component of
    the Department of the Treasury--40 percent of all Federal law
    enforcement is within Treasury.
        There are some new faces with us this morning. Lew Merletti
    was appointed Director of the Secret Service in June of last
    year.
        Sam Banks is Acting Commissioner of the Customs Service
    until the President's nominee can be confirmed by the Senate.
        Ralph Basham took over the helm at the Federal Law
    Enforcement Training Center just this month. And William Baity
    is with us representing the Financial Crimes Enforcement
    Network.
        As I mentioned before, 40 percent of all Federal law
    enforcement is part of the Department of the Treasury. As you
    can tell from our witness list this afternoon, the Treasury law
    enforcement bureaus cover a wide scope.
        As some of you know, I have been in law enforcement myself.
    I was a deputy sheriff and a volunteer counselor at Folsom. I
    was head of the board of directors of a halfway house in
    Sacramento. As difficult as it was back then, our law
    enforcement officers face many new threats now--and the
    technology to fight crimes is getting more and more expensive.
        Today we will hear from the agencies on the front lines
    about their needs for fiscal year 1999. Some of them have new
    initiatives for consideration while others are requesting
    funding just to continue current operations.
        On our first panel today will be Treasury Under Secretary
    Raymond W. Kelly. This position was created only a few years
    ago as a way to emphasize the importance of law enforcement
    within Treasury. Mr. Kelly oversees the Treasury law
    enforcement bureaus and agencies, with the exception of the IRS
    Criminal Investigation Division. As a side note, Mr. Kelly has
    been nominated by the President to be the new Commissioner of
    the Customs Service.
        With us again this year is John W. Magaw, Director of the
    Bureau of Alcohol, Tobacco and Firearms. Most people think of
    ATF in terms of guns, but they have many other
    responsibilities. ATF collects about $13 billion per year in
    alcohol and tobacco taxes as well as firearms and explosives
    fees. They regulate wine, beer, and distilled spirits to
    protect the American public.
        We welcome the new Director of the Secret Service, Lewis C.
    Merletti. Most people think that the Secret Service just
    provides protection for the President and Vice President. But,
    they have many more responsibilities--counterfeiting and
    securities forgery investigations, electronic fund transfer
    fraud, debit and credit card fraud, and computer fraud.
        Representing the Customs Service is Samuel Banks, Acting
    Commissioner. Customs is the primary border enforcement agency,
    responsible for making sure that importers properly label their
    goods and pay the correct fees--the Customs Service generates
    $23 billion per year. They protect Americans by stopping the
    import of counterfeit goods and they are the primary drug
    interdiction agency.
        Leading off panel two is Ted F. Brown, Assistant
    Commissioner of the IRS for Criminal Investigation. Most people
    forget that IRS has a law enforcement function. IRS CID is
    responsible for enforcing criminal statutes relating to
    violation of the Internal Revenue laws and the Bank Secrecy
    Act. CID investigates suspected fraud and recommends
    prosecution in some cases. Then, they assist in the preparation
    and trial of criminal tax cases. CID also investigates money
    laundering schemes associated with narcotics organizations.
        Ralph Basham is the new Director of the Federal Law
    Enforcement Training Center, known as FLETC. There are two
    permanent locations--Glynco, Georgia and Artesia, New Mexico.
    FLETC provides comprehensive and consistent basic training for
    Federal law enforcement personnel. Currently about 70 Federal
    agencies send their employees to FLETC for training, either
    basic or specialized advanced, or in some cases both. FLETC
    estimates that this consolidated training saves the Federal
    Government approximately $160 million per year.
        William Baity is representing the Financial Crimes
    Enforcement Network, commonly called FinCEN. FinCEN is a
    central collection point for financial information used in the
    investigation of money laundering. FinCEN receives activity
    reports from banks and other financial institutions which are
    included in a database for easier access by investigators--
    Federal, State, and local law enforcement.
        It should be an interesting afternoon. Senator Kohl, do you
    have an opening statement?

                           Statement of Senator Kohl

        Senator Kohl. That is very kind of you. Thank you very
    much, Senator Campbell.
        Gentlemen, over the past year, I have had the pleasure of
    meeting with many of you on numerous occasions to discuss the
    critical role that the Federal Government plays in protecting
    the public. The agencies represented here are crucial to the
    success of this effort, and we know that we must help all of
    you to do the important work that you do by identifying and
    funding those programs that keep our streets safe, and
    especially when those efforts are protecting our most important
    resource, obviously our young people.
        Mr. Chairman, as you know, I come from the business world
    which focuses on practical solutions to real problems,
    solutions that can be measured day in and day out. I also know
    that long-term investments can have significant payoffs. So,
    when we review these budget requests, we need to make sure that
    the taxpayers' investment is being well spent, and we must also
    take a long-term view, keeping in mind that investments in
    young people can and do pay off in many years.
        Fortunately, the agencies before us today have a proven
    track record in combating crime, and through last year's
    appropriations, we together made a strong commitment to
    investing in the young people of our country.
        For example, this subcommittee provided increased funding
    for the youth crime gun interdiction initiative, a program that
    brings Federal and local law enforcement agencies together to
    trace guns used in crimes, shut down gun traffickers, and get
    guns out of the hands of our young people.
        Over the last 2 years, this program has stopped gun
    traffickers throughout the country, including my own town of
    Milwaukee. In one Milwaukee case, a few handguns were recovered
    from juvenile crime scenes and then, thanks to the ATF, were
    traced to a security guard at a shopping mall. Apparently, he
    did not take his security work very seriously. He was illegally
    selling handguns to kids from the trunk of his car.
        The youth crime initiative gave Milwaukee law enforcement
    officers the Federal help they needed to trace more than 25
    weapons to this one security guard. Most importantly, they were
    able to get him and his guns off our streets.
        Due to an increase in funding for this initiative last
    year, ATF is now able to add 10 cities to the original 17
    cities in the youth crime initiative. It is my hope that we can
    continue to expand this initiative so that more cities and more
    hometowns can get help in fighting against juvenile crime.
        Last year, the subcommittee also provided full funding for
    an important investment in our young people, the Gang
    Resistance Education and Training Program [GREAT]. This
    promising education program provides children with information
    they need to make decisions about their future.
        It is my hope that we will continue to invest in this and
    other youth-oriented crime prevention programs, programs that
    provide our young people with positive incentives that will
    assist them in making the right choices throughout their lives.
        I know that each of these agencies has valuable law
    enforcement initiatives to discuss with us. I look forward to
    hearing from them, and I am glad that we are giving them this
    opportunity to tell us what is working and what we need to keep
    funding and what will help keep criminals off the streets.
        So we are happy to have you with us here, gentlemen, and we
    look forward to our discussion with you.
        Thank you, Mr. Chairman.

                               Prepared Statement

        Senator Campbell. Before we start, with the unanimous
    consent to be included for the record a statement by Senator
    Coverdell, who wanted to be here with us, but could not today.
        [The statement follows:]

                    Prepared Statement of Senator Coverdell

        Chairman Campbell, members of the Subcommittee, and guests,
    I appreciate the opportunity to submit testimony as you
    consider the fiscal year 1999 Treasury Postal Appropriation
    bill. Although I would very much like to deliver these remarks
    in person, I am unable due to a scheduling conflict.
        As you are aware, I am currently chairing the Foreign
    Relations Subcommittee on the Western Hemisphere. Part of this
    Subcommittee's jurisdiction, which I have made as one of my
    highest priorities, is to reignite the nation's drug
    interdiction efforts, as well as protect our citizens from
    terrorist activities. Through this Chairmanship, I have had the
    opportunity to obtain direct feedback from our nation's law
    enforcement officers on what they feel is needed in their day-
    to-day activities in protecting our borders and citizens.
    Although they have mentioned several immediate needs, the one
    that is continually brought to my attention is the deployment
    of more federal law enforcement officers.
        As you know, Congress has committed to increase the number
    of federal agents on the job. As we move forward in this
    effort, we must also fulfill our obligation to the U.S.
    taxpayers by making sure these new agents are properly trained
    in the most cost-effective manner.
        As you know, prior to 1970, training of our federal law
    enforcement agents was divided between respective agencies.
    After the completion of two studies, the federal government
    came to the realization that this fragmented system had
    discrepancies in training, duplication in efforts, and
    inefficient use of funds. As a result, Congress authorized the
    creation of the Consolidated Federal Law Enforcement Training
    Center, whose purpose was to create high quality, standardized,
    and cost-effective training for our federal officers.
        This new organization was temporarily headquartered in
    Washington, D.C. until 1975 when, after much study, a permanent
    location was found at the former Naval Air Station in
    Brunswick, Georgia. Since then, the Consolidated Federal Law
    Enforcement Training Center has been renamed the Federal Law
    Enforcement Training Center [FLETC], and has been training and
    graduating the many men and women who continue to fight for our
    safety.
        As you consider your bill, I would like to express my
    support for the agency's appropriation request of $100,283,000.
    As you know, this request not only includes the administrative
    cost in running FLETC, but also includes training and
    construction funds for the 70 federal agencies, including the
    INS and Border Patrol, whose roles are currently expanding,
    that utilize the facility.
        I would also like to bring to your attention the need to
    complete the master construction plan at FLETC and express my
    support for the agency's appropriation request of $13 million
    to be applied towards the completion of this plan.
    Approximately 51 percent of the master plan has been completed
    and additional appropriations would allow FLETC to again move
    closer toward its goal of being the centralized training center
    for our federal agencies.
        Whether traveling in my home state of Georgia, or chairing
    a Subcommittee hearing on drug interdiction, as I am today, the
    need to address the crisis we face with drugs and crime is
    constantly brought to my attention. Through continued funding
    and support of the Federal Law Enforcement Training Center we
    will be able to take the necessary steps to achieve this goal
    for all Americans.
        Once again, thank you for allowing me to testify today and
    for all you and your colleagues on the Subcommittee are doing
    for our country.

                         Statement of Raymond W. Kelly

        Senator Campbell. We will start in the order that I
    mentioned them. So, if Under Secretary Kelly would start, we
    will get going.
        Mr. Kelly. Thank you, Mr. Chairman.
        Senator Campbell. And, by the way, all of your complete
    testimony will be included in the record. So, if you want to
    abbreviate your comments, that will be fine.
        Mr. Kelly. Yes, sir.
        Mr. Chairman, Senator Kohl, it is, indeed, a pleasure to be
    with you today to speak about the fiscal year 1999 budget
    request for Treasury's law enforcement functions.
        As you said, Mr. Chairman, I have submitted my testimony
    for the record, and I request that it be inserted.
        Senator Campbell. Without objection, it will be.
        Mr. Kelly. We in the Treasury Department greatly appreciate
    the support this committee has given Treasury law enforcement.
    I am here today with all of our bureau heads, some at the table
    and some who will be testifying at the next panel.
        As you said, we have two new Directors since we appeared
    before the committee last year, Lew Merletti, who took over as
    the head of the Secret Service and Ralph Basham, who is our new
    Director of the Federal Law Enforcement Training Center.
        As the members of this committee know well, Treasury has
    wide-ranging law enforcement responsibilities, from protecting
    the President and other public figures to preventing the flow
    of drugs into the country, enforcing Federal firearms laws,
    investigating violent crimes such as the bombing in Atlanta at
    the Olympics, enforcing the tax laws, and investigating
    financial crimes, counterfeiting and money laundering. The men
    and women who serve the public in these law enforcement
    capacities, and who often place their lives in danger by doing
    so, do an extraordinary job.
        To strengthen these critical efforts for fiscal year 1999,
    the President is requesting $3.204 billion, an increase of $172
    million, or 5.7 percent above last year, for Treasury law
    enforcement bureaus.
        We need this increase to meet certain mandatory costs, to
    enhance initiatives in combating narcotics trafficking, to
    reduce illegal firearms trafficking to young people, to improve
    Presidential protection and White House security, to
    investigate financial crimes, and to train law enforcement
    officers.
        The heads of each of the law enforcement agencies can
    provide more detail on these budget requests, but I just want
    to take a moment to highlight a few items.

                          Drug Interdiction Initiative

        First, we are requesting additional resources to help the
    Customs Service with the critical mission of drug interdiction.
    In cooperation with the Office of National Drug Control Policy,
    the U.S. Customs Service has formulated a 5-year technology
    plan, which is designed to deploy an array of technologies to
    enable Customs to effectively fulfill both of its missions,
    preventing the illegal contraband coming into the country--
    particularly drugs--and processing the massive flow of trade
    that plays a central role in our economy.
        Funding for implementation of the first phase of this plan
    has been requested for fiscal year 1999. As you know, Mr.
    Chairman, it is critically important to constantly monitor the
    integrity functions of law enforcement, especially in an era
    when the criminal environment is awash in narcotics money.
        It raises the stakes and the corruption potential
    everywhere, posing a threat to every nation's interdiction
    efforts. That is why we are also seeking an additional $6
    million in the 1999 budget for the internal affairs functions
    at the Customs Service.
        Customs is on the frontline of narcotics interdiction. That
    is why we want to make certain that Customs gets all the
    training, equipment, and case management support it needs to
    make its internal affairs' capabilities second to none.

                                Money Laundering

        Second, a major priority at Treasury is to combat money
    laundering. Our antimoney laundering efforts provide a unique
    vantage point for getting at the leadership of organized crime
    and drug lords by going after their Achilles' heel, the profits
    from their illegal activities.
        In addition, since money laundering poses a real economic
    danger by affecting markets and undermining financial systems,
    especially in developing countries, our promotion of stronger
    measures internationally will strengthen those systems.
        Money laundering is a very sophisticated business that is
    international in nature and utilizes state-of-the-art
    technology. To be effective, our efforts need to be
    international and to use state-of-the-art technology as well.
        FinCEN is applying the latest technology to tracing flows
    of money that are exceedingly complex. Its budget includes an
    initiative for the Gateway Program to coordinate the Federal,
    State, and local efforts.
        We need these resources to stay on the cutting edge of this
    effort by using more innovative technologies and techniques and
    fostering better international cooperation. This is
    particularly important since money laundering is increasingly
    difficult to detect and enforce due to constantly evolving
    techniques and the fluidity and organization of capital
    markets.

                          Youth Crime Gun Interdiction

        Third, we are asking for resources to support an effort
    that the Department and ATF have led over the past 2 years to
    prevent violent firearms crime by our Nation's youth.
        The youth crime gun interdiction initiative is a
    collaborative law enforcement effort between ATF, local police
    departments, and prosecutors. Its goal is to develop and share
    better information about how juveniles and gang offenders are
    illegally obtaining firearms, thereby reducing the illegal
    supply of firearms to youth by investigating, arresting,
    prosecuting, and incarcerating illegal gun traffickers. A
    preliminary analysis indicates this program shows significant
    promise.
        With these resources, ATF will be able to expand its
    initiative to 27 cities and potentially to more cities in the
    following years. It will also permit ATF to field new agents in
    each of these cities to work with police departments to arrest
    the illegal traffickers supplying firearms to juveniles, gang
    offenders, and other violent criminals in those jurisdictions.

                           2000 Presidential Campaign

        Fourth, in fiscal year 1999, the Secret Service must begin
    to build its capacity to protect candidates and nominees for
    the Presidential election in the year 2000. Additional funds
    have been requested to meet this mandatory workload increase,
    in addition to ongoing White House security and other
    protection initiatives.

                    Federal Law Enforcement Training Center

        Finally, we are asking for additional resources to support
    the Federal Law Enforcement Training Center in its critical
    work.
        Over the last 2 years, FLETC has seen an unprecedented
    increase in its workload. Current projections indicate that
    this increase will continue for the foreseeable future. We need
    to move forward on construction of FLETC facilities in order to
    meet this need.

                             Office of Enforcement

        Before I conclude, I want to mention the status of some
    activities in my Office of Enforcement. We have moved forward,
    certainly not as quickly as we would have liked, with the
    filling of the OPR slots authorized by this committee. About
    one-half of the positions are now filled, including the slot
    focussing on internal affairs issues across the bureaus. As I
    mentioned earlier, this is a key enforcement area that we must
    vigilantly monitor.

                               Prepared Statement

        Mr. Chairman, again, I want to thank you for the
    opportunity to appear today and will be happy to answer any
    questions that you have.
        [The statement follows:]
                     Prepared Statement of Raymond W. Kelly
        Chairman Campbell, Senator Kohl, Members of the Committee, it is a
    pleasure for me to be here before you today to highlight the fiscal
    year 1999 budget request for Treasury's law enforcement bureaus and
    offices. With me today are the heads of the Treasury law enforcement
    bureaus, several of whom are new additions to the Treasury team since
    the last appropriations hearing: Lewis Merletti, Director of the U.S.
    Secret Service (USSS), who was appointed by Secretary Rubin on June 6,
    1997; Samuel Banks, Acting Commissioner of the U.S. Customs Service
    (USCS); and Ralph Basham, Director of the Federal Law Enforcement
    Training Center (FLETC), our newest Director. We are pleased to have
    these new Directors joining today with John Magaw, Director of the
    Bureau of Alcohol, Tobacco and Firearms (ATF), William Baity, Deputy
    Director of the Financial Crimes Enforcement Network (FinCEN), and Ted
    Brown, Assistant Commissioner for Internal Revenue Service Criminal
    Investigation (IRS/CID).
        Each year, Treasury's mission grows in complexity, scope and
    importance. Treasury Enforcement performs a critical role in serving
    the nation's law enforcement priorities. Treasury bureaus protect our
    leaders, safeguard our financial institutions from money launderers and
    fraud, and collect taxes. Treasury agents and inspectors protect our
    borders from drug traffickers and every day our agents fight to protect
    our streets from the threat of bombs, arson and gun violence.
        To ensure excellence in achieving these missions, and in keeping
    with the spirit of the National Performance Review and the Government
    Performance and Results Act, Treasury engaged in a thorough strategic
    management process. The Treasury Strategic Plan, which was submitted to
    Congress last fall, is the capstone of this planning and analysis
    process. The purpose of this plan, and of our other efforts, is to
    improve the results which we deliver to the American people.
        Treasury's strategic plan provides an overview for the Department
    as a whole. In addition, each of Treasury's bureaus developed its own
    strategic plan for its operations in support of the overall plan.
    Collectively, these strategic plans describe what the Department
    intends to accomplish over the next five years and how we will
    accomplish it. Our bureaus' and offices' fiscal year 1999 budget
    submissions provide a program level description of the annual resources
    and actions needed to achieve these goals. The fiscal year 1999
    President's budget seeks $3.2 billion for 26,580 direct FTE Treasury
    Enforcement personnel, strategic investments, and other operational
    costs. This does not include the Internal Revenue Service Criminal
    Investigation Division (IRS/CID). IRS/CID, however, plays an integral
    role in Treasury law enforcement efforts with their fiscal year 1999
    $373 million request for 4,103 law enforcement personnel. We believe
    the Treasury law enforcement budget request strikes an appropriate
    balance permitting Treasury to contribute substantially towards
    balancing the federal budget while supporting new and more effective
    approaches to law enforcement. I would like to note that Treasury
    enforcement's $3.2 billion request will allow us to combat crime while
    making a $33 billion revenue deposit to the U.S. Treasury. By all
    counts, this is a tremendous return on investment. The budget
    submissions also set specific annual performance goals for each of our
    programs and report on our achievements against prior year goals.
        Treasury's Office of Enforcement has developed a five-part mission
    statement which describes the purposes of our broad law enforcement
    functions. We are committed to ensuring that this strategic plan is a
    living document. We will use it to guide our operations, and will
    continue to update and revise it periodically to make certain it
    remains relevant. Our plan was developed with the active involvement of
    officials throughout Treasury, and we have sought input from many of
    our stakeholders in Congress, elsewhere in the government, and in the
    private sector. We continue to welcome input from all of our
    stakeholders.
        The following describes the goals of our strategic plan, in a
    format designed to highlight our bureaus' specific expertise,
    activities and budget requests, as well as our cross-cutting expertise
    on financial crimes matters. Thereafter, I will discuss the important
    role that is played by the Office of Enforcement in enabling our
    bureaus to meet their goals and fulfill their missions.
        goal: reduce the trafficking, smuggling and use of illicit drugs
        Treasury brings essential counter-narcotics and money laundering
    expertise to the implementation of all aspects of the President's
    comprehensive anti-drug strategy. Our anti-smuggling efforts at the
    border and our substantial air support to interdict illegal narcotics
    at the source places Treasury in a leading role in the fight against
    illicit drugs. For example, this anti-narcotics role is pursued through
    anti-money laundering measures, reduction of narcotics-related violent
    crime, and demand reduction programs.
    U.S. Customs Service
        The Customs Service has the primary role for the Treasury
    Department and one of the primary roles for the U.S. in interdicting
    drugs and other contraband at the border, and ensuring that all goods
    and persons entering and exiting the United States do so in accordance
    with the law. The Customs Service discovers or seizes, on average, more
    than half of the narcotics seized by all Federal authorities in the
    United States each year.
        Customs has tremendous responsibilities. We need to recount some of
    what Customs must confront in order to put the drug interdiction
    challenge into perspective: Last year, Customs processed over 442
    million people, 118 million vehicles, 320,000 rail cars, and $854
    billion worth of merchandise. Customs performed the initial checks,
    processes, and enforcement functions for over 40 Federal agencies and
    applied hundreds of laws and regulations. It performed these tasks by
    servicing more than 300 ports of entry sprawled across 7,000 miles of
    land border. It also provided air support to the U.S. Government's
    source control efforts in South and Central America. Customs pursued
    all of these enforcement missions while collecting approximately $23
    billion in revenue for the United States in the form of duties, taxes,
    and fees.
        Customs constantly strives to improve its ability to stem the flow
    of drugs while dealing with the increasing volumes of cargo and
    passengers into and out of the United States. Indeed, the number one
    operational priority for the Customs Service is preventing the
    smuggling of narcotics into the United States. It pursues this mission
    through interdiction, intelligence and investigative capabilities that
    disrupt and dismantle smuggling organizations. Although Customs seized
    nearly one million pounds of illegal drugs in fiscal year 1997, through
    programs such as Operation Hard Line at the Southwest border and
    Operation Gateway in the Caribbean, the quantity of cocaine seized last
    year dropped 12 percent. To counter this decline, Customs recently
    embarked upon a program to utilize innovative approaches and will focus
    on the most high-risk ports of entry.
        Customs will continue to develop the capabilities to meet the
    ongoing smuggling threats, on our southwest land borders, in the
    Caribbean, and at all borders and ports of entry across the country.
    Customs actively participates in multi-agency criminal investigations,
    and will continue to strengthen its partnerships with the private
    sector, cooperative foreign governments and other Federal agencies in
    order to continue its active role to counter narcotics smuggling.
        Customs' budget proposal for fiscal year 1999 includes increases
    for drug smuggling and money laundering enforcement, integrity
    awareness, non-intrusive inspection technology and automation, all of
    which will help us achieve our goal of reducing the trafficking,
    smuggling and use of illicit drugs.
        In addition to Customs many and varied contributions to the drug
    fight, we also are proud of such efforts as ATF's campaign against
    armed narcotics traffickers through its Achilles Program, the work of
    all of our bureaus on HIDTA and ICDE task forces, the use of our
    financial crimes expertise to attack the financial underpinnings of the
    drug trade, and valuable prevention such as ATF's GREAT program.
               goal: combat financial crimes and money laundering
        One of the most important missions of the Treasury law enforcement
    bureaus is the investigation of financial crimes and money laundering.
    Treasury's unique structure permits us to use both our regulatory and
    investigatory expertise to follow the money trail and thus undermine
    criminal enterprises. We intend to strengthen the capability of our
    bureaus to fight money laundering and will continue our international
    efforts to promote stronger anti-money laundering laws abroad. As
    advances in technology and the removal of barriers allow money to move
    with increasing speed among nations, an effective, long term anti-money
    laundering strategy will require other nations to adopt strong anti-
    money laundering measures in the legal, regulatory, and law enforcement
    areas. We will also seek to improve our regulatory functions to protect
    financial systems from illicit assets.
        Additionally, we are developing anti-counterfeiting strategies that
    employ all appropriate technological and investigatory methods to
    combat designers and traffickers in counterfeit currency and
    instruments. Working with the State Department, we are expanding our
    overseas presence to more effectively combat the burgeoning
    international criminal threat to our financial systems. We are also
    enhancing our leadership role by continuing to develop partnerships
    with the financial community and others in the private and public
    sectors.
        Treasury is working in a number of ways to engage both the public
    and private sectors in a common effort to deny money launderers access
    to legitimate avenues of finance and commerce. We are continuing to
    emphasize the importance of interagency cooperation to pool resources
    and share experiences and information. The Committee is aware of the
    successes achieved by the El Dorado Interagency Task Force and FinCEN
    which were responsible for implementing the Geographical Targeting
    Orders (GTO's) directed towards Colombian and Dominican Republic drug-
    related money laundering operations.
        Treasury held two conferences over the last year, along with
    representatives from the Department of Justice, which brought together
    the experts from both our Departments--prosecutors, regulators, and law
    enforcement agents, all sharing their insights into the problem.
    Additional conferences are planned both at the national and regional
    level in order to further shut down the avenues available to money
    launderers.
        The Customs Service, Secret Service, the Financial Crimes
    Enforcement Network, and the Internal Revenue Service Criminal
    Investigation Division all play a vital role in accomplishing our money
    laundering and financial crimes goals. The Office of Enforcement will
    seek to enhance the individual and collective work of these bureaus
    through completion of a Departmental financial crimes review, which is
    currently being undertaken jointly with the Treasury bureaus and
    offices.
        The following are some of our bureaus' individual efforts in the
    current fight against money laundering and financial crimes.
    Customs Service
        In addition to its substantial efforts to counter illicit drugs,
    Customs also plays a vitally important role in combating money
    laundering. During fiscal year 1997, Customs' money laundering
    investigations resulted in 1,054 arrests and 905 criminal indictments.
    Its investigative strategy is focused on disrupting two key business
    functions that are necessary for sophisticated international money
    laundering operations to function: laundering profits and investing the
    proceeds of their criminal activity. Customs' money laundering
    coordination center will become operational in 1998 and will coordinate
    Customs' nationwide undercover money laundering operations and follow-
    up investigations.
    Secret Service
        The Secret Service is the nation's lead agency in investigating
    counterfeiting, forgery, and access device fraud. As the nation's
    counterfeiting expert, the Secret Service has investigated fictitious
    financial instruments, counterfeit currency and credit card schemes
    both domestically and internationally. United States currency is
    counterfeited around the globe. Indeed, approximately 70 percent of all
    counterfeit currency detected domestically is of foreign origin.
    Therefore, it is only prudent that the Secret Service devotes a large
    portion of its investigative resources to battling international
    counterfeiting issues.
        The Secret Service has learned through experience that the best
    method to manage this problem is to address counterfeit issues at their
    source, with the permanent stationing of Secret Service agents in
    foreign posts. In addition, the Secret Service leverages its resources
    by enlisting international law enforcement agencies to identify
    counterfeit currency and suppress counterfeiting plates. These efforts,
    primarily carried out through counterfeit detection seminars, have
    promoted a cooperative international law enforcement effort to detect,
    suppress and prosecute counterfeit violations.
        Moreover, to prevent financial fraud schemes, the Secret Service
    has developed and implemented longstanding and effective partnerships
    with private industry to better understand various financial systems
    and combat significant losses. Assisting the industry and their
    financial systems with ``systemic fixes,'' aggressive analysis, and
    proactive security enhancement measures has increased the overall
    security of these financial systems. Proactive joint initiatives with
    the industry, such as public awareness campaigns, media programs,
    speeches, seminars, and security training are having a positive impact.
    These partnerships have reduced the ability of criminal organizations
    to target financial institutions.
    FinCEN
        While Customs, Secret Service and IRS-CID are the financial crime
    investigators, FinCEN serves as Treasury's principal support arm for
    such investigative efforts. As its name states, FinCEN is a network, a
    link between the law enforcement, financial, and regulatory
    communities. It brings together government agencies and the private
    sector, in this country and around the world. It works to maximize
    information-sharing among these communities thereby furthering efforts
    to prevent and detect money laundering activities. The intelligence
    derived from the GTO's and other efforts has also contributed to the
    work of an interagency coordinating group (ICG) which is located at
    FinCEN. The group includes the Internal Revenue Service, the Customs
    Service, the Drug Enforcement Administration, the Federal Bureau of
    Investigation, and the U.S. Postal Service. The ICG has been building
    on knowledge which its members, especially the Criminal Investigation
    Division of the IRS and the Customs Service, have developed about a
    highly complex money laundering system used by the Colombian Cartel,
    known as the Black Market Peso Exchange.
        The initiatives in FinCEN's budget request will strengthen the
    quality of the support that it provides to law enforcement.
    IRS-CID
        I want to say a few words about the important contribution to
    Treasury's law enforcement efforts made by IRS-CID. Fighting financial
    crime is a job well suited for the special agents of IRS-CID. They are
    known for their ability to ``follow the money trail'' and stop the
    criminal when no one else can. IRS-CID agents are financial experts in
    combating money laundering and tax evasion. Their expertise is sought
    in investigations of all types of financial crimes, including health
    care fraud, pension fraud, insurance fraud, bankruptcy fraud,
    telemarketing fraud, gaming, narcotics, and public corruption.
        Today, IRS-CID is combating the increased use of computers for
    committing financial crimes with its latest weapon * * * a new type of
    special agent known as the Computer Investigative Specialist (CIS).
    Through IRS-CID's national Computer Investigative Specialist Program,
    the CIS continuously receives training in cutting edge investigation
    automation and evidence seizure and data recovery methods. Combining
    its unique financial expertise with advanced computer skills permits
    IRS-CID to optimize its ability to investigate and solve computer based
    and computer related financial crimes. IRS-CID is taking the lead in
    providing this specialized computer investigative training to agents
    from the other Treasury bureaus.
                           goal: fight violent crime
        Treasury is working to fight violent crime by arresting the most
    violent armed offenders, denying criminals and juveniles access to
    firearms, reducing the risk of violent crime in our communities,
    safeguarding the public from arson and explosive incidents and
    strengthening our capability to fight terrorist threats to the United
    States. To enhance our efforts to reduce and prevent violent crime with
    firearms, Treasury has fully supported the Administration's and
    Congress' efforts to prevent criminals, gang offenders, and juveniles
    from illegally obtaining firearms. These efforts have been built on
    three foundations: implementation of the first phase of the Brady law,
    to stop felons and other prohibited persons from buying handguns from
    licensed dealers; reform of the firearms dealer licensing systems to
    ensure a high level of commercial integrity and compliance with local
    laws; and a tough, focused illegal firearms trafficking program aimed
    at stopping trafficking to criminals, gang offenders, and juveniles.
    Additionally, we are working to maintain appropriate firearms
    importation and international illegal firearms trafficking policies and
    to share crime gun tracing and anti-smuggling expertise with the
    international community in order to combat the illegal firearms
    trafficking.
        To safeguard the public from arson and explosives incidents, we
    will maintain the highest standards of investigative expertise and
    state-of-the-art technology to most effectively respond to those
    incidents. Our studies on the use of tracer elements in explosives
    materials will continue and we will enhance the national repository for
    arson and explosives information to assist in the investigation of
    explosives incidents. We will endeavor to prevent criminal misuse of
    explosives in crimes of arson through enforcement, regulation, and
    community outreach and investigate thefts and illegal diversion of
    explosives.
    ATF
        The Bureau of Alcohol, Tobacco, and Firearms (ATF) plays the
    leading role for Treasury, indeed the entire Federal government, in the
    fight against armed violent crime. ATF is responsible for enforcement
    of the Federal firearms laws as well as for regulation of the firearms
    and explosives industries. It investigates some of the most
    destructive, dangerous, and controversial crimes in the United States,
    including bombings of abortion and family planning clinics, church
    arson, firearms crimes and illegal trafficking, and firearms and
    explosives violations.
        In an effort to reduce armed violent crime, ATF focuses its
    investigative efforts on armed violent criminals, career criminals,
    armed narcotics traffickers, violent gang offenders, and domestic and
    international firearms traffickers that supply the illegal firearms
    market. It strives to deny criminals, gang offenders and juveniles
    access to firearms, safeguard the public from bombings and arson, and
    imprison violent criminals.
        Through its Violent Crime Coordinators (VCC's), ATF is focusing its
    investigations on armed recidivist and violent career criminals. The
    VCC's will continue to assist in removing the armed criminals that pose
    the greatest threat to society by identifying and investigating the
    most violent offenders, analyzing the best route to prosecution and
    working closely with the United States Attorneys' Offices to maximize
    the effectiveness of our investigative efforts.
        Through its Youth Crime Gun Interdiction Initiative (YCGII), which
    began as a small pilot effort in 1996, ATF is working to further reduce
    the illegal trafficking of firearms to gang offenders and juveniles.
    Due to the positive reception of the program in the 17 pilot cities and
    to ATF's first comprehensive trace analysis report designed for agents
    and police departments, the President confirmed his support by
    announcing that 10 additional cities would be included in fiscal year
    1998. We are grateful for the support you have already provided to this
    program, which is designed to supplement and strengthen ATF's illegal
    firearms trafficking program. Through YCGII, ATF is developing new
    methods of identifying the illegal sources of firearms being supplied
    to gang offenders, juveniles, and criminals and to prosecute the
    traffickers responsible for providing these guns. ATF will work with
    the nation's police departments to provide comprehensive crime gun
    tracing, illegal market analysis, investigative information and
    training to the 27 cities. To break the chain of illegal supply of
    crime guns to violent gang offenders and juveniles, we will hire more
    than 160 agents to collaborate with U.S. Attorneys and police
    departments in investigating and arresting the illegal firearms
    traffickers.
        ATF is also renowned for its expertise in the areas of arson and
    explosives. Through its certified fire investigators, National and
    International Response Teams, accelerant and explosives detection
    canine program, its accredited laboratory, its arson and explosives
    repository, and numerous other programs, ATF maintains its role as the
    leader and innovator in these areas. Its expert work on the National
    Church Arson Task Force has helped produce a 33 percent clearance rate
    for the arsons under investigation, a rate that is more than twice the
    average rate for arson crimes in general. ATF assists State and local
    authorities with arson investigations falling under Federal
    jurisdiction and having a significant impact on their community,
    particularly when the nature or extent of the problem extends beyond
    the available resources or expertise of the locale involved. ATF also
    provides training to other Federal, State, and local enforcement
    agencies in the detection and investigation of arson, particularly
    arson-for-profit, and post-blast bombing investigation.
        As Director Magaw will explain in greater detail, the additional
    funds requested in ATF's budget for the VCC's and YCGII will permit it
    to better fulfill the goal of countering violent crime.
         goal: protect our nation's leaders and visiting world leaders
        Treasury is striving to manage the ever changing nature of threats
    by developing, acquiring and deploying necessary countermeasures. One
    aspect of this proactive approach is developing a formal risk
    assessment-based decision making process to enhance protective
    capabilities. Toward this end, we will identify emerging technologies
    that pose a threat to those we are entrusted with protecting and
    develop defenses against them. We will also exploit technology that can
    be used to lower risk to protectees and ensure their safety. To help
    fulfill the vital protective mission and to provide the safest possible
    environment for all protectees, we will continue to develop
    partnerships between the law enforcement agencies inside and outside
    Treasury.
    Secret Service
        As you know, the United States Secret Service has the critical
    responsibility of protecting the President, Vice President, and other
    specially designated protectees. It accomplishes this protective and
    investigative mission effectively in an increasingly hostile society.
    During the past fiscal year, the Service successfully managed
    protective security for several major events, as well as the
    implementation of numerous, ongoing security enhancements at the White
    House complex and the Vice President's residence. The Secret Service's
    White House Emergency Plan was revised to include enhanced procedures
    in the event of a crisis situation at the White House complex. The
    Service also continued its efforts to combat the increasing threats
    from chemical/biological weapons. To respond to this threat, the
    Service has formulated a chemical/biological detection and protective
    program which combines multiple systems: fixed detectors, collective
    protection systems, and portable detection equipment for deployment at
    critical protective sites. Additionally, the Service's ultimate goal is
    to provide immediate chemical/biological detection, mitigation and
    decontamination support for all Presidential movements.
        During fiscal year 1999, the Service begins the build-up for the
    Presidential campaign of the Year 2000. As it begins planning for the
    Presidential campaign and the inauguration of January 2001, the Secret
    Service's budget request will further advance its ability to maintain
    the highest level of physical protection possible for its protectees
    through the effective use of human resources, protective intelligence,
    risk assessment and technology.
       goal: provide high quality training for law enforcement personnel
        Assuring the excellence of training of Federal law enforcement is
    of vital importance to the future effectiveness of our law enforcement
    efforts. As the training agent for the majority of all Federal law
    enforcement agencies, we currently have 70 Federal agencies
    participating in training programs at the FLETC. We are committed to
    enhancing basic and in-service training programs to meet the changing
    needs and increasing demands of Federal law enforcement as we combat
    increasingly sophisticated, technologically advanced and globally
    linked crime. Our objective is to develop and operate state-of-the-art
    facilities and systems responsive to interagency training needs.
        To meet the goal of quality training within a limited budget, to
    meet current training needs and to prepare for the future, we will
    maintain and improve FLETC's physical plant by implementing the master
    plan to guide the expansion of facilities to meet projected training
    needs. We will also develop alternative training delivery systems, such
    as distance learning capabilities, thereby effecting long term cost
    savings. Additionally, we will expand the use of advanced technology in
    training and support, especially in the areas of computer-based
    training and simulation, to provide not only state-of-the-art training
    but long-term budget savings as well. We will also provide
    international training in support of the International Law Enforcement
    Academy (ILEA) in Budapest and the ILEA being developed for Latin
    America (ILEA South).
    FLETC
        One of the reasons that Treasury law enforcement is so successful
    is the quality of training that its agents and inspectors receive at
    the Federal Law Enforcement Training Center (FLETC). Since its
    establishment by a memorandum of understanding in 1970, FLETC has built
    a reputation for providing high quality, cost effective law enforcement
    training. As you know, there are many advantages to consolidated
    training for Federal law enforcement personnel, not the least of which
    is an enormous cost savings to the Government. Seventy agencies in 200
    different training programs now train at FLETC. Additionally, FLETC has
    been involved in providing law enforcement training overseas for over
    20 years and has trained more than 5,000 foreign law enforcement
    officials from more than 102 different countries. We expect this growth
    to continue as more agencies recognize the many benefits of
    consolidated training.
        Over the last two years, the FLETC has seen an unprecedented
    increase in its workload. Current projections indicate continued
    workload growth through fiscal year 1999 and beyond. During fiscal year
    1997, the FLETC provided training to 23,329 students representing
    109,116 student-weeks of training, the largest workload in the history
    of the Center. In fiscal year 1998 the workload is expected to grow to
    32,404 students. The majority of this growth is attributable to recent
    Congressional and Administration initiatives to control immigration
    along our Nation's borders and to provide a safe workplace for Federal
    employees.
        To permit FLETC to train the law enforcement agents in the skills
    needed for the future, it has continued to implement its master plan
    for facilities. This plan was first introduced in 1989 and when fully
    implemented will permit FLETC to achieve its goal of further
    developing, operating, and maintaining state-of-the-art facilities and
    systems responsive to interagency training needs. Indeed, a major
    portion of FLETC's budget request is the continued implementation of
    the facilities master plan for new construction at FLETC's two centers
    in Glynco and Artesia. This funding will ensure that less efficient
    temporary facilities, now relied upon to meet workload requirements,
    are phased out as soon as possible. Since early 1996, FLETC has been
    operating at full capacity and we expect that this workload will
    continue through fiscal year 1999. To accommodate this increasing
    demand, FLETC has been utilizing temporary buildings and contracted or
    licensed facilities. In addition, some Border Patrol training is
    occurring at a temporary facility in Charleston, South Carolina. As
    FLETC's capacity increases, the need for a temporary site at Charleston
    can be phased out.
        In addition to its domestic training responsibilities, the FLETC is
    also being called upon to play a larger and more important role in
    support of the Administration's and Congress' foreign policy
    initiatives involving the training of foreign law enforcement
    officials. We estimate that there will be a 36 percent increase in
    FLETC's fiscal year 1998 international training workload as compared
    with fiscal year 1997. A key provision in the FLETC's fiscal year 1999
    budget request and central to FLETC's ability to meet these increased
    training needs is the ILEA South initiative.
        At the San Jose Summit on May 8, 1997, President Clinton announced
    that an international law enforcement training academy would be created
    in Latin America (i.e., ILEA South) before the end of 1997. Patterned
    after ILEA Budapest, the goals of ILEA South are to expand
    relationships with and among foreign law enforcement officials from
    Latin America and the Caribbean, support democracy by stressing the
    rule of law in international and domestic police operations, foster
    international cooperation and raise the professionalism of law
    enforcement judicial officials.
        The Department of State selected the Department of the Treasury as
    the lead agency to establish ILEA South. In turn, the Department is
    relying on the FLETC to provide operational management oversight and
    administrative support to guide program development for ILEA-South. The
    first ILEA South training program was recently conducted in Panama
    City, Panama, during November and December 1997. Thirty-two students
    from eight Central American countries attended the program. The program
    was extremely well received and was considered by all those involved to
    be a great success.
                             office of enforcement
        We recognize that the work of our law enforcement bureaus can only
    be enhanced through the oversight and support provided at the
    Departmental level. In this regard, I am pleased to report that the
    Office of Enforcement has worked diligently over the past year to
    fulfill these responsibilities, and has a plan in place for maximizing
    such efforts over the next year. This Committee's support in the
    creation of an Office of Professional Responsibility (OPR) will help us
    meet these goals. Since receiving funds in last year's appropriations,
    we have developed a precise staffing and hiring plan for the OPR
    positions to provide direct oversight on such important matters as
    internal affairs, training, and inspection issues. The process included
    extensive outreach to expand the pool of qualified applicants, as well
    as thorough reviews of applications and several rounds of interviews
    for select candidates, including interviews with our bureau heads.
    While the process continues, we have selected a number of impressive
    members of the OPR team. They are on board, and we are confident that
    they will help our bureaus perform their missions as safely,
    professionally, and well as possible. On one issue in particular--
    integrity--Treasury and its bureaus share the Committee's strong
    commitment, and have made it a priority for OPR.
        The Office of Enforcement also has taken other measures to enhance
    its support and oversight missions. Among other activities, we worked
    closely with Customs, ONDCP, and others to ensure close cooperation on
    anti-narcotics matters; solidified the Department's vital role on anti-
    money laundering issues through such activities as the geographic
    targeting orders and the anti-money laundering conferences hosted
    jointly with the Justice Department; coordinated all enforcement-
    related strategic planning activities for Treasury as it fulfilled its
    GPRA responsibilities; maintained a lead role within the Administration
    on the National Church Arson Task Force, as well as international money
    laundering and financial crime issues; performed a complete management
    assessment at FLETC by working with an outside consultant, expanded the
    Youth Crime Gun Interdiction Initiative to 10 additional cities; and
    established ILEA South in conjunction with the State Department and
    others.
                                   conclusion
        In summary, the Treasury Department is proud of the contributions
    that its law enforcement bureaus have made and continue to make to this
    nation. Treasury and its bureaus have defined goals and objectives to
    ensure our excellence in protecting our borders, fighting violent
    crime, protecting our nation's leaders, defeating financial crimes, and
    training our law enforcement agents for the challenges of countering
    increasingly sophisticated criminals. This budget request will enable
    Treasury's law enforcement bureaus to meet the current challenges and
    to begin preparations for the challenges of the 2lst century. I am
    confident you will find this to be a responsible budget, as it
    considers the growing demands of the law enforcement in a constrained
    budget environment.
        With your permission Mr. Chairman, I would like to ask the
    Directors of the Treasury law enforcement bureaus to describe in more
    detail those strategies and goals we see as playing a key role in the
    coming fiscal year, as well as our recent accomplishments. After which
    we would be pleased to answer any questions you or Members of this
    Committee may have. Thank You.

                     Congratulations on Pending Nomination

        Senator Campbell. Thank you. I appreciate that, Mr. Kelly,
    and congratulations on your pending nomination.
        Mr. Kelly. Thank you.
        Senator Campbell. Good luck on protecting the Presidential
    candidates for the year 2000. There should be about 40 of them,
    and 2 of them are not here, however, are they?
        Before we go on to the next person, I would like to also
    welcome the people in the back of the room, the youngsters who
    are from Closeup. I am sorry we do not have enough chairs for
    you, but I hope your visit here in the Capitol and this
    committee is enjoyable, and educational, too. We are glad you
    are here.
        We will just go in that order. Next is John Magaw, please.
        John, nice to see you.

                           Statement of John W. Magaw

        Mr. Magaw. Nice to see you, too.
        Thank you, Mr. Chairman and Senator Kohl.
        I am pleased to represent all the men and women of ATF.
    They are outstanding in their abilities and in their
    dedication.
        Once again, I have asked the ATF executive staff to be here
    today. We find that it helps for them to hear your questions
    and comments firsthand so that we can all better respond to
    your concerns.

                               ATF Budget Request

        ATF's 1999 budget request is $586,324,000 and 4,038 full-
    time-equivalent positions. This budget includes $32 million for
    the relocation of Bureau headquarters, which is essential for
    the protection of our employees and our customers. The other
    major increases are found in the $16 million and 81 FTE's to
    expand the President's Youth Crime Gun Interdiction Program,
    and $2 million to expand our Violent Crime Coordinator Program.

                               ATF Strategic Plan

        Our request and the 1999 performance plan for this Bureau
    are directly linked to the elements of our strategic plan to
    include protecting the public, reducing violent crime, and
    collecting the revenue.
        As we implement our key programs, we will utilize the full
    array of enforcement tools to carry out our interwoven mission.
    That blends tax and regulatory and criminal investigation
    functions. Not only does this unique mix serve ATF's own
    operational responsibilities, but it allows us to provide
    otherwise unavailable expertise to State and local and other
    Federal agencies.

                    Youth Crime Gun Interdiction Initiative

        The youth crime gun interdiction initiative typifies the
    driving collaborative spirit behind our strategic plan of
    partnership and technology that merge together to provide
    maximum value for the citizens that we serve. Twenty-seven
    major cities are employing ATF's expertise in resources to
    trace firearms used by juveniles in crime, to identify sources
    and patterns of illegal firearms trafficking, and to develop
    strategies to reduce the flow of weapons to the youngest and
    the most volatile members of our society.

                       Violent Crime Coordinator Program

        ATF's Violent Crime Coordinator Program, for which we are
    also requesting additional funding, is yet another
    collaborative effort, but one that concentrates on the most
    hardened members of our society. Because many Federal firearms
    laws contain provisions for mandatory extended sentences, ATF
    strives to increase State and local awareness of the available
    Federal prosecution under these statutes.
        ATF's violent crime coordinators will work closely with
    local prosecutors and the U.S. Attorney's Office to provide the
    investigative component to the Department of Justice
    Triggerlock Program. We will focus on ensuring that the violent
    career criminals are appropriately matched to the criminal
    charges that will remove them from our communities for the
    longest period of time.

                                Personnel Levels

        While the demands on ATF have increased dramatically, it is
    of special note that we are only 100 people above the personnel
    levels of 25 years ago. Moreover, in the past 3 years, our
    special agent population has decreased by over 200. This puts
    an enormous strain on our personnel and limits the incidents
    that we can respond to with State and local enforcement. While
    we descended from roughly 2,000 agents to 1,800, a case could
    be made that we should have been increasing to approximately
    2,600. Also, our inspector ranks have a shortfall of
    approximately 250 personnel.
        Few days pass that we do not receive pleas from U.S.
    attorneys or State and local law enforcement for additional ATF
    agents. The 2,600 figure would put only a few more agents in
    each city.
        You can be confident as we move along that ATF is able to
    fully account for the funding that you have provided. I am
    pleased to report that for the third consecutive year, we have
    received the highest possible rating on the annual inspector
    general audit of our finances and our internal controls. The
    audit this year was conducted by Price Waterhouse.
        Mr. Chairman, that concludes my statement.

                               Prepared Statement

        Senator Campbell. Thank you, Mr. Magaw. I am proud that
    somebody is watching the money around here. We will insert your
    prepared statement in the record.
        [The statement follows:]
                      Prepared Statement of John W. Magaw
        Thank you Mr. Chairman, Senator Kohl, and members of the
    Subcommittee. I welcome this opportunity to appear before this
    subcommittee and further acquaint you with ATF and the value we bring
    to the American public. I am here today to support the Bureau's fiscal
    year 1999 budget request of $586,324,000 and 4,038 full-time equivalent
    positions (FTE). When compared to fiscal year 1998, this request
    represents a net increase of $22,947,000 and 100 FTE's. This increase
    consists primarily of $32,000,000 for the relocation of the Bureau
    headquarters and $16,000,000 with 81 FTE's for the President's Youth
    Crime Gun Interdiction Initiative.
        With me today are my executive staff members:
        Mr. Bradley Buckles, Deputy Director; Mr. William Earle, Assistant
    Director for Management and Chief Financial Officer; Mr. Andrew Vita,
    Assistant Director for Field Operations; and Mr. Jimmy Wooten,
    Assistant Director for Firearms, Explosives and Arson; Mr. Arthur
    Libertucci, Assistant Director for Alcohol and Tobacco; Mr. Stephen
    McHale, Chief Counsel; Ms. Gale Rossides, Assistant Director for
    Training and Professional Development; Mr. Patrick Schambach, Assistant
    Director for Science and Technology and Chief Information Officer
    (CIO); Mr. Patrick Hynes, Assistant Director for Liaison and Public
    Information; Ms. Marjorie Kornegay, Executive Assistant for Equal
    Opportunity;
                         progress in strategic planning
        As you are aware, starting in 1997, the Government Performance and
    Results Act, commonly referred to as ``GPRA'' requires us to: publish
    strategic plans covering at least 5 years, publish annual performance
    plans that include measurable goals, and report on actual performance.
        With our fiscal year 1999 budget, we are including a performance
    plan and a set of performance targets for each of our three major
    activities. We have made progress in developing meaningful,
    quantifiable measures for our programs and will continue to look for
    improvements. We welcome Congress' feedback on measures we have
    submitted.
        During fiscal year 1996, ATF aligned its planning and budget
    structure to conform to the three major activities identified in the 5
    year Strategic Plan that the Bureau published in March 1995. During
    fiscal year 1997, ATF's Strategic Management Team revised the Strategic
    Plan and enhanced the planning and budget structure based on the
    results of interviews and surveys of our customers and stakeholders
    regarding their expectations and needs. The revised activities are:
        Activity 1: Reduce Violent Crime.--Effectively contribute to a
    safer America by reducing the future number and costs of violent
    crimes, complement enforcement with training and prevention strategies
    through community, law enforcement, and industry partnerships.
        Key Indicators: Crime Related Costs Avoided; Future Crimes Avoided;
    Number of Persons Trained/Developed (non-ATF); Number of Firearms
    Traces; Number of Inspections (Explosives); and Percent Population
    Inspected (Firearms).
        Activity 2. Collect Revenue.--Maintain a sound revenue management
    and regulatory system that continues reducing taxpayer burden, improves
    service, collect the revenue, and prevents illegal diversion.
        Key Indicators: Taxes and Fees Collected from Alcohol, Tobacco,
    Firearms, and Explosives Industries; Ratio of Taxes and Fees Collected
    vs. Resources Expended to Collect; and Burden Hours Reduced.
        Activity 3. Protect the Public.--Protect the public and prevent
    consumer deception in ATF's regulated commodities.
        Key Indicators: Response to Unsafe Conditions and Product
    Deficiencies Discovered (Explosives); and Number of Commodity Seminars
    Conducted.
        ATF is committed to defining its Federal role, setting long term
    strategic and annual performance goals, managing our resources and
    investments to achieve those goals, instituting measures, and reporting
    annually on our performance. ATF will continue to work throughout
    fiscal year 1998 to make sure our measures for success are carefully
    defined and tracked.
                             atf's unique programs
        ATF is a law enforcement organization within the United States
    Department of the Treasury with a combination of responsibilities
    dedicated to reducing violent crime, collecting revenue, and protecting
    the public. We use our jurisdiction, skills, and assets to assist
    Federal, State, and local law enforcement in the fight against crime
    and violence. We accomplish this through an integrated approach of
    effective enforcement of the Federal firearms, explosives, and arson
    laws.
        Year after year, ATF works to make America a safer place for all of
    us by fighting violent crime. ATF's position of being vested with the
    enforcement and regulation of the Federal firearms and explosives laws
    as well as the regulation of those industries puts it at the forefront
    of violent crime enforcement.
        The statutes ATF enforces involve a blend of tax, regulatory, and
    criminal investigation functions that the Treasury Department is suited
    to handle. Treasury law enforcement functions have always involved
    criminal laws inseparably linked to revenue laws and regulatory
    controls, whether in the enforcement of tax or trade law, currency
    protection, or firearms regulations. In the case of the firearms and
    explosives industries, the criminal investigative responsibilities
    cannot effectively be separated from the tax and regulatory
    responsibilities because they are so technically and practically
    interwoven.
        ATF achieves tax compliance by focusing inspections on production
    facilities offering the greatest risk to revenue based on the volume of
    operations, history of violations, poor internal controls, or
    questionable financial conditions. Teams of ATF special agents,
    inspectors and auditors perform complex investigations of interstate
    and international criminal violations of the Federal Alcohol
    Administration Act and sections of the Internal Revenue Code and the
    Contraband Cigarette Act. In the past five years, we have noted a
    marked increase in the diversion of alcohol and tobacco products by
    organized criminal groups.
        ATF inspectors maintain regulatory oversight of the legal
    explosives industry, including 10,548 explosives licensees and
    permitees. ATF's jurisdiction and specialized expertise provide
    invaluable services to the public through enforcement, regulation, and
    cooperative industry partnerships.
        ATF provides a wide range of services to local communities to
    investigate explosives incidents and arson. For instance, our National
    Response Teams (NRT's) include special agents, certified fire
    investigators, explosives technicians, fire protection engineers, and
    forensic scientists who respond to major incidents within 24 hours of a
    request to assist in large-scale fire and explosives scene
    investigations. Additionally, ATF: 1) has been at the forefront as a
    leader in the Church Fire Investigations, 2) uniquely trains canines in
    accelerant-detection and explosives detection, 3) is the catalyst and
    principal engineer of several ongoing explosives studies, 4) provides
    the only Federal investigative expertise in solving arson-for-profit
    schemes, and 5) is seeking to enhance the level of expertise of all
    fire investigators through an innovative CD ROM virtual reality
    training tool that is being developed.
        In the area of firearms, our mission is simple--to reduce gun
    violence and to fairly and effectively regulate the legitimate firearms
    industry. Our targets are criminals who illegally use and/or supply
    guns to other criminals or our children. The almost daily acts of
    firearms violence reported in the media remind us of the dangerous
    times in which we live. Our National Tracing Center provides 24-hour
    assistance to Federal, State, local and foreign enforcement agencies in
    tracing guns used in crimes. It is the only facility of its kind in the
    world. To enhance ATF's ability to trace crime guns, the National
    Tracing Center is partnering with members of the gun wholesale firearms
    industry through electronic linkups that are greatly enhancing trace
    completion time, while at the same time saving the firearms industry
    money. This joint government/industry partnership is helping to fight
    crime nationally.
                          fiscal year 1997 highlights
        I would like to share with the Committee those successes in fiscal
    year 1997 that demonstrate ATF's mission accomplishments and our
    efforts for more effective government. During our 25th anniversary as a
    Bureau, we:
      --Refined ATF's strategic plan based on an environmental assessment
            survey issued to customers, stakeholders, and ATF personnel.
      --Developed an illegal firearms trafficking guidebook that is the
            definitive reference for ATF special agents and conducted
            firearms trafficking schools and interstate nexus schools to
            provide firearms trafficking training for Federal, State, local
            and international law enforcement personnel.
      --Received four Hammer Awards for Innovation in Government from the
            Vice President's National Performance Review. The awards were
            given to the Partnership Formula Approval Process Team,
            CEASEFIRE Team, Out-of Business Records Management Team, and
            Project LEAD Team. The ``Disarming the Criminal Program,''
            ATF's firearms trafficking enforcement effort, was a finalist
            in the Innovations in American Government Awards Program
            sponsored by Harvard University's Kennedy School of Government.
      --Established the Arson and Explosives National Repository which will
            serve as a statistical data base for arson and explosives
            incidents and as a valuable investigation tool for other
            Federal, State and local law enforcement agencies. The
            information will be available to authorized Federal, State and
            local agencies.
      --Published the Department of the Treasury ``Odor Recognition
            Proficiency Standard'' for explosives detecting canines. This
            is the first Federally Published standard for these types of
            canines.
      --The National Church Arson Task Force issued a report to the
            President outlining the accomplishments of its second year.
      --Deployed Integrated Ballistic Identification System (IBIS)
            technology in eight new sites to further strengthen the ability
            of State and local law enforcement to reduce violent crime
            through technological innovations that help target the violent
            offender.
      --Traced over 37,000 recovered crime guns involved with the Youth
            Crime Gun Interdiction Initiative.
      --Began the development of a joint explosives detection canine pilot
            program with the Federal Aviation Administration for use at
            Washington National Airport and Dulles International Airport.
      --Initiated a major effort to hire special agents and inspectors for
            our Office of Field Operations. ATF received, screened, and
            processed approximately 4,334 special agent applications and
            1,072 inspector applications. ATF is currently conducting
            interviews with plans to hire over 100 special agents and
            inspectors. We are committed to remaining on a regular hiring
            schedule, due in part to a significant number of expected
            retirements, and to prevent the loss of critical expertise.
      --Significantly increased the number of crime gun traces (190,000);
            continued to develop Project LEAD, the illegal firearms
            trafficking information system; deployed new trace related
            hardware to more field offices; developed comprehensive,
            community-based crime gun trace analysis as a new strategic
            tool for Federal, State, and local law enforcement; and piloted
            it in 17 sites through the Youth Crime Gun Interdiction
            Initiative.
      --Expanded Project LEAD, a state-of-the-art computer software program
            which analyzes firearms trace data maintained by the National
            Tracing Center.
      --Established the National Revenue Center in Cincinnati. We have
            reduced from five to three the regional Technical Services
            centers in which ATF employees perform tax and permit
            functions; consolidated resources; and improved the consistency
            of work products and services.
      --Hosted an international conference on fire research that was
            attended by 65 world experts on the subject. The ideas and
            information exchanged will enhance our development of the ATF
            Fire Investigation Research and Education Center in partnership
            with the academic community.
      --Conducted 22 ``train-the-trainer'' classes with 665 police officers
            participating from across the United States in ATF's Gang
            Resistance Education and Training Program (G.R.E.A.T.). The
            program curriculum, designed to decrease gang violence across
            the nation, is taught by trained, uniformed police officers and
            ATF special agents to children in the sixth, seventh and eighth
            grades. In fiscal year 1997, 471 State and local agencies
            sponsored G.R.E.A.T. classes for over 314,000 school children.
      --Continued development and deployment of a fully integrated state-
            of-the-art information technology infrastructure via our
            Enterprise System Architecture which in fiscal year 1997
            deployed 1,049 desktop and notebook personal computers to six
            of twenty three field operations divisions, a total of 58 field
            offices. All hardware and software meets Enterprise System
            Architecture standards designed to fulfill our critical
            business requirements. This is a part of our preparation for
            the year 2000 requirements.
      --Created the Diversion Branch to deal with diversion of cigarettes
            and distilled spirits across State and national borders in
            violation of law. The new branch combines investigative,
            regulatory and intelligence gathering expertise to combat loss
            of revenue in partnership with State, international and other
            Federal agencies.
      --Designed and commissioned the construction of a Rapid Response
            Laboratory, a mobile crime laboratory, that provides the
            versatility required for the uniqueness of each crime scene and
            will facilitate field analysis.
      --Standardized and distributed hand held portable radio units to all
            special agents for the first time in ATF's history; procured
            and outfitted two self sustaining mobile radio communications
            platforms with secure communications capability to support
            critical incident responses.
      --Redesigned and implemented the third generation of our Internet
            World Wide Web service and ATF homepage, (http://
            www.atf.treas.gov). ATF web offerings were expanded to include
            secure Internet services such as a search engine, news groups,
            and downloadable electronic forms for internal use by our
            customers and work force.
      --Completed the first phase of a procurement subsystem (Procurement
            Desktop and Program Office Desktop) with the intention of
            creating an electronic desktop environment for processing all
            future requisitions.
      --Provided 15,893 training opportunities for ATF employees and 34,824
            training opportunities for other Federal, State, local, and
            foreign law enforcement officers, as well as industry
            personnel.
      --Initiated a partnership with the American Re-Insurance Company,
            U.S. Fire Administration, and the National Fire Protection
            Association to develop a CD-ROM virtual reality training tool
            which will raise the base level of knowledge of fire
            investigators nationwide.
                              the year in progress
        ATF and its predecessor agencies have rendered honorable and
    effective service for generations. As with all organizations, we have
    gone through changes. Effective organizations continuously re-examine
    the way they do business. Over the last several years, we have sought
    to improve internal controls, accountability, management training and
    operational processes and systems. These changes have provided the
    framework for making ATF a stronger more effective organization. With
    the strong support and encouragement of the Committee, we have begun to
    make significant strides in these areas.
        When I appeared before this subcommittee last year, I talked about
    implementing a series of operational changes. I feel we have made
    substantial progress in implementing these changes. As part of our
    continued work to build a sound and safer America through innovation
    and partnerships, we face several important issues throughout fiscal
    year 1998 and into fiscal year 1999:
        Headquarters Relocation.--ATF has been pursuing a suitable, secure
    site to relocate its headquarters, that will provide a safe environment
    for its employees and mission.
        Restoration of Base Budget (Direct Appropriation).--ATF's base
    budget had a disproportionate share of pay, fixed and operational
    resources. ATF has made strides to correct this problem in fiscal year
    1997 and 1998. We appreciate the Committee's support. With the
    Committee's continued support, ATF will meet its goal of continuing to
    correct this problem in fiscal year 1999.

    ------------------------------------------------------------------------
                                                     Percent--
                                      --------------------------------------
                                           1997         1998         1999
    ------------------------------------------------------------------------
    Pay..............................        69.58        64.74        60.46
    Fixed............................        16.17        16.62        15.91
    Operational......................        14.25        18.64        23.63
                                      --------------------------------------
          Total......................       100.00       100.00       100.00
    ------------------------------------------------------------------------

        Construction of ATF's National Laboratory Center With the Addition
    of the Fire Investigation, Research and Education (FIRE) Center.--ATF
    received approval for funding for site acquisition, design and
    construction. Implementation anticipates that the site and development
    planning, design, architecture, and a large percentage of the
    engineering will be completed in fiscal year 1998. In addition, the
    private development partner through GSA will begin site development
    activities.
        Implement GPRA.--During fiscal year 1997, the Bureau identified
    some outcome oriented performance measures for fiscal year 1998,
    integrated its strategic plan with the budgeting process, and refined
    its budget activity structure to accommodate its business strategies.
    In fiscal year 1998, the Bureau will continue to develop systems and
    collect data to report on these performance measures.
        Canine Explosives Detection Program.--The Bureau has initiated the
    infrastructure necessary to provide training for up to 100 canines for
    State, local and Federal agencies annually.
        Increase Number of Annual Explosives Inspections.--ATF's goal is to
    increase the annual inspection coverage to 65-70 percent of all
    explosive storage facilities and to this end will add 26 new
    inspectors.
        National Arson and Explosives Repository.--The Bureau expects to
    complete the second year requirements for systems development, hardware
    requirements, and field office on-line access to this information.
        Illegal Firearms Trafficking.--A strategy to expand Project LEAD
    from a personal computer/local area network to a nation wide network by
    linking the local area networks via a wide area networks is being
    deployed as part of the Enterprise System Architecture. This should be
    completed by mid fiscal year 1998.
        Continuation of G.R.E.A.T. Program.--The partnership originally
    established between ATF, the Phoenix Police Department and the Federal
    Law Enforcement Training Center has been expanded to include the
    Portland, Oregon Police Department, the Philadelphia, Pennsylvania
    Police Department, and the Orange County Florida Sheriff's office. The
    expanded partnership will allow for regional management of the program
    while continuing to utilize the expertise of each agency to provide
    gang resistance and anti-violence instruction to children in a
    classroom setting. ATF will provide funding to approximately 74
    different law enforcement agencies through cooperative agreements to
    support their participation in this community outreach program.
        Youth Crime Gun Interdiction Initiative.--ATF's goal is to ensure
    and support comprehensive tracing in 10 new police departments, to
    provide a mid year report on city based crime gun trace analysis for
    all 27 participating sites, and to continue to develop collaborative
    enforcement strategies and operations against illegal gun traffickers
    supplying juveniles, gang offenders, and criminals.
                       fiscal year 1999 resource request
        Before I move to more details of our program activities, I will
    highlight the following key budget changes for fiscal year 1999 which
    will move us closer to reaching our strategic goals, strengthening the
    management infrastructure, as well as providing the tools necessary to
    carry out our unique missions.
        In addition to $47,373,000 for maintaining current service levels,
    our salaries and expenses appropriation request includes the following:
    President's Youth Crime Gun Interdiction Initiative: $16,000,000
        The President's Youth Crime Gun Interdiction Initiative (YCGII), a
    component of ATF's illegal firearms trafficking program, includes ATF's
    firearms records, tracing, and reporting system, associated equipment
    and training, and additional agents to follow up on investigative
    information generated by this system. Specifically, ATF is requesting
    funds to break the chain of illegal supply of crime guns to youth and
    minors. The initiative proposes to expand the successful pilot program
    now in 17 cities to a total of 27 cities, including six agents for each
    of the 27 YCGII field cities (a total of 162 agents). Additionally, the
    funding is included to:
      --Provide comprehensive crime gun tracing by State and local law
            enforcement;
      --Provide rapid high volume crime gun tracing and crime gun market
            analysis by the National Tracing Center (NTC); and
      --Train ATF, State and local law enforcement personnel.
    Violent Crime Coordinators: $2,000,000
         This project consists of Violent Crime Coordinators (VCC's) to
    address effectively investigations of recidivist and violent career
    criminals. The VCC's will assist in ridding American society of those
    armed criminals that pose the greatest threat to its well being by
    successfully identifying the best route for prosecution of a case
    involving firearms violations. Additionally, in support of the
    effective enforcement of the Federal firearms laws, the VCC's will be
    able to work closely with representatives from the U.S. Attorney's
    Office to identify and assist in processing initiatives that are
    instituted by the Department of Justice, e.g., Triggerlock. Numerous
    representatives from various U.S. Attorney's offices around the country
    have met with ATF management requesting these positions and
    highlighting their importance.
    Headquarters Relocation: $32,000,000
        ATF's current primary headquarters locations do not meet the
    security guidelines as described in the Department of Justice's (DOJ)
    Vulnerability Assessment, dated June 28, 1995. The President directed
    that ``* * * each Federal Facility shall, where feasible, be upgraded
    to the minimum security standards recommended for security level by
    DOJ's study.'' The existing lessor is unable to implement the changes
    necessary to meet the enhanced security requirements. Therefore, ATF
    must be moved to a new location to ensure adequate security for ATF
    employees, pursuant to the President's Directive.
        Our fiscal year 1999 budget is the cornerstone for creating a
    sound, fully balanced Bureau. It balances our pay, fixed and
    operational costs, while at the same time ensures we have acquired the
    necessary tools to face the law enforcement challenges of the twenty
    first century.
                         reduce violent crime activity
        Firearms, explosives, and arson play a prominent role in violent
    crimes, ATF--with primary enforcement jurisdiction for Federal
    firearms, explosives, and arson laws--enforces provisions of the Gun
    Control Act of 1968, the National Firearms Act, the Brady Law, and the
    Violent Crime Control and Law Enforcement Act of 1994 to combat these
    types of crimes.
        Many Federal laws contain provisions for mandatory extended
    sentences, and ATF strives to increase State and local awareness of
    available Federal prosecution under these statutes. To accomplish all
    of this, ATF pursues an integrated enforcement strategy through four
    major programs supporting the Reduce Violent Crime activity: Deny
    Criminals Access to Firearms, Safeguard the Public from Arson and
    Explosives Incidents, Remove Violent Offenders from our Communities,
    and Prevent Violence Through Community Outreach. Each of these programs
    is supported by projects detailed in the following discussion.
                   deny criminals access to firearms program
        The Deny Criminals Access to Firearms program involves projects and
    services that identify, deter, and stop the sources of and
    participation in illegal firearms trafficking.
    Illegal Firearms Trafficking
        ATF reduces the availability of illegal firearms to criminals by
    identifying illegal sources of firearms and prosecuting illegal
    firearms traffickers. Overall goals include recommending for
    prosecution the most active illegal firearms traffickers, preventing
    future firearms crimes, and reducing crime-associated costs by
    incarcerating illegal firearms traffickers who supply firearms to
    criminals, gang offenders, and juveniles. In fiscal year 1997, ATF
    accomplished the following in support of the nationwide illegal
    firearms trafficking strategy:
      --traced over 190,000 crime guns to supply investigative leads about
            illegal traffickers;
      --developed an illegal firearms trafficking guidebook that is the
            definitive reference for ATF special agents, as well as State
            and local investigators, to use during the course of illegal
            firearms trafficking investigations;
      --held illegal firearms trafficking schools for a total of 245 ATF
            students and 22 State, local and other Federal law enforcement
            students;
      --conducted basic firearms interstate nexus schools and advanced
            firearms interstate nexus schools for a total of 53 ATF
            students;
      --provided onsite refresher training to field divisions for
            approximately 450 ATF students; and
      --conducted a joint Canadian/ATF firearms school for 35 ATF employees
            and 55 Canadian law enforcement officers.
    Youth Crime Gun Interdiction Initiative
        The Youth Crime Gun Interdiction Initiative is a focused component
    of ATF's nationwide Illegal Firearms Trafficking Program which
    identifies and investigates the illegal sources of guns to youths and
    juveniles. In response to increased crimes involving America's youth,
    ATF developed and deployed the Youth Crime Gun Interdiction Initiative
    in fiscal year 1996. In fiscal year 1997, the Youth Crime Gun
    Interdiction Initiative was deployed in 17 cities including Atlanta,
    Georgia; Baltimore, Maryland; Birmingham, Alabama; Boston,
    Massachusetts; Bridgeport, Connecticut; Cleveland, Ohio; Inglewood,
    California; Jersey City, New Jersey; Memphis, Tennessee; Milwaukee,
    Wisconsin; New York, New York; Richmond, Virginia; St. Louis, Missouri;
    Salinas, California; San Antonio, Texas; Seattle, Washington; and
    Washington, DC. Eighty-six criminal investigations were initiated in
    the 17 sites which resulted in the recommendation of 90 defendants for
    prosecution, 61 arrests, and 15 sentencings. Many of these
    investigations are ongoing. A major goal of the Youth Crime Gun
    Interdiction Initiative is to trace all recovered crime guns in order
    to identify illegal firearms sources. This goal was met in fiscal year
    1997 with approximately 37,000 recovered crime guns traced in the 17
    cities.
        In July 1997, due to the successful tracing efforts, 17
    comprehensive trace analysis reports were produced and released for use
    by law enforcement to develop community level enforcement strategies.
    Also in July 1997, the President of the United States announced the
    expansion of the Youth Crime Gun Interdiction Initiative to 10
    additional cities. Efforts in those cities will begin in fiscal year
    1998. A more detailed description of the focus and resource request is
    outlined on page 9 of this statement. On January 30, 1998, the
    President confirmed his support for ATF's trafficking program
    announcing to the US Conference of Mayors that he was requesting $28
    million to crack down on illegal firearms trafficking, to trace more
    crime guns, and hire up to 162 law enforcement personnel to arrest
    those who illegally supply guns to gangs and juveniles.
    National Tracing Center
        The ATF National Tracing Center is the only operation of its kind
    in the world. This facility traces firearms associated recovered by Law
    enforcement in any Federal, State, local or foreign law enforcement
    agency. A firearms trace result is frequently the crucial piece of
    evidence that can link a criminal to a firearms-related crime and allow
    law enforcement officials to make an arrest. Firearms trace information
    also provides investigators with leads on illegal sources of the crime-
    related firearms in their investigations. The Tracing Center is also
    the only repository for all Federal firearms licensee out-of-business
    records, where millions of records are currently stored. Specific goals
    for fiscal year 1997 were to increase the number of trace requests
    responded to through efficiency improvements involving increased
    electronic access to the tracing center. All specific National Tracing
    Center goals for fiscal year 1997 were accomplished, to include the
    following:
      --increased electronic access to the National Tracing Center for
            State, local, and other Federal law enforcement agencies by
            establishing electronic batch downloading in six cities and
            ensuring 18 States placed a crime gun trace request screen on
            the National Law Enforcement Telecommunications System;
      --increased by 60 percent the number of crime gun trace requests
            received at the National Tracing Center as a result of
            increased electronic access;
      --developed and deployed a new crime gun trace request form, Crime
            Gun Information Referral/Request Form (ATF F 3312.1), which
            serves as a trace request, suspect gun entry, stolen firearms
            information referral, and firearms with obliterated serial
            number information referral; and
      --deployed a new crime gun trace results form which provides the
            trace requester with enhanced value by supplying an
            intelligence information in addition to trace results.
    Stolen Firearms
        The Stolen Firearms initiative seeks to reduce thefts of firearms
    from Federal firearms licensees and interstate carriers transporting
    firearms. This initiative is an aggressive enforcement effort
    determined to reduce the number of stolen firearms from interstate
    carriers and Federal firearms licensees, which by their very nature are
    destined to become crime guns.
        safeguard the public from arson and explosives incidents program
        As an integral part of the Bureau's overall violent crime reduction
    strategy, ATF's arson and explosives projects are directed toward
    preventing the criminal misuse of explosives and the crime of arson, as
    well as providing effective post-incident response. ATF evaluates its
    success, in part, by the amount of savings to the public resulting from
    proactive investigations. This is particularly true with arson-for-
    profit schemes where ATF's efforts have produced tremendous financial
    savings for the insurance industry, and ultimately the American public,
    by exposing millions of dollars in fraudulent claims annually.
    Prevent Criminal Misuse of Explosives
        Through this program, ATF provides resources to identify and pursue
    those who criminally misuse explosive materials in bombings and arson
    fires.
        ATF maintains the Explosives Incidents System, which is a
    computerized repository for historical and technical data on reported
    arson and explosives incidents that is helpful in determining motives,
    trends, and similarities. Statistical data is available in ATF's annual
    Arson and Explosives Incidents Report and Arson Case Briefs
    publications. In addition, ATF is the only agency through which other
    Federal, State, and local law enforcement agencies can initiate traces
    of explosives in order to determine their source. This capability is
    also applicable to foreign commercial and military explosives,
    ordnance, and munitions.
        In ATF resides the only Federal cadre of explosives technology
    specialists with unique capabilities in the explosives, bomb disposal
    and arson fields. They construct facsimiles of explosive and incendiary
    devices; prepare destructive device determinations for court purposes;
    conduct render safe procedures on destructive devices, improvised
    incendiary and explosives devices and booby traps; provide expert
    analyses of intact and functioning explosive/incendiary devices;
    provide onsite technical investigative assistance during tactical
    operations, and bombing and arson scene examinations; issue
    classifications for new explosives and incendiary devices and
    materials; and keep abreast of the latest technology related to
    explosives.
        In addition, ATF Inspectors, Special Agents and Explosives
    Enforcement officers provide technical advice on Federal explosives
    storage regulations; provide training and instruction in all aspects of
    explosives handling, storage, and destruction for Federal, State,
    local, and foreign law enforcement officers, and members of the
    explosives and pyrotechnics industries; participate as explosives
    origin and cause experts in all National Response Team and
    International Response Team activations; conduct explosives threat
    assessments; and assist the Department of State and the Diplomatic
    Security Service in conducting antiterrorism capability assessments
    outside the continental United States.
        In fiscal year 1997, ATF experts provided onsite technical
    investigative assistance on 300 incidents; conducted explosive device
    or booby trap render safe procedures in connection with 25
    investigations; prepared 232 written expert witness explosive device
    determinations; participated in Department of State antiterrorism
    capability assessments in 14 foreign countries; and provided
    instruction on explosives investigative and regulatory matters to other
    Federal, State, local, and foreign law enforcement officers, and
    members of the explosives and pyrotechnic industries.
    Church Fires
        ATF established a church fire major case team during 1996 in
    response to a dramatic increase in church arsons nationwide. The team
    maintained a central repository for collecting, analyzing, and
    disseminating information while coordinating and monitoring all aspects
    of each investigation. This team became the foundation for the
    President's National Church Arson Task Force. In June 1997, the task
    force consisting of ATF, Federal Bureau of Investigation, Federal
    Emergency Management Agency, Community Relations Service, Department of
    Housing and Urban Development, and Department of Justice, completed its
    first year of operation and prepared its first year's report for the
    President outlining the year's accomplishments.
        ATF and its major case team were instrumental in the success of the
    task force and the accomplishments achieved during the first year. ATF
    was asked to determine the origin and cause of each church fire
    incident investigated by the task force because of its expertise in
    arson and explosives investigations. The major case team was asked to
    provide investigative oversight to ensure each investigation received
    the necessary resources and priorities. The task force has coordinated
    the efforts of Federal, State and local law enforcement agencies
    investigating church fires. By the conclusion of the first year, the
    task force had opened 429 arson and bombing investigations that
    occurred at houses of worship. Federal, State and local authorities
    have arrested 199 suspects since January 1995, in connection with 150
    of the 429 investigations. The task force has a 35 percent solution
    rate, a rate that is more than double the 16 percent solution rate for
    arson in general.
        ATF continues to promote church arson awareness and arson
    prevention by making outreach presentations to community leaders,
    churches, and organizations throughout the country. In addition to the
    outreach activities, the task force distributes the Church Threat
    Assessment Guide which contains valuable information on the steps that
    can be taken to prevent fires at houses of worship; the steps to follow
    after an incident has occurred; and the toll-free numbers to call with
    information 1-888-ATF-FIRE and 1-888-ATF-BOMB. Originally developed and
    distributed by ATF, the Task Force has adopted the guide and now
    distributes it nationwide. The guide continues to be accessible to the
    public on the ATF web site (http://www.atf.treas.gov). ATF and the task
    force continue to investigate and recommend prosecution of those
    responsible for burning our Nation's houses of worship.
    Canines
        In 1989, ATF and the Connecticut State Police began a formal
    training program for accelerant-detecting canines to support State and
    local jurisdictions (accelerant-detecting canines search for liquid
    catalysts that can be used to speed up the spread of fire). Through
    fiscal year 1997, a total of 56 accelerant-detecting canines have been
    trained and certified by ATF for State and local agencies. In fiscal
    year 1997, ATF recertified 44 canine teams. In March 1998, six
    additional accelerant detection canine teams will be trained by ATF at
    the Canine Enforcement Training Center in Front Royal, Virginia.
        In 1990, ATF entered into an agreement with the U.S. Department of
    State, Office of Antiterrorism Assistance to train explosive detection
    canines for foreign countries. ATF has trained 150 canine teams for the
    program, which are deployed in eight countries worldwide. In fiscal
    year 1997, ATF trained 35 canine teams and eight canine trainers for
    the Department of State, Office of Antiterrorism Assistance. ATF
    continues to perform assessments of additional foreign countries for
    placement in this program. ATF has eight special agent/canine teams
    stationed in Atlanta, Chicago, Dallas, Miami, Los Angeles, San
    Francisco, and two teams stationed in Washington, DC.
        ATF has developed a national odor recognition proficiency standard
    for explosives detection canines, published by the Department of the
    Treasury. ATF will continue to work in conjunction with other Federal
    agencies employing explosives detection canines to validate and test
    this standard over the next year. The report of the White House
    Commission on Aviation Safety and Security, dated September 12, 1997,
    recommended that ATF continue to work on developing Government-wide
    standards for canine teams.
        Further, the House Committee on Appropriations requested that ATF
    and the Federal Aviation Administration conduct a joint explosives
    detection canine pilot program at Washington National Airport and/or
    Dulles International Airport. ATF, the Federal Aviation Administration
    and the Metropolitan Washington Airport Authority (MWAA), have signed a
    cooperative agreement that will allow this canine pilot program to be
    conducted at Washington National and Dulles International Airports. The
    goal of the agreement is to allow for the successful execution of a
    joint agency evaluation of explosives detection canines trained in
    different ways for use in the airport environment. The pilot program
    will last from 1 to 2 years and will involve the use of four handler/
    canine teams.
        ATF has trained one special agent handler/canine team and one MWAA
    handler/canine team to participate in this pilot.
    Research Initiatives
        In fiscal year 1997, in conjunction with the U.S. Army Corps of
    Engineers, the National Security Council, and the Defense Nuclear
    Agency, ATF continued to participate in and direct a project known as
    Dipole Might. Its objective is to create a computer data base and
    investigate protocol to assist investigators when processing large car
    bomb scenes. Several tests were performed in fiscal year 1997.
        Currently, ATF has two full-time fire protection engineers, making
    it the only Federal enforcement agency that employs this level of
    expertise in conjunction with the CFI program. ATF's fire protection
    engineers are dedicated solely to the analyses of origins and dynamics
    of fire as it pertains to criminal investigations.
        In fiscal year 1996, President Clinton signed the Anti-terrorism
    and Effective Death Penalty Act which authorized the Department of
    Treasury, who has delegated responsibility to ATF, to conduct a study
    of explosive detection devices. ATF continues to use an Explosive Study
    Group to study the tagging of explosive materials for purposes of
    detection and identification; the feasibility and practicability of
    rendering common chemicals used to manufacture explosive materials
    inert; the feasibility and practicability of imposing controls on
    certain precursor chemicals used to manufacture explosives materials;
    and State licensing requirements for the purchase and use of commercial
    high explosives. An interim report has been prepared and is currently
    under review.
        In fiscal year 1996, Congress approved funding for the construction
    of a new National Laboratory Center and Fire Investigation, Research
    and Education Center. ATF is currently involved in site negotiations
    and programming for the facility. This stage should be completed by
    April 1998. The building design is expected to be completed between
    April 1998 and April 1999. Both buildings will be fully operational by
    2001.
    Effective Post-Incident Response
        ATF has proven through years of practical application that a
    coordinated and rapid deployment of highly trained and well-equipped
    individuals and related support functions is critical to the
    investigation of any arson or explosives incident. This ATF developed
    ``team approach'' is the basis for our National Response Team (NRT),
    Our International Response Team (IRT), division response teams, and
    arson task forces and is so highly successful that the FBI and other
    State and local authorities are modeling their teams efforts after
    ATF's concept. ATF's NRT can respond within 24 hours to major bombing
    and fire scenes anywhere in the United States. In fiscal year 1997, the
    team provided effective post-incident response in 36 activations a 60
    percent increase from fiscal year 1996. These incidents resulted in
    $243.2 million in damages, 54 deaths, and 107 injuries. The NRT also
    provided continued assistance in the investigation of the Olympic
    Centennial Park bombing, the TWA Flight 800 crash, and most recently,
    the Birmingham, Alabama abortion clinic bombing.
        In fiscal year 1997, ATF issued a customer satisfaction survey to
    users of the NRT that year. To date, ATF has received 19 of the 28
    surveys, all of which have been positive. When all surveys are
    received, ATF will tabulate the data and use it as a tool to determine
    the effectiveness of the NRT.
        ATF also maintains the IRT formed as a result of an agreement with
    the Department of State has been deployed to such countries as Peru,
    Argentina, Pakistan, El Salvador, and Macedonia. Since its inception in
    1991, the IRT has been activated 13 times for incidents involving
    explosives and fires. In fiscal year 1997, the IRT was activated to
    Suriname to assist in the investigation of an explosion in Paramaribo,
    believed to be the result of a package bomb.
        ATF provides vital resources to local communities in the wake of
    arson and explosives incidents. ATF pioneered the development of local
    multi-agency task forces designed to pool resources and expertise in
    areas experiencing significant arson problems. In fiscal year 1997, ATF
    led formal arson task forces in 15 major metropolitan areas throughout
    the United States, and participated in several others. In fiscal year
    1997, ATF responded to 763 arson incidents that were responsible for 78
    deaths and 166 injuries.
        Most recently, ATF is participating in a D.C. Task Force with the
    DC Fire Investigation Unit. Fire Investigations Unit personnel will
    have arrest authority after they are trained by the police academy. ATF
    will be providing investigative support until all personnel are fully
    trained.
        A certified fire investigator and a certified explosives specialist
    are critical to the success of a comprehensive post-incident response.
    ATF's certified fire investigators are the only investigators trained
    by a Federal law enforcement agency to qualify as expert witnesses in
    fire cause determinations. In fiscal year 1997, 48 of these
    investigators were stationed throughout the United States. Twenty-nine
    certified fire investigator candidates are scheduled to complete
    training in January 1998 and thirteen are scheduled to complete
    training in April 1999. This will provide strategic placement of these
    investigators throughout the country to investigate Federal arson
    crimes and assist Federal, State and local agencies with fire origin
    and cause determinations and training.
        Because many arson crimes involve insurance fraud, these
    investigations often require complex financial analysis. ATF also
    brings comprehensive forensic science services, financial auditing
    services, information systems and equipment, and high-speed data
    communications to these investigations. This includes Internet access
    to facilitate the research and exchange of national and international
    technical data and intelligence.
        In fiscal year 1997, there were four certified explosives
    specialist (CES) training classes through which 96 CES's were fully
    certified. As of fiscal year 1997, ATF employed a total of 270 CES's.
             remove violent offenders from our communities program
    Imprison Violent Offenders
        The Imprison Violent Offenders program involves projects and
    services to investigate, arrest and recommend for prosecution, the most
    violent criminals who use firearms and explosives in furtherance of
    their criminal activity. The Violent Crime Coordinators (VCC) project
    is one such program. A more detailed description of the focus and
    resource request for VCC's is outlined on page 9 of this statement.
    Achilles
        The Achilles program uses specific Federal firearms laws that
    mandate extended mandatory periods of incarceration to remove the most
    dangerous armed career criminals and armed drug traffickers from the
    streets. ATF's Achilles project is the primary foundation and source of
    the Department of Justice's & U.S. Attorney's ``TRIGGERLOCK''
    prosecution. Firearms use and possession by these violent criminals
    becomes their ``Achilles heel'' as they are exposed to lengthy prison
    sentences under these Federal laws. The firearms they possess yield
    valuable information regarding their previous criminal acts and
    criminal associates. Further, the illegal firearms sources for these
    violent criminals are investigated under ATF's Illegal Firearms
    Trafficking project.
        A major goal is to incarcerate armed violent criminals for long
    periods of time to prevent future crimes of violence and the costs of
    those crimes to the American public. An indication of ATF's success in
    focusing limited resources against only the most violent armed
    criminals can be seen in the increases in the average length of
    sentence. The average length of sentence received by defendants under
    924(e), the armed career criminal statute, went from 18 years in fiscal
    years 1992 through 1995, to 19 years in fiscal years 1996 and 1997. The
    average length of sentence received by defendants under 924(c), the
    armed crime of violence statute went from 6 years in fiscal years 1992
    through 1995, to 7 years in fiscal year 1996, and to 11 years in fiscal
    year 1997. The sentence received by a defendant is due, in part, to the
    defendant's criminal history or level of violence during the actual
    offense. Sentences have substantially increased because ATF special
    agents have more effectively focused on the most dangerous and violent
    armed criminals. ATF is putting the most violent criminals in prison
    for longer periods of time.
    Violent Offender
        In fiscal year 1992, ATF initiated the Violent Offender Program.
    This program is an aggressive, proactive approach to identify,
    investigate, and recommend prosecution of the most violent career
    criminals nationwide. The program was designed to work as an early
    safety warning and notification system for law enforcement officers in
    the field. Information concerning violent career criminals, who meet
    certain criteria and are currently free in society is entered, into the
    National Crime Information Center (NCIC) system. If any law enforcement
    official encounters one of these individuals, and queries the NCIC, the
    officer will receive a safety advisory that the person is a career
    offender. If the offender is in possession of a firearm, the officer is
    advised to contact ATF.
        There are currently 1,000 individuals identified as most violent
    offenders in the NCIC violent offender file. In fiscal year 1996, each
    violent offender encountered with a firearm had an average of 5.7 prior
    felony convictions and 30.4 years in prior prison sentences. In
    addition, 8 of the 17 subjects had previously received life sentences,
    but were released or paroled early. In fiscal year 1997, each violent
    offender encountered with a firearm had an average of 4.88 prior felony
    convictions and 33.29 years in prior prison sentences. In addition, 1
    of the 18 subjects had previously received a life sentence, but was
    released or paroled early. When convicted, these criminals receive
    mandatory sentencing of 15 years to life in prison, without the
    possibility of probation or parole.
        In fiscal year 1997, based on the above statistics, ATF began to
    evaluate the violent offender program to determine if modifications
    were needed or to identify a more efficient method of accomplishing the
    same desired outcome. To assist in this evaluation process, the Office
    of Inspector General has completed an independent audit and review at
    the request of ATF. ATF looks forward to the forthcoming findings and
    recommendations contained in the final report.
    CEASEFIRE
        The CEASEFIRE project is centered around the use of state-of-the-
    art ballistics technology. This technology, the Integrated Ballistic
    Identification System (IBIS), consists of ``Bulletproof'' which
    examines projectiles, and ``Brasscatcher,'' which examines shell
    casings. The overall CEASEFIRE project goals are to increase the
    efficiency of firearms examiners, reduce costs associated with the
    hiring of additional firearms examiners, and to identify those
    criminals who repeatedly use the same firearm in multiple crimes.
    Program goals for fiscal year 1997 were to deploy the IBIS technology
    to eight new sites and increase the use of the technology. Both goals
    were accomplished.
        In an effort to unify Federal resources to deploy ballistics
    technology, there is an existing proposal to combine IBIS and the
    Federal Bureau of Investigation's Drugfire System into a federally
    sponsored program called the National Integrated Ballistics Information
    Network (NIBIN). The two systems will not be combined into one platform
    but will make data from the two systems inter-changeable. As proposed,
    the National Integrated Ballistics Network will create a partnership
    between ATF, the Federal Bureau of Investigation, and State and local
    law enforcement that makes the most efficient use of all available
    resources in reducing firearms-related violent crime. This combined
    network will be directed by a three-member board, which is currently
    being formed.
              prevent violence through community outreach program
    Community Outreach
        This program focuses on community efforts designed to encourage and
    participate in the prevention of violence.
    G.R.E.A.T.
        The Gang Resistance Education and Training (G.R.E.A.T.) is a
    school-based gang and violence prevention program taught by uniformed
    law enforcement officers to elementary and middle school children. ATF
    administers the program in partnership with the Phoenix Police
    Department, National Sheriffs' Association, International Association
    of Chiefs of Police, and Federal Law Enforcement Training Center.
        ATF has provided funding to 74 different agencies to support their
    participation in the G.R.E.A.T. program. Over 800 different localities
    are currently receiving the G.R.E.A.T. curriculum in classrooms around
    the country.
        This program has been highly successful in educating young children
    about the dangers of gangs and violence. A cross-sectional evaluation
    conducted by the University of Nebraska in Omaha was completed in 1996
    and concluded that the G.R.E.A.T. program has had a significant,
    positive impact on the participants.
                              collect the revenue
        The goal of the Collect Revenue activity is to maintain efficient
    and effective revenue management and regulatory system that continues
    to reduce taxpayer burden and Government oversight, and collects the
    revenue due under Federal laws administered by ATF. Under this
    activity, there are three major programs: Collect Revenue Rightfully
    Due, National Revenue Center, and Use Electronic Commerce.
                   collect all revenue rightfully due program
        Using processes and systems designed to effect maximum revenue
    collections while imposing minimum taxpayer burden, ATF collected $12.7
    billion, before refunds and credits, in taxes, interest, penalties, and
    fees in fiscal year 1997. Ninety-eight percent of collections are
    derived from alcohol and tobacco excise taxes. On-site inspections of
    those who pay alcohol, tobacco, firearms, and ammunition taxes are
    focused on facilities offering the greatest risk to the revenue based
    on the volume of operations, history of violations, relative strength
    of internal controls, and financial condition. Enhanced computers (ESA)
    and access to National Revenue Center (NRC) record systems will give
    on-line access to all permittee and license records to field inspectors
    conducting tax or other compliance inspections. These same systems will
    allow NRC employees to analyze industry reports and make more accurate
    projections and trend analyses to identify taxpayers for future
    inspections.
        ATF employees continuously monitor tax collections by auditing tax
    returns and assessments; initiating enforced collection action;
    analyzing required reports; and accounting for tax payments, licensing
    fees, and related refunds and credits. ATF also reviews and approves or
    disapproves applications and surety bonds submitted by companies that
    produce or sell alcohol or tobacco products.
        When criminal conduct is suspected--as with diversion or label
    fraud cases--teams of ATF special agents, auditors, and inspectors
    conduct complex investigations of violations of the Federal Alcohol
    Administration Act and the Internal Revenue Code. ATF also investigates
    domestic trafficking in contraband tobacco products. This trafficking
    deprives states of needed tax revenue and violates Federal law. Also,
    certain direct shipments of alcohol beverages to consumers without
    payment of taxes are in violation of both State and Federal laws.
        ATF instructed foreign tax police on the U.S. alcohol and tobacco
    licensing and taxation system. In fiscal year 1997, 203 students from
    Russia, Ukraine, Belarus, and the Baltic States received this training
    in order to assist them in combating the spread of organized crime.
                            national revenue center
        ATF's revenue management program includes a variety of functions
    based on the processing, auditing, and recording of tax returns and
    monthly operating reports, as well as the accounting for all deposits
    and payments for taxes, licenses, permits, and fees from the alcohol,
    tobacco, firearms, ammunition, and explosives industries.
        Effective management of taxpayer accounts and proper receipt of tax
    returns and payments ensure accurate collections and reporting of all
    receivables. ATF's collection systems include work by the technical
    services staffs located in the districts and the Tax Processing Center
    in Cincinnati. The principal activities of these entities are office
    audits of tax returns and reports, audits of claims, collection
    actions, review and approval of applications for permits, registration
    of plants and surety bonds, and processing and custody of official case
    files.
        During fiscal year 1997, ATF continued efforts to reduce the number
    of technical services offices, ultimately leading to a single NRC which
    will process all tax and permit matters nationwide from Cincinnati. The
    Atlanta office will be closed by the end of fiscal year 1997 and much
    of the work from the remaining Philadelphia and San Francisco offices
    has already been transferred to Cincinnati. All functions of the Tax
    Processing Center will be absorbed into the NRC by the end of fiscal
    year 1998.
        In fiscal year 1997, in the process of centralizing and
    streamlining the NRC, ATF implemented various technological
    improvements. Document imaging operations commenced, which will reduce
    the volume of paper files stored and improve accessibility of
    information. ATF also began fully automating the processing and
    analysis of industry operational reports. ATF is working with industry
    members to provide more timely industry statistics and to provide
    increased use of electronic commerce for filing and compiling monthly
    reports at the NRC. A full time customer service representative
    position was also created to provide a channel for resolving problems
    and getting customer input and buy-in on the new changes taking place.
    Diversion and Smuggling
        ATF is engaged in an ongoing endeavor to reduce the rising trend of
    illegal diversion activities involving cigarettes and distilled
    spirits.
        Criminal violations committed in these diversion schemes include
    violations of the Internal Revenue Code record keeping requirements,
    Federal Alcohol Administration Act permit requirements, Trafficking in
    Contraband Cigarettes Act, wire and/or mail fraud, money laundering,
    and conspiracy. ATF's goal is to achieve compliance with U.S. laws that
    will greatly reduce the illegal diversion of alcohol and tobacco
    products.
        Diversion activities may defraud the United States of tax revenues,
    such as when non-tax-paid cigarettes and distilled spirits are
    fraudulently claimed for export markets (for which there is no tax
    liability) when in fact they may be illegally diverted back into the
    U.S. domestic market for sale where taxes should apply.
        ATF pursues tax assessments against any domestic producer where the
    documentation offered to ATF to support the tax-free exportation of
    these products often is either counterfeit or absent. ATF considers
    administrative action or criminal prosecution against retailers,
    wholesalers, and manufacturers who knowingly supply smuggling
    organizations.
        ATF participates in joint investigations with the Internal Revenue
    Service, U.S. Customs Service, Revenue Canada, and State and local law
    enforcement. These investigations focus on significant tobacco and
    distilled spirits-related criminal diversion activities in the United
    States and Canada. ATF is developing a Northeast border strategy to
    stop the large-scale diversion of alcohol, tobacco, and firearms to
    Canada.
        The seizure of alcohol beverages and tobacco products by ATF agents
    and inspectors in 1997 has resulted in over $1.1 million being credited
    to the Treasury Forfeiture Fund. Through our efforts, several members
    of organized crime groups have been successfully prosecuted. Also, in
    fiscal year 1997, ATF accepted $405 thousand from distilleries and
    wholesalers to settle cases involving in illegal activity. There are
    currently 114 open diversion cases.
        Illegal commerce also occurs when alcohol and tobacco are
    trafficked from States with a low excise tax to States with a high
    excise tax. As a result of this activity, ATF has experienced an
    unprecedented increase in alcohol and tobacco investigations. During
    fiscal year 1997, ATF recommended 70 defendants for prosecution. The
    possible Tobacco lawsuit settlement currently pending implementation,
    could include a significant tax increase on tobacco products. Such a
    tax increase could further exacerbate the tobacco diversion problems by
    increasing the profit to be made from excise tax evasion schemes.
        In an effort to combat the widespread problem of alcohol and
    tobacco products diverted from legal destinations to illegal
    destinations, ATF created the Diversion Branch. Its responsibilities
    are to coordinate the national Alcohol and Tobacco Diversion and
    Trafficking Enforcement programs; set policies; monitor investigations;
    track intelligence; provide assistance to field personnel; assist in
    determining targets; seek assistance from Chief Counsel; maintain
    liaisons with foreign governments; coordinate with FINCEN to track and
    identify financial transactions generated by illegal activity; and to
    work closely with other law enforcement agencies.
    Alcohol Trade Issues
        The solidification of the European Union, the emergence of new
    Pacific Rim economies, and the movement of former Soviet States to
    market economies have had a major influence on the world economy. While
    this global economy provides new opportunities for U.S. producers of
    alcohol beverages, the changing political economic landscape also
    produces discriminatory trade barriers that limit market access to U.S.
    manufacturers.
        ATF assists U.S. businesses in overcoming trade barriers through
    direct intervention with foreign governments by supporting the United
    States Trade Representative in negotiations concerning the North
    American Free Trade Agreement, and with the European Union and
    deliberations with the World Trade Organization. ATF also monitors and
    analyzes changes in foreign trade and political policies to anticipate
    and overcome potential barriers to U.S. interests. ATF represents the
    U.S. wine and brandy interests through membership and participation in
    the International Organization of Vine and Wine.
        ATF assists the governments of these developing world market
    economies to establish effective revenue collection models through
    training courses offered in cooperation with the Department of State.
                        use electronic commerce program
        In fiscal year 1997, many ATF applications and other forms were
    made available to the public on the Internet, as well as information,
    facts and statistics about ATF and the Regulated industry operations.
    Imaging operations were launched at the National Revenue Center to
    reduce storage and manual processing by ATF and to make statistical
    information more accessible to the public on-line.
        In fiscal year 1998, we anticipate commencing the imaging of label
    approval files. ATF will also explore the feasibility of Optical
    Character Recognition forms for returns. Streamlined processing of
    industry reports and returns paves the way for more electronic
    submissions by ATF's customers.
                               protect the public
        ATF's Protect the Public activity includes goals to complement
    enforcement with training and prevention strategies through law
    enforcement and industry partnerships, and reduce public safety risk
    and consumer deception on regulated commodities. This is accomplished
    through three major programs: Assure the Integrity of the Products,
    People, and Companies in the Marketplace; Ensure Compliance With Laws
    and Regulations Through Education, Inspection, and Investigation; and
    Inform the Public.
      assure the integrity of the products, people, and companies in the
                                  marketplace
        This program ensures that commodities meet safety and product
    identity standards, and also focuses on keeping ineligible or
    prohibited persons out of the regulated industries.
    Assuring Alcohol Product Integrity
        ATF conducts a full range of regulatory functions in the alcohol
    beverage industry. The Federal Alcohol Administration Act, passed
    shortly after the repeal of Prohibition, coupled with certain Internal
    Revenue Code provisions, authorizes ATF to fully regulate the industry
    and to provide protection to consumers of alcohol beverages.
        Each year, through the market basket sampling program, ATF collects
    thousands of alcohol products from the marketplace for several analyses
    by ATF laboratories. If any problems or unsafe conditions are found,
    they are investigated by ATF inspectors. ATF's laboratories work
    closely with counterparts at the U.S. Food and Drug Administration and
    with regulatory agencies in many foreign countries. The laboratories
    exchange information on existing and new analytical methods and on
    product contamination or adulteration issues discovered by governmental
    laboratories, both domestic and foreign. This level of cooperation
    enhances ATF's proactive stance to ensure that contaminated or
    adulterated products do not reach the U.S. marketplace. In 1997, ATF
    issued an advisory to consumers sensitive to alcohol that certain
    ginseng products contain alcohol.
    Certificates of Label Approval
        ATF is charged with protecting the consumer by preventing false or
    misleading claims on beverage labels and in advertising. The Bureau
    enforces the Government Health Warning Statement requirements,
    prohibits unbalanced and unsubstantiated health claims or misleading
    and deceptive claims, monitors industry advertising, and conducts
    investigations of suspected label fraud. ATF is working with industry
    to develop guidelines under which beverage alcohol products labels will
    contain consumer advisories to consult with an appropriate authority
    concerning the health effects of alcohol consumption. With limited
    exceptions, ATF issues Certificates of Label Approval for every alcohol
    beverage offered for sale in the United States. There are currently
    more than 1.5 million approved labels on file.
        The Bureau remains strongly committed to customer service standards
    for label approval processing. At the end of fiscal year 1996, ATF
    mailed approximately 1,400 customer satisfaction surveys to industry
    members. In fiscal year 1997, the survey results were tabulated and the
    feedback provided will be used to streamline the efficiency of the
    label approval process. ATF and industry are working together to
    streamline the process by which flavoring ingredients used in beverage
    alcohol products are reported.
    Deny Prohibited or Ineligible Persons Entry into Regulated Industries
        Alcohol producers and wholesalers and other users of bulk alcohol
    are required to obtain a Federal permit. ATF reviews applications,
    bonds and other documents, checks on the applicants' background, and
    conducts field investigations to determine eligibility.
        The Gun Control Act of 1968 mandates that every manufacturer,
    importer, or dealer firearms obtain a Federal firearms license. ATF
    conducts inspections of applicants for Federal firearms licenses.
    During these inspections, ATF inspectors explain the Federal firearms
    laws and regulations, and determine if the applicants are bona fide
    candidates for a license. Where inspection reveals conflicts with State
    laws and local ordinances, inspectors make referrals to the appropriate
    regulatory agency; such as a zoning, occupancy, fire code, or law
    enforcement agency.
        ATF recognizes the value of averting accidents and keeping
    explosives from the hands of those who are prohibited from possessing
    them. ATF enforcement provides a system of industry regulation,
    emphasizing a proactive approach to the problem. Similar to the
    firearms industry, all manufacturers, importers, and dealers are
    required to obtain a Federal license from ATF to conduct business and
    certain users of explosives are required to obtain a Federal permit.
       ensuring compliance with laws and regulations through education,
                         inspection, and investigation
        Once a person or entity is licensed or obtains a permit to conduct
    a regulated business, ATF monitors and enforces compliance. Inspections
    of firearms licensees focus on assuring that firearms are properly
    accounted for. In the explosives industry, the emphasis is on safe and
    secure storage of explosives as well as accountability. Alcohol and
    tobacco inspections check on compliance with product and trade practice
    provisions. Education initiatives such as industry seminars are
    utilized in all industries.
    Federal Firearms Licenses and Inspections
        Once a licensee is engaged in business, inspectors ensure the
    licensee's compliance with Federal laws and specific record keeping
    regulations. ATF enforces the licensing provisions of the Gun Control
    Act of 1968 by conducting on-premises inspections.
        ATF implemented procedures for routinely providing the Chief Law
    Enforcement Officer in each jurisdiction information on the status of
    Federal Firearms Licensees in that area. Working in partnership with
    State and local law enforcement officials, ATF can effectively address
    licensing and illegal firearms trafficking problems.
    Explosives Licenses/Permits and Inspections
        ATF maintains a regular program of on-site inspections to ensure
    that explosives are stored in approved facilities, which are secure
    from theft and located at prescribed distances from inhabited
    buildings, railways, and roads. These inspections ensure that the
    licensees and permits keep accurate records of the receipt and
    disposition of explosive material which are verified through actual
    inventories of explosives in storage. Unusual discrepancies in records
    are referred immediately to the appropriate office for further
    investigation. Inspectors also conduct ``forward trace'' inquiries on
    persons who purchase explosives without benefit of a license or permit
    for ``same day use with no overnight storage.''
        ATF initiated a program that requires each regulatory enforcement
    area office to notify the local fire department of licensees/permits
    storing explosive materials and the location of the storage. This was
    done to aid in minimizing accidental injury to fire officials fighting
    fires in buildings or structures that may house explosive materials.
    Alcohol Industry Inspections
        ATF inspects alcohol plants to assure that products are
    manufactured in keeping with approved formulas and processes, which
    assure that the actual product fulfills labeling and advertising
    claims. ATF investigates anti-competitive business practices between
    alcohol beverage suppliers and retailers to preserve the retailers'
    economic independence. Attention has focussed recently on the
    allegations of illegal wholesale payments to retailers to place their
    products on retailer shelves. The Bureau also investigates consumer
    complaints or tainted of adulterated alcohol beverages.
    Industry Seminars
        ATF conducts seminars for firearms and explosives permits and
    licensees, providing current information on the laws and regulations
    pertaining to these commodities. Through these seminars, ATF has
    fostered partnerships with firearms and explosive industry members to
    prevent tragedies stemming from the illegal use of firearms and
    explosives. Seminar attendees include industry officials, licensees,
    permits, and State and local law enforcement officials.
        ATF also conducts seminars for alcohol and tobacco permits. These
    seminars focus on current market trends, compliance concerns, changes
    in laws, regulations or Bureau policies, and industry-raised issues. In
    partnership with the States, the seminars are conducted jointly with
    the State alcohol beverage control agencies to provide the total
    compliance enforcement picture to those in attendance. In fiscal year
    1997, ATF conducted seven seminars reaching approximately 500
    attendees. These seminars will continue throughout 1998 and the future.
    National Firearms Act
        The National Firearms Act requires that certain firearms be
    registered in what is known as the National Firearms Registration and
    Transfer Record. The firearms required to be registered are machine
    guns, silencers, short-barreled rifles, destructive devices, and
    certain concealable weapons classified as ``any other weapons.'' ATF
    processes all applications to make, export, transfer, transport, and
    register National Firearms Act firearms, as well as notices of the
    National Firearms Act firearms manufactured or imported.
        ATF's firearms technology experts provide expert technical support
    to ATF in all matters relating to the technical aspects of firearms and
    their classification under Federal laws. Most workload is devoted to
    supporting law enforcement investigations and programs. The remaining
    operations focus on technical support to regulatory operations, Chief
    Counsel, Office of Liaison and Public Information, other Federal
    agencies, State and local law enforcement, the firearms industry, and
    the general public.
    Firearms and Ammunition Importation
        ATF regulates the importation of firearms, ammunition, and other
    defense-related articles through the issuance of import permits.
        ATF maintains close liaison with the Department of State to ensure
    that the permits it issues do not conflict with the foreign policy and
    national security interests of the United States. At the direction of
    the Department of State, ATF lifted the arms trade restrictions imposed
    against the Russian Federation. Additionally, the Department of State
    subsequently directed ATF to lift the arms trade restrictions imposed
    against the Ukraine, Georgia, Kazakstan, Kyrgyztan, Moldova,
    Turkmenistan, and Uzbekistan.
        ATF is currently studying modified semiautomatic assault weapons to
    determine whether they are importable under the statutory sporting
    purpose test defined by the 1994 assault weapons law and the standards
    developed in 1989 by the ATF Working Group. Both the 1989 standards and
    the 1994 law identify semiautomatic assault rifles by their military
    features.
                               inform the public
        This program publicizes information on ATF policies and
    regulations, product safety and theft prevention using the Internet,
    trade publications, seminars, and industry meetings. Such educational
    efforts promote field understanding and voluntary compliance with
    regulations. The program also works in partnership with others to
    better inform, advise, and educate the public.
    Industry and State Partnerships
        The Industry and State Partnerships Program focuses on working with
    the industry to help educate the public on ATF's regulated commodities.
        The Bureau continues to expand partnerships with regulated
    industries and State governments. For example, the Office of Science
    and Technology initiated the Partnership Formula Approval Process,
    which was instituted for all beverage and flavor manufacturers after a
    successful trial program. This new business process was a result of a
    joint effort of ATF, the alcohol beverage industry, and the flavor
    industry. The result of this collective effort was a dramatic reduction
    in the average approval time required for flavored beverage alcohol
    products from eight weeks to less than two weeks. ATF and industry are
    currently working together to further streamline the process by which
    flavor ingredients used in beverage alcohol products are reported.
        ATF established liaison with several governmental agencies working
    toward a common goal of public safety in the explosives industry. The
    Department of Transportation is supplying ATF with a list of its
    product approval numbers for use in determining the appropriate
    classification of explosive materials entering into commerce either
    through domestic production or through importation.
        ATF furthered its relationship with industry associations such as
    the Institute of Manufacturers of Explosives and the American
    Pyrotechnic Association to develop an Advanced Explosives Training
    class for all ATF inspectors. The Institute of Manufacturers of
    Explosives and the American Pyrotechnic Association have been
    instrumental in providing instruction to inspectors at ATF's training
    sessions. All classes are conducted at Ft. McClellan, Alabama. Since
    June 1997, ATF has trained approximately 71 inspectors. More training
    classes are scheduled for calendar year 1998.
        ATF established relationships with the Federal Aviation
    Administration to explore the mutual regulatory oversight required in
    the interaction of commercial site operators for commercial space
    launchers. Launch site operators may include State government agencies,
    State-chartered entities, State sponsored entities, and commercial
    entities. At the request of the Federal Aviation Administration, ATF
    has been inspecting explosive storage magazines at specified major
    airports. ATF has established a relationship with the Consumer Products
    Safety Commission to more effectively regulate the fireworks industry.
    The Consumer Products Safety Commission and Department of
    Transportation have also been instrumental in providing instruction at
    the Advanced Explosives Training sessions. The Bureau is also exploring
    refinement of its relationship with the Mine Safety and Health Agency
    to further share information regarding explosives and the coal mining
    industry.
        Because of the nature of Federal/State alcohol regulation rooted in
    the Twenty-First Amendment, ATF works closely with counterpart State
    liquor control and taxation agencies and industry groups. Current
    cooperative efforts focus on making ATF a center for industry-related
    information by making a wide range of data, including pictures of
    approved alcohol beverage labels, available through automated systems.
    The goal is to enable States to decrease parallel requirements and
    systems, to provide more efficient and timely access to data, and to
    reduce delays to industry in marketing new products. ATF continues to
    benefit from the cooperation of many State agencies in notifying retail
    liquor dealers of the liability for payment of Special Occupational
    Tax. Special Occupational Tax collections totaled $107 million for
    fiscal year 1997. The 60-year-old Pittman-Robertson Act levies a 10
    percent excise tax on handgun sales and long guns and ammunition. In
    fiscal year 1997, ATF collaborated with the Department of the Interior
    to distribute $149 million from this tax to States for wildlife
    restoration projects.
                     investments in information technology
        In fiscal year 1995 and fiscal year 1996, ATF commissioned external
    reviews of our data communications network, information systems
    security, and ATF's overall information technology (IT) infrastructure.
    The studies, several of which were conducted by personnel from the
    National Security Agency, confirmed to ATF's Strategic Management Team
    the pressing need for investments supportive of upgrades in our IT
    environment.
        In fiscal year 1996, ATF's Chief Information Officer (CIO), working
    with the membership of ATF's Information Resources Management (IRM)
    Council and with ATF's Information Technology Advisory Board, developed
    a concept for the acquisition and deployment of an Enterprise Systems
    Architecture (ESA). In fiscal year 1997, ATF created and staffed an ESA
    Program Office to work with the Information Technology Standards
    Working Group, a subcommittee of the IRM Council, in evaluating IT
    hardware and software offerings in order to define standards for ESA.
        In early fiscal year 1997, the IRM Council endorsed and the
    Strategic Management Team in its role as ATF's Investment Review Board,
    funded the CIO's recommendation to implement Frame Relay Service for
    ATF's nation-wide ``backbone'' data communications network. The ESA
    Program Manager was able to identify and solicit bids for a ``lease to
    purchase'' acquisitions vehicle using an existing GSA contract. ATF was
    able to end operation of its mainframe at the National Data Center in
    Falling Waters, WV. Also, ATF, using the ESA hardware and software
    standards, was able to purchase and deploy 1,049 ``ESA-compliant''
    personal computers to employee workstations in Bureau Headquarters and
    six of twenty-three Field Operations division offices in 58 city
    locations nationwide. In early fiscal year 1998, ATF awarded the ESA
    contract which calls for full deployment by mid-fiscal year 1998.
        The Enterprise Systems Architecture is a mix of hardware and
    software that forms the infrastructure on which a suite of continually
    evolving application services will be installed to support ATF's
    Firearms, Arson and Explosives, Intelligence, Integrated Ballistics
    Identification, Collections, Financial Management, and Personnel and
    Performance Measurement systems.
        The infrastructure consists of:
      --a ``backbone'' communications network capable of transmitting and
            sharing data instantaneously within and among organizational
            segments via local, metropolitan, and wide area networks;
      --deployment of a mix of desktop and notebook personal computers with
            simultaneous delivery of training in their use to ATF's
            approximately 4,000 employees;
      --a standardized suite of software consisting of operating systems,
            telecommunications software, database management systems,
            applications development tools; and
      --upgrades to ATF's mainframe computer so that it can continue to be
            the host platform for legacy applications, provide a base for
            client/server applications, and provide archival data storage
            for recovery purposes for all servers in the configuration.
        In fiscal year 1998, ATF will be able to:
      --Complete the deployment of the Enterprise Systems Architecture to
            over 4,000 employee workstations located in Bureau Headquarters
            and the remaining seventeen Field Operations division offices
            in 170 city locations nation-wide.
      --Provide a standardized office suite, secure electronic mail
            service, virus detection, encryption, and secure transmissions
            of data communication via a nation-wide area network supporting
            228 ATF office locations.
      --Provide authorized users secure electronic access to existing
            Bureau information systems as well as new Year 2000 date
            compliant systems in development or pilots.
      --Provide a means of gathering, transmitting, collecting, analyzing,
            and sharing intelligence data nation-wide.
        Another mission-critical part of ATF's information technology
    infrastructure is the Tactical Radio Communications Program. With
    supplemental funding authorized in fiscal year 1997, we were able to
    replace 900 mobile radios out of an inventory of 2,500 and 122 fixed
    stations out of an inventory of 410 nationwide.
                              training activities
        With the support of This Committee, the Bureau has undertaken a
    number of new training initiatives and enhancements to existing
    training programs. We have allocated significant resources to support
    our training efforts and have focused primarily on arson, explosives,
    and firearms trafficking training projects.
        One of our greatest assets is our ability to share that knowledge
    worldwide with law enforcement and industry personnel. We continue to
    offer a number of post-blast and general explosives proficiency
    training courses for both ATF personnel and State, local and
    international law enforcement personnel. In addition to these
    activities, the Bureau has developed, under the auspices of the Vice
    President's White House Committee on Aviation Security and in Concert
    with the Federal Aviation Administration, a series of four training
    videos on bomb threat management and improvised explosive device
    recognition. These videos will assist State, local, and other Federal,
    and airline industry personnel in improving airline security and
    airport safety throughout the country. With the support of the
    Department of State, we continue to conduct post-blast and firearms
    trafficking training for international law enforcement officers in both
    Eastern Europe and Latin America.
        In fiscal year 1998, ATF has planned for regional training
    exercises in crisis management. These exercises will consist of
    realistic crisis scenarios and will allow us to refine the training
    provided to manage crisis situations.
        In concert with the President's Youth Crime Gun Interdiction
    Initiative (YCGII), ATF has expanded its firearms trafficking training
    activities with a specific emphasis on agents and local law enforcement
    in the cities involved in the YCGII program. During fiscal year 1998,
    we will develop and conduct training on firearms trafficking for each
    of these sites as well as training on interstate nexus and prosecution
    issues.
        In addition to our classroom activities, we continue to pursue a
    number of systemic changes designed to improve the quality and
    effectiveness of our training programs. Our training management
    database system now provides us with an unprecedented level of
    information on the amount and type of training provided to each ATF
    employee. We have undertaken a review of the training provided to new
    professional employees upon entering on duty with ATF. This review has
    led to a revised curriculum for training agents, inspectors and other
    professionals that emphasizes the complimentary and cooperative nature
    of the work these employees will be doing at ATF. We continue to pursue
    the instructor development system and the enhancement of the skills and
    techniques of ATF instructors which elevates the quality of the
    training courses ATF delivers. We recognize that training is an ongoing
    process, and are implementing systems designed to ensure that process
    is meaningful, effective, supports ATF's mission and will advance the
    ATF's efforts and those with whom we partner.
                          equal employment opportunity
    Career Development
        ATF has continued to make progress in providing career development
    opportunities for women and minorities. Over the past ten years, ATF
    has seen significant increases in the representation of women and
    minorities throughout the work force. In 1987, women held 5.4 percent
    of GS 13-15 positions in ATF; in 1997, that figure was 17 percent. In
    1987, minorities held only .01 percent of all GS 13-15 positions; in
    1997, that figure was 19 percent. Minorities and women are also gaining
    greater representation in the SES arena. While they currently hold 18
    percent of the SES positions, minorities and women comprise 34 percent
    of the SES candidate pool.
    Recruitment and Hiring
        The development of a strong and effective recruitment process is a
    top priority. For the first time in many years, ATF is in a hiring mode
    in order to backfill vacancies and keep pace with anticipated
    retirements. In fiscal year 1997, ATF launched an extensive recruitment
    program to attract highly qualified applicants reflecting the nation's
    diversity. Our announcements generated more than 6,000 applications.
    The first selections began in fiscal year 1997, and will continue into
    fiscal year 1998. We expect to be in a hiring mode for the next several
    years to fill these and other critical positions within ATF.
        To provide our new employees with a firm footing in ATF, a new two-
    week orientation training program has been instituted, focusing on the
    various aspects of our work and mission, as well as ethics, equal
    opportunity, and diversity.
    ATF Early Complaint Resolution Program (ECRP)
        The Early Complaint Resolution Program was introduced in December,
    1996, as an 18 month pilot program. The program employs outside
    mediation at the informal stage of the EEO complaint process to help
    employees and management resolve their differences quickly and
    efficiently in a non-adversarial setting. It offers an alternative to
    the traditional Equal Employment Opportunity formal process, which is
    often lengthy, costly, and contentious. From January 1997 to January
    1998, eight cases have been referred for mediation. Five were resolved
    successfully. As word of the program's advantages spreads, we hope to
    draw a greater percentage of cases into mediation at the early stage of
    the complaint process. We have also trained approximately 20 ATF
    managers, attorneys, labor and employee relations specialists, and
    equal employment opportunity officials in mediation techniques to
    enable them to better perform their jobs and assist others in resolving
    disputes.
               professional review board and atf/nteu partnership
        Illustrating our commitment to ensuring a fair and equitable
    workplace for our employees, ATF established a Professional Review
    Board (PRB) and the ATF/NTEU Partnership Council.
        The PRB addresses issues of timeliness and consistency in
    disciplinary actions for all non-bargaining unit employees. Working
    with the Employee and Labor Relations Branch and Chief Counsel, the PRB
    (composed of senior Headquarters managers representing a cross section
    of the Bureau) determines and issues proposals for disciplinary and
    adverse actions resulting from Office of Inspection investigations.
        The ATF/NTEU National Partnership Council, which meets on a
    quarterly basis, provides a forum to address and resolve issues of
    mutual concern between ATF management and the National Treasury
    Employees Union. In the almost 3 years since its inception, the
    National Council has worked together in reaching solutions to Bureau-
    wide issues. Feedback received from the facilitator who works with our
    Council, as well as those of other Federal agencies, indicates that
    ATF's partnership is one of the most productive and successful
    organizations of its type. Due largely to the success of the ATF/NTEU
    Partnership Council in headquarters, a local Partnership Council will
    also be established within the new National Revenue Center in
    Cincinnati, Ohio.
                     management and administrative efforts
        The Executive Staff and I chartered a group comprised of
    Headquarters and field senior managers to re-evaluate our identity as
    an agency, our mission, and how we work. The Focus Group also assessed
    our field structure and identified core processes. Most of the group's
    recommendations are being implemented in some form, and serve as a
    basis for a recent field restructuring proposal geared toward achieving
    a more effective and unified agency.
        Further, as a result of information obtained from our stakeholders
    and customers, every directorate is now in the process of reviewing all
    services provided. This involves looking for ways to improve programs,
    services, and several delivery processes. In addition, a
    ``vulnerabilities review team'' was formed to recommend ways to
    minimize the risk of critical weaknesses which could severely harm or
    destroy ATF, our employees, or others due to an oversight, inaction, or
    improper action. To their credit, the team identified (among other
    findings) inadequate controls and safeguards surrounding dynamic
    entries by ATF agents of residences or other facilities. Treasury's
    Office of Inspector General concurred with every team recommendation in
    a report of their independent review of our dynamic entry procedures
    and controls. Several other administrative and management initiatives
    are noteworthy. They are in the areas of security, field structure,
    accountability, and customer service plans.
        As a result of the Oklahoma bombing, ATF was provided funding to
    enhance physical security, both in the field and at Bureau
    Headquarters. Immediate steps were taken to safeguard employees, and
    plans are underway to relocate Bureau Headquarters so that we may have
    more control over our security. In addition, after completion of a
    security needs study, a number of security enhancements have been
    implemented in our field installations. ATF has:
      --Purchased and installed X-ray machines in 5 facilities where large
            volumes of mail and deliveries are processed;
      --Provided additional guard service and upgraded CCTV coverage at the
            Headquarters building; and
      --Upgraded security equipment at more than 70 field installations.
        We will continue to upgrade security equipment at field
    installations. More than 20 upgrade projects are scheduled for
    completions during the next fiscal year.
        ATF will also continue its drive to become a customer focused
    organization, which is directly in line with the guiding principles of
    our strategic plan:
      --We created a new position in the Office of the Ombudsman to
            develop, support, and oversee a problem resolution program for
            external customers.
      --We established the new position of Customer Service Specialist at
            the Firearms and Explosives Licensing Center in Atlanta and
            Technical Services in Cincinnati.
      --Annually, we publish customer satisfaction reports telling our
            customers how well we did in meeting our previously published
            service standards.
      --Several groups within ATF, including our labeling section, have
            sent their customers surveys, the results of which are used to
            improve service.
        Other management support accomplishments include:
      --continuing aggressive efforts to maintain an unqualified opinion on
            financial statements and to successfully address the Office of
            Inspector general fiscal year 1997 reportable conditions. To
            date, ATF has received three unqualified financial audit
            opinions;
      --continuing refinement of the budget activity structure that has
            resulted in a stronger and clearer alignment with the ATF's
            strategic plan;
      --assisting with the development of bureau-wide performance measures
            in accordance with the requirements contained in the Chief
            Financial Officers Act of 1990 and Government Performance and
            Results Act of 1993;
      --renewing an agreement with the Department of Defense to access the
            automated Injury and Unemployment Compensation Tracking System,
            which will continue to yield new efficiencies and cost savings
            for the Bureau;
      --continuing to meet the Prompt Payment standard of paying 98 percent
            of all invoices within 30 days;
      --ending the fiscal year with a record number of contract actions
            completed and the dollars saved;
      --starting the planning process for implementing a cost accounting
            system; and
      --effectively converting administrative systems to support
            Headquarters restructuring.
        This completes my statement. I will be happy to answer any
    questions you may have and I would like to express my sincere
    appreciation of the support that the Committee has provided us. I look
    forward to working with the Committee to further our mutual goals of
    safeguarding the public and reducing violent crime.

                         Statement of Senator Faircloth

        Senator Campbell. Before we continue, I think Mr. Merletti
    was next, Senator, do you have an opening statement?
        Senator Faircloth. I do, if I may, please, Senator
    Campbell.
        Senator Campbell. Senator Faircloth, go ahead.
        Senator Faircloth. Mr. Chairman, I want to thank you for
    the leadership you have given to this Treasury Appropriations
    Subcommittee, and I look forward to working with you in the
    years to come.
        Mr. Chairman, as you know, I have very strong feelings
    about one of the agencies testifying before us this afternoon,
    the Internal Revenue Service.
        I understand that Commissioner Rossotti will testify at a
    later date about the IRS budget as a whole, but given that Mr.
    Brown of the IRS Criminal Investigation Division is here today
    to discuss a part of the IRS budget, I want to take this
    opportunity to announce legislation I plan on offering to
    reduce the size of the IRS staff and, correspondingly, increase
    in size the Drug Enforcement Administration.
        Later today, I will introduce the American Priorities Act
    to restructure these two agencies. It is my intention, Mr.
    Chairman, to offer a similar bill as a rider to this year's
    Treasury appropriation bill.
        First, and most importantly, this bill corrects a serious
    imbalance in our national priorities by transferring one-third
    of the enforcement agents at the Internal Revenue Service to
    the Drug Enforcement Administration by January 1999, and,
    second, by the same date, the bill establishes a Cabinet-level
    department to marshal the resources necessary to adequately
    fight a real war on drugs. By so doing, we would affirm our
    resolve to the American people and those people abroad that
    this is a war we intend to win.
        Over the last 5 years, drug use, which slowed in the 1980's
    and early 1990's, has increased with a vengeance. Particularly
    hard hit have been children. Schools are not safe. Children are
    born addicted to crack and other hard drugs, which are now
    cheap and plentiful throughout our Nation.
        Drug-related violent crime is soaring. Most troubling of
    all has been the creation of a class of violent drug-addicted
    youth predators who terrorize our citizens with almost
    irrational and depraved violent crimes, from car-jacking in
    shopping malls to drive-by shootings on city streets and gang
    violence in schools.
        Yet, what is the administration's reaction? It claims the
    so-called war on drugs cannot be easily won; that it will take
    10 or more years to even begin to control the drug trade.
        Such a piecemeal application of resources is not a recipe
    for victory. We need a bold and dramatic shift in Federal
    resources to end the drugs taking over our young people, and
    that is simply what is happening. If this is to be a true war
    on drugs, then we need a Desert Storm, not a Vietnam.
        Where expertise has been developed within the IRS to fight
    drugs, that expertise will be retained, but shifted to an
    agency whose mission is fighting the war on drugs, not waging a
    war on law-abiding taxpayers. The IRS has over 100,000
    employees, 46,000 of whom are enforcement officials.
        Recently, congressional oversight has revealed the agency
    has excess enforcement resources which are not serving the
    public interest. Now, this is a congressional oversight
    committee. Instead, these excess resources are being engaged in
    the bullying of law-abiding American citizens, and it is no
    wonder that with over 100,000 employees, 46,000 of which are
    enforcement agents, the IRS is running out of things to do.
        By contrast, the DEA, which is at the forefront of stemming
    the drug trade, has only 8,500 personnel, only one-half or less
    of whom are special agents, or about 4,000 DEA special agents
    as compared to 46,000 in enforcement in the IRS.
        If the war on drugs is to be won, we need to radically
    reallocate our natural resources. I would suggest that moving
    about one-third of the IRS enforcement agents to the DEA is a
    good first step.
        Further, as a member of the Treasury and General Government
    Appropriations Subcommittee, I plan to offer a version of this
    bill as a rider to this year's budget.
        Mr. Chairman, I held hearings last December on IRS abuses.
    I can tell you from my own conversations with hundreds of North
    Carolina taxpayers that the American people live in fear of the
    IRS like no other agency. I only wish that the drug traffickers
    who plague our nations were as frightened.
        Mr. Chairman, it is time that the Federal Government start
    investigating drug dealers as intensely and with equal
    intensity as the IRS investigates American taxpayers.
        Thank you, Mr. Chairman.
        Senator Campbell. We will now proceed.
        Director Merletti, since you are here to testify on behalf
    of the Secret Service and not the IRS, I think you are safe to
    proceed. [Laughter.]
        Go.

                         Statement of Lewis C. Merletti

        Mr. Merletti. Thank you.
        Mr. Chairman, Senator Kohl, Senator Faircloth, I am
    privileged to come before you today for the first time in my
    capacity as Director of the U.S. Secret Service.
        Present with me today is my executive staff. Among them are
    my Deputy Director, Bruce Bowen; and my newly appointed
    Assistant Director for Administration, Jane Vezeris.
        While this is my first appearance as Director, my career in
    the Secret Service spans 23 years, and I am well aware of the
    historically strong relationship between this committee and the
    Secret Service. This committee has been most supportive of the
    agency's people and their mission, and I intend on continuing
    my agency's tradition of working with all of its members,
    cooperatively and honestly.
        As you know, my agency is charged with the vital mission of
    protecting the President, the Vice President, foreign heads of
    state, and others. It also contributes to the protection of the
    Nation's financial stability by ensuring the integrity of the
    Nation's currency, financial obligations, and institutions.
        Having worked as a special agent in three field offices,
    and as a supervisor on the protective details of Presidents
    Ronald Reagan, George Bush, and Bill Clinton, I know firsthand
    that the protective and investigative missions appear distinct,
    but are, in fact, inseparable.
        The skills developed by agents during their investigative
    and protective assignments are invaluable to both missions.
    Most, if not all, of our training carries with it dual
    applicability. The Service's unique forensic and technical
    capabilities are also applied regularly to both our
    investigative and protective missions.
        The Secret Service will work vigorously to meet the unique
    challenges posed by our protective and investigative missions.
    The fiscal year 1999 budget request totals $612.8 million and
    provides the funding necessary to meet those challenges.
        New technologies present sophisticated threats to our
    protectees, and we continue to meet those challenges by
    developing and applying appropriate countermeasures to detect
    and neutralize those threats.
        By studying assassination attempts worldwide, the Secret
    Service can assess an assassin's method of attack, weapons of
    choice, and motivations. These assessments influence our
    training, resource allocation, security methods, and equipment
    needs.
        In fact, on February 9, 1998, just 17 days ago, a group of
    terrorists attacked a motorcade of President Shevardnadze of
    the Republic of Georgia. Within 3 days, a Secret Service team
    was dispatched to Tbilisi, Georgia, to evaluate that attack.
    The team returned this past weekend with information which will
    prove invaluable to our armored limousine project.
        As a matter of fact, just made available to me were some
    photographs which we brought back from that assessment, and I
    offer these photos, if you would like to take a look at them.
        Senator Campbell. Why don't we have those brought up here
    while you are continuing your testimony.
        Mr. Merletti. Further, our trip enforced our belief that we
    must stay current in technology, equipment, and training in
    order to deal with these threats.
        Protection-related initiatives in our 1999 budget request
    are driven predominantly by three major factors. First, we must
    be continually vigilant in uncovering and investigating threats
    through a comprehensive intelligence program. New methods of
    attack and the emergence of new terrorist group demands
    additional resources to address this problem.
        Second, as previously mentioned, we must combat the new
    threats with new technology. This will require not only
    acquiring the new technology itself, but also hiring the
    employees to operate it.
        Third, and perhaps most significant, we must ensure that
    our agents are properly trained and are at their optimum
    physical and mental capacities.
        This past year, agents working on permanent protective
    details were working hours the equivalent of one and one-half
    agents. Incredible work demands resulted in these agents often
    working weekends and weeks without days off, and longer periods
    without training. For the safety of both the protectees and
    agents, it is absolutely essential that protective details are
    properly staffed.
        In fiscal year 1999, we must begin to prepare for the
    Presidential campaign in the year 2000. Absent an incumbent
    candidate, we anticipate, as you said, Mr. Chairman, a far
    greater number of candidates.
        Our investigative mission is also being challenged. With
    the development of highly innovative technologies related to
    financial transactions such as electronic banking, the
    Internet, and wireless telecommunications, there has emerged
    new methods of defrauding financial institutions, commercial
    enterprises, and individuals.
        Here, too, in the investigative arena, we make every effort
    to study emerging technological trends in criminal activity in
    an effort to accurately assess the adequacy of our resources.
    We had hoped for the inclusion of several investigative
    initiatives, but we recognized that hard decisions had to be
    made by others, and, hopefully, we can address those
    initiatives in the future.
        As an agency, we will meet our investigative and protective
    challenges, as we have throughout our 133-year history. We have
    been conducting criminal investigations since our inception in
    1865 and have provided protection to the Presidents and others
    for nearly a century.
        During the past 8 months that I have served as Director, I
    have become stronger in my long-held belief that the strength
    of the U.S. Secret Service lies in its people.
        The Secret Service personnel are career civil servants.
    They carry out their duties with commitment, dedication,
    professionalism, and competence, day in and day out, in the
    United States and throughout the world. They take great pride
    in their agency's history and mission. For that, I am proud of
    them.
        I again wish to thank this committee for its support and,
    as the Director, pledge my continued commitment and
    cooperation.

                               Prepared Statement

        Mr. Chairman, with your permission, I am submitting a more
    detailed statement for the record and would be glad to answer
    your questions.
        Senator Campbell. Your complete statement will be included
    in the record.
        [The statement follows:]
                    Prepared Statement of Lewis C. Merletti
        Mr. Chairman and members of the Subcommittee, I am pleased to be
    here today. This is my first appearance before this Subcommittee as
    Director of the Secret Service and I want to let you know that my
    colleagues and I pledge to continue the forthright, effective, and
    cooperative working relationship that exists between the Subcommittee
    and the Service.
        With me today, Mr. Chairman, are Bruce J. Bowen, Deputy Director;
    Jane E. Vezeris, Assistant Director for Administration; Brian L.
    Stafford, Assistant Director for Protective Operations; Stephen M.
    Sergek, Assistant Director for Protective Research; Kevin T. Foley,
    Assistant Director for Investigations; Stephen V. Iannucci, Deputy
    Assistant Director for Inspection; Charles N. DeVita, Assistant
    Director for Training; Terrence Samway, Assistant Director for
    Government Liaison and Public Affairs; and John Kelleher, Chief
    Counsel.
                     fiscal year 1999 appropriation request
        The Service's fiscal year 1999 funding request totals $612.8
    million and 5,042 FTE's, and is comprised of three separate
    appropriation accounts: the Salaries and Expenses account; the
    Acquisition, Construction, Improvement and Related Expenses account;
    and the Violent Crime Reduction Trust Fund account. In addition,
    funding is to be made available from the Department's Asset Forfeiture
    Fund. Together, the total funding requested is $23.3 million, or 4.0
    percent, above the level of funding the Service received this fiscal
    year.
        With this funding, the Service expects to further advance the
    attainment of its two mission goals, which are: to maintain the highest
    level of physical protection possible through the effective use of
    human resources, protective intelligence, risk assessment, and
    technology; and to protect the integrity of the nation's financial
    systems through aggressive criminal investigations and assessing trends
    and patterns to identify preventive measures to counter systemic
    weaknesses.
                          salaries and expenses (s&e)
        The Service's Salaries and Expenses appropriation request for
    fiscal year 1999 totals $606,357,000 and 5,042 FTE positions, of which
    $11,700,000 shall be derived from the Violent Crime Reduction Trust
    Fund (VCRTF). This is an increase of $25,676,000 and 42 FTE's over the
    fiscal year 1998 appropriated level of $580,681,000 and 5,000 FTE's.
    This request includes: $6,973,000 and 35 FTE's in program increases;
    $19,552,000 in upward adjustments necessary to maintain current program
    performance levels; a net increase of $323,000 transferred from the
    Acquisition, Construction, Improvement and Related Expenses (ACIRE)
    account; $7,732,000 in mandatory workload changes; 27 FTE's and
    $7,864,000 for initiative annualization; and $3,427,000 for a base
    program initiative. These increases are partially offset by $20,195,000
    and 20 FTE's in non-recurring costs.
                              s&e program changes
        The Service is requesting $5,049,000 and a total of 25 special
    agents for assignment to the Presidential, Vice Presidential, and
    Former Presidential Protective Divisions, and the Special Services
    Division. The threat of terrorist activity directed at the United
    States and its interests continue to be a significant concern to the
    Secret Service. As a result, the Service's security measures are
    continually reviewed and enhanced as necessary.
        The Service is also requesting $1,924,000 and 10 FTE's for critical
    support in providing Protective Intelligence (PI) Advances required for
    protection of the President when he travels; the Foreign/Domestic
    Counterterrorism Program; and the Exceptional Case Study Project in
    direct support of the risk assessment strategy. These additional
    positions will enable the Intelligence Division to achieve its goal of
    conducting all Presidential PI advances, domestic and abroad.
      acquisition, construction, improvement, and related expenses (acire)
        The Service's fiscal year 1999 request for the Acquisition,
    Construction, Improvement, and Related Expenses (ACIRE) account is
    $6,445,000; a reduction of $2,354,000 from the fiscal year 1998
    appropriation of $8,799,000.
        Of this amount, $3,145,000 is required for technical support
    services, dual operations, moving services, Computer Aided Drawing and
    Design-Computer Aided Facility Management, building operations
    contractor support, health and fitness services, and lease-to-own
    copiers relative to the Service's headquarters relocation. Funding for
    these fiscal year 1999 requirements is the responsibility of the
    Service, and is not covered with the construction of the building
    through the GSA's Federal Buildings Fund.
        Also budgeted under this account is $3,300,000 required for
    operations and maintenance of the physical plant of the Service's James
    J. Rowley Training Center.
                                  results act
        The Performance Report for fiscal year 1997 is included in the
    fiscal year 1999 budget request. This report presents actual fiscal
    year 1997 performance results.
        Fiscal year 1997 was an extremely productive and demanding year for
    the Secret Service. The total number of trips for all protectees was
    higher than the number estimated. Although permanent protectee travel
    was slightly under that which was estimated, protection of foreign
    dignitaries was significantly higher. In addition to the normal demands
    of protection, other significant protection activities during the past
    fiscal year included the Presidential Inauguration, the Environmental
    Summit in New York City, the Denver Economic Summit, and the United
    Nations General Assembly.
        With resources being redirected from last fiscal year's
    Presidential Campaign protective activities back to investigative
    areas, the Secret Service closed nearly 5,000 more criminal cases
    during fiscal year 1997 than in fiscal year 1996 for a total of 32,430
    criminal cases closed. Continued emphasis on significant cases resulted
    in 13,649 arrests, an all-time high for the Secret Service. Further,
    the Secret Service Uniformed Division reported an additional 1,019
    arrests.
        In accordance with overall Treasury Department goals, the Secret
    Service continues to place an emphasis on the investigation of
    financial crime. These cases have a significant impact upon the public
    and financial institutions. During fiscal year 1997, a total of 2,462
    financial institution fraud cases and 2,497 access device fraud cases
    were closed.
        For fiscal year 1996, the dollar value of counterfeit money passed
    per million dollars of genuine currency was $88. For fiscal year 1997,
    the volume of counterfeit money passed dropped to $77 per million
    dollars of genuine currency. This drop means a substantial savings in
    dollars lost to counterfeiting for the American public.
        We continue to focus our efforts to curb the counterfeiting of U.S.
    currency in foreign countries. A total of $2,938,170 in counterfeit
    currency was passed and $61,130,551 was seized in foreign countries
    during fiscal year 1997. This level of counterfeit currency passed is
    52 percent below the level of last year.
                               protective program
        The Secret Service protective operations program provides security
    for the President, the Vice President and other dignitaries and
    designated individuals, as well as the protection of the White House
    complex and foreign missions within the Washington, D.C. area.
        The President and Mrs. Clinton, and Vice President Gore, continued
    their extensive domestic travel schedules. The President's
    international travel included visits to 13 countries and Mrs. Clinton
    visited 10. The Vice President visited five countries last year. In
    addition, there were 87 foreign trips completed by the former
    Presidents and their spouses.
        With the tremendous support and outstanding work performed by all
    of the staff within the Service, the Office of Protective Operations
    successfully coordinated a number of major protective events. The
    Presidential Inauguration in January 1997 is an excellent example of
    how the strong working relationships developed by the Service with
    other federal and local agencies ensured a safe and memorable day for
    the entire country. The Secret Service also provided security for 168
    protectees at a number of major events such as the Caribbean
    Conference, Volunteer Summit, America's Summit, Economic Summit,
    Environmental Summit, and the 52nd annual United Nations General
    Assembly. These events take significant planning, deployment of
    resources, and coordination with local law enforcement to be
    successful.
        To address the threats of international and domestic terrorism,
    each of these events required that the Service develop a comprehensive
    security plan. This placed a tremendous burden on the Service's
    resources. The Service's preparatory efforts contributed to the success
    of each and every event. Nevertheless, technological advances
    throughout the world only enhance the opportunities for terrorists
    activity. To meet these challenges, the Secret Service must continue
    its aggressive approach to integrating the latest developments in
    technology. The compromise of Presidential security is not an option
    for this agency or the nation.
        The Secret Service was faced with a unique situation this past year
    when First Daughter Chelsea Clinton began her freshman year at Stanford
    University in California. The effort to provide appropriate and
    necessary security for Ms. Clinton under these circumstances is an
    ongoing challenge for the Service.
        Progress was made on several projects that are underway for the
    White House complex, including the new White House Access Control
    system, construction of booths and barriers along Pennsylvania Avenue,
    and the installation of additional ballistic windows. At the Main
    Treasury Building and Annex, additional security cameras were installed
    to assist with alarm assessment. New perimeter alarms were installed at
    the New Executive Office Building. Additional security lighting was
    installed at the Vice President's residence at the Naval Observatory.
    Additionally, a new Service command post with enhanced security has
    been constructed at Vice President Gore's Carthage, Tennessee,
    residence. Currently, a new middle perimeter fence, a guard booth, and
    an upgraded alarm system are also being installed at this residence.
        The Office of Protective Operations is also continuing a process to
    obtain state-of-the-art primary armored vehicles in support of the
    protective mission. A contractor has been selected to work with the
    Service on this effort.
        During fiscal year 1999, the Service will commence planning for the
    2000 Presidential Campaign and subsequent Inauguration which will take
    place in January 2001.
                          protective research program
        The Office of Protective Research has oversight of the Service's
    protective intelligence, technical security, communications, and
    information technology resource management support for both the
    protective and investigative missions.
        Protective intelligence serves a critical role in the Secret
    Service's protective mission. The Intelligence Division develops threat
    assessments in support of protectee visits to domestic and foreign
    settings; provides warning indicators for specific and generalized
    threat environments; maintains liaison with the mental health, law
    enforcement, and intelligence communities; and conducts operational
    studies that are needed to stay at the forefront in the effort to
    predict the likelihood of danger.
        The recently-completed Exceptional Case Study Project (ECSP) will
    enhance the Secret Service's ability to identify, assess, and manage
    persons who might pose a risk of violence toward its protectees. The
    ECSP also developed information relevant to the Service's risk
    assessment procedures, physical protection techniques and training
    methodologies. The study analyzed the thinking and behavior of persons
    known to have attacked, or approached with a weapon, a prominent public
    official or figure in the United States since 1949.
        The Service continued to upgrade its Protective Intelligence
    Information Systems. This will enhance our capability to search text
    and report protective intelligence activity. Completion of the upgrade
    is scheduled for this fiscal year.
        The technical security program was instrumental in completing the
    construction of the U.S. Secret Service Joint Operations Center and the
    Emergency Operations Center. The facility provides a centralized
    command, control, and communications center of all physical and
    electronic security for protection of the White House complex. The
    Emergency Operations Center provides a single coordination site for
    multiple-agency response during catastrophic or other emergency
    situations. This center includes a computerized radio communications
    system, emergency notification system, multiple-site monitoring of
    perimeter security systems, video teleconferencing, electronic event
    recording system, and event data collection and dissemination.
        The Service has made significant progress in converting its
    information technology systems to ensure Year 2000 compliance. A major
    effort was completed with the conversion of the Financial Management
    and Accounting System. Also, conversion of 85 percent of all other
    major mainframe applications was completed. A Year 2000 compliant
    version of the Service's mainframe operating system is on target for
    completion by March 1998. The Service will soon establish a Year 2000
    compliant mainframe test environment, and begin final certification of
    all mainframe systems. The Year 2000 compliance issue is the highest
    priority for the Service's Chief Information Officer (CIO).
        The Service is in the final phase of transferring its wide area
    communications network to the Treasury Communications System (TCS)
    network. The TCS network architecture is designed to support the
    Service's planned future information technology architecture. All
    domestic field offices have been transitioned to TCS. Headquarters and
    overseas offices are scheduled to be completed by May 1998.
                             investigative program
        The Secret Service's primary investigative mission is the
    safeguarding of the payment and financial systems of the United States.
    Historically, this has been accomplished through the enforcement of
    counterfeiting statutes to preserve the integrity of the United States'
    currency, coin, and financial obligations, and subsequently in
    enforcement efforts directed at ensuring the integrity of alternative
    payment and financial devices supplanting currency.
        In modern day society, electronic and computer technologies
    facilitate many essential activities of everyday life. Their importance
    to the United States and global financial infrastructures is an
    illustration of just how dependent society has become on these
    innovations.
        The world's economies continue to merge into one borderless and
    seamless web, powered by the development of impressive technologies
    like electronic banking and commerce, electronic payment systems, smart
    cards and digital currencies. Consequently, all facets of this nation's
    economy will become inextricably linked.
        The Secret Service believes that its primary enforcement
    jurisdictions will continue to be crucially important in the 21st
    century. Thus, it has adopted a proactive approach to monitoring the
    development of powerful new technologies, and has continued to develop
    partnerships with industry to identify potential vulnerabilities to
    financial systems.
        The Secret Service routinely encounters a number of ``non-
    traditional'' organized criminal groups operating on a transnational
    basis. These diversified criminal groups emanate from the West African,
    Asian, Middle Eastern, Central/South American, and Eastern European
    populations. The use of the computer has given these criminals a means
    to expand globally, coordinating their illicit activities and
    generating counterfeit and fictitious financial obligations such as
    Federal Reserve Notes, commercial checks, traveler's checks and credit
    cards. In his National Security Strategy for a New Century, President
    Clinton, recognized international organized crime as a threat to vital
    national economic interests and pledged that the U.S. would use
    whatever means are necessary to secure its vital interests.
        With the emerging technology and popularity of the Internet, the
    Secret Service has seen an alarming increase in identity fraud.
    Accordingly, the Internet will continue to have vulnerabilities which
    can allow confidential business information and sensitive personal
    information to be compromised. It is well known that the major Internet
    Service Providers (ISP's) are constantly updating security measures and
    have been receptive in establishing liaison with law enforcement in an
    effort to preserve the integrity of the Internet. Discussions are
    currently underway between the law enforcement and ISP communities to
    establish an association designed to share concerns and discuss
    security issues.
        According to the President's Commission on Critical Infrastructure
    Protection, the U.S. financial system is central not only to domestic
    and global commerce but also to 10 million jobs and the daily lives of
    virtually all Americans. That system processes $3 trillion in daily
    payment transactions, represents $4.5 trillion of bank holdings and $8
    trillion in capital and investments. It is increasingly dependent upon
    various telecommunication systems. Private industry is interested in
    utilizing the Internet to conduct electronic commerce. This may
    revolutionize the way business is conducted and continue to promote a
    more global economy. By the year 2000, there could be one billion users
    on the Internet. This equates to one billion potential customers. A
    number of banks are utilizing the Internet to offer on-line banking
    services. In addition, many retailers are using the Internet to allow
    customers access to goods and services in exchange for payment by
    credit card. Such transactions result in the electronic transfer not
    only of credit card numbers, but also of the subscriber's personal
    information.
        Unfortunately, ``hackers'' have demonstrated an ability to access
    and download this information for account takeover schemes and other
    similar fraud. A criminal can literally take over someone's credit card
    or bank account, without the victim's knowledge. A criminal's
    fraudulent use of an individual's personal information to perpetrate a
    separate fraud can ruin the victims's credit history as well as thwart
    law enforcement's ability to investigate such activities. As a result,
    banks and credit card associations have been developing methods of
    encrypting credit card numbers and customer personal identification
    information to facilitate secure Internet payments. These precautionary
    measures notwithstanding, identify fraud remains a problem to the
    degree that persons with unauthorized knowledge of Internet access
    codes can still penetrate computer infrastructures.
        The Secret Service, through its partnership with private industry,
    is examining new vulnerabilities associated with ``smart cards.'' In
    Europe, smart cards used for pay telephones have already been
    counterfeited. A laptop computer was used to reprogram phone card chips
    to allow unlimited free calls. This type of chip manipulation is of
    serious concern to the Secret Service as we move closer to global
    implementation of this technology in the international financial arena.
        Nigerian Advance Fee Fraud has arguably become the most lucrative
    financial crime committed by Nigerian criminals worldwide. Conservative
    estimates place the annual financial loss associated with these frauds
    in the hundreds of millions.
        The Secret Service hosts an annual International Nigerian Crime
    Conference. The most recent conference held in Atlanta, Georgia, was
    attended by more than 700 representatives of law enforcement (including
    police officials from more than 20 countries) and the private sector.
    This typifies the ``success through partnerships'' philosophy adopted
    by law enforcement agencies to combat Nigerian and other organized
    criminal groups. The Secret Service operates under the belief that
    investigation, interdiction, public education, and partnerships are the
    building blocks for suppressing criminal activity.
        As I mentioned earlier, United States currency is the currency of
    choice throughout the world. Maintaining confidence in the integrity of
    the U.S. Federal Reserve Note is of paramount importance to the nation.
        Today, thanks in part to the Service's efforts, U.S. currency
    enjoys worldwide confidence and acceptance. The Federal Reserve
    estimates that of the $380 billion of U.S. currency circulating, about
    two-thirds ($250 billion) circulates abroad. GAO testified, before the
    House, that the willingness of foreigners to hold U.S. currency
    represents an interest free loan of over $10 billion annually to
    America's taxpayers. I am very proud of the key role the women and men
    of the Secret Service play in upholding that confidence and generating
    that savings.
        Counterfeiting production methods have evolved over the years, from
    the traditional method of offset printing to color copiers and, more
    recently, to scanners, computers and inkjet printers. Today's
    counterfeiter with little training, skill or experience, can produce
    counterfeit currency with computer skills obtained through trial and
    error and public information. Counterfeiters using computers could
    transmit quality images of U.S. currency anywhere, via the internet.
        Of the domestic counterfeit currency printing operations suppressed
    during fiscal year 1997, 73 percent were inkjet in nature, as compared
    to 19 percent in fiscal year 1995. Currency counterfeiting through the
    use of computers is likely to increase, since these instruments of
    production are readily available and continue to improve.
        The Secret Service's strategy in combating this counterfeiting
    trend is threefold. The first concerns legislative proposals. Secretary
    Rubin has asked the Justice Department to join Treasury in working with
    the United States Sentencing Commission to review the guideline ranges
    of imprisonment for counterfeiting cases. The Department will also
    address the issue of providing the Secret Service administrative
    forfeiture authority related to instrumentalities of counterfeiting.
        The second part of the strategy involves cooperation with computer-
    related industries to suppress computer-generated counterfeiting of
    U.S. currency. A meeting with industry representatives is planned to
    discuss this issue to develop a working plan to identify technological
    solutions. The Secret Service sees this meeting as the first step in
    maintaining a continuing dialogue with computer hardware and software
    manufacturers.
        The third part of the strategy involves a public education campaign
    highlighting the security features in the new currency. In addition,
    the importance of the public's scrutiny of the currency they receive,
    as well as the detection of counterfeit currency, will be stressed. We
    expect to undertake this campaign in conjunction with the introduction
    of the new $20 Bill.
                             rowley training center
        The Service's Office of Training has consolidated the construction
    of the Administration and Classroom Buildings at the Rowley Training
    Center into a single, cost-effective project that will be presented for
    competitive bids this March. The anticipated construction start date is
    this summer, with completion expected next fall.
        A state-of-the art close quarters tactical range building (shoot
    house) has been planned, designed, and approved. It will be offered for
    competitive construction bids early this spring.
        The Service continues to utilize state-of-the-art modeling software
    for the Security and Incident Modeling Laboratory (SIMLAB) necessary
    for the development of realistic protective scenarios for training
    purposes. The Service has begun the SIMLAB pilot training programs for
    the Presidential Protective Division and the Vice Presidential
    Protective Division. A major benefit of the SIMLAB program is its
    utility in the risk assessment process. SIMLAB will ultimately enable
    the Service to tailor protective manpower to protective threats and to
    equip detail personnel with protective equipment that matches the
    expected threat.
        The Secret Service has entered into a formal partnership with Johns
    Hopkins University to pursue cooperative projects that will enhance and
    validate the efficiency and effectiveness of the Service's law
    enforcement training. Faculty from Johns Hopkins will participate with
    the staff of the Rowley Training Center to provide comprehensive
    instruction in the most innovative police management principles and
    techniques. This partnership will have a direct impact on curriculum
    review and will result in modifications to the basic agent training
    course.
        The Office of Training, in cooperation with the American Bankers
    Association, has designed and developed a pilot financial crimes
    training course for special agent personnel. In addition, two financial
    crimes seminars were presented exclusively to U.S. Attorneys from
    around the nation. Also, six Dignitary Protection Seminars were
    presented to command level police personnel from various agencies. All
    of these classes served to enhance investigative and protective
    cooperation throughout the law enforcement community. In addition, in
    cooperation with the U.S. Customs Service, the Secret Service has
    expanded its Counter Assault Team training program to include air
    interdiction training to accomplish our protective mission.
                   secret service headquarters consolidation
        Work on the Service's new headquarters building is proceeding on
    schedule, with construction expected to be complete in the summer of
    1999; occupancy is expected to begin shortly thereafter. Concrete slab
    and column construction is complete to the 7th floor, with the building
    expected to reach its full height of 110' this spring. Once the
    concrete structure is in place, the addition of glass window panels and
    exterior brick will commence. Interior systems and drywall work will
    immediately follow the completion of the building's exterior. We are
    very much looking forward to having our own facility.
        Mr. Chairman, this concludes my statement. I would be pleased to
    answer any questions that you or other members of the subcommittee may
    have.

                          Statement of Samuel H. Banks

        Senator Campbell. And, last, Mr. Banks, if you would
    continue.
        Mr. Banks. Thank you, Mr. Chairman.
        It is a pleasure to be here today before this subcommittee
    with Under Secretary Kelly and my colleagues.
        The fiscal year 1999 budget request for the Customs Service
    totals $1.8 billion and 16,766 FTE's. This is an increase of
    about $125 million and 111 FTE's over the current year. About
    one-half of that increase is dedicated primarily to maintaining
    current levels of operation. The other one-half, $68 million
    and 31 FTE's, is going to be focused in the areas of narcotics,
    money laundering, integrity enhancement, child labor
    enforcement, and narcotics detection technology.
        Customs' foremost priority continues to be narcotics
    interdiction. This agency is the first line of defense against
    drug smuggling into the United States, and the opportunities
    for smuggling are daunting.
        Each and every day, Customs processes 1.2 million people at
    our ports. That is almost twice the population of the District
    of Columbia. Each year, we check 18 million commercial
    shipments and 4.5 million sea containers.
        A truck crosses the Southwest border into the United States
    every 5 seconds. We enforce a myriad of trade laws on those
    people and goods coming into the country, and, incidentally, we
    collect over $22 billion in revenue, a 15-to-1 return on our
    S&E budget. We will also match our enforcement record against
    anyone, seizing 982,000 pounds of narcotics, $240 million in
    currency and negotiable instruments, and over 20,000 arrests
    last year.
        How do we face such an enormous workload without a doubling
    in size? Basically by trying to make careful investment
    decisions.
        With our proposed budget for 1999, $54 million will enable
    us to continue implementing our 5-year technology plan. That
    will deploy narcotics enforcement technology at high-risk sea
    and land border ports. We are going to expand our automated
    targeting system, a computerized system to help us focus in on
    those high-risk shipments, and to install large-scale mobile x
    rays and gamma ray equipment to help sort through and inspect
    the 129 million conveyances and the 850 billion dollars' worth
    of trade that crosses our border.
        In fiscal year 1999, we will add 54 agents, intelligence
    analysts, and marine enforcement officers to target and
    interdict drug smuggling cells and enhance money laundering
    operations. This modest increase in resources will be focused
    only on the most high risk and high impact areas.
        The sum of $6 million will be dedicated to implement the
    Integrity Assurance Program, which includes revamping our
    recruitment screening process, conducting polygraphs, running
    more undercover operations, and, last, $3 million is to
    initiate a child labor enforcement program. Mr. Chairman, we
    believe this is a modest, reasonable, responsible budget, and
    it will help us to ensure that the Nation's borders are
    protected.
        If you talk to our officers in the field, I think you will
    find them to be incredibly dedicated and committed to the
    mission. We need to support them with the right tools, the
    automation, and the technology to sort through the massive
    cargo and humanity, to find those violators without impeding
    legitimate traffic. It is a big job, but not an impossible one.
        We will do our best to ensure the money appropriated to us
    is well spent and that we give you and the American taxpayer
    the highest return on your investment.
        Thank you very much.

                               Prepared Statement

        Senator Campbell. I thank you for your testimony, Mr.
    Banks. We will insert your complete statement in the record.
        [The statement follows:]
                     Prepared Statement of Samuel H. Banks
        Good afternoon, Mr. Chairman and Members of the Subcommittee. I am
    pleased to be here today and present to you Customs successes from the
    past year, the current strategies we are undertaking to accomplish our
    multi-faceted mission, and our fiscal year 1999 budget request. It is
    our goal over the next year to continue to build upon the excellent
    working relationship we have with this Committee. Your strong support
    of the Customs Service has been vital to our success as one of the
    Nation's primary border interdiction agencies.
        While much of our past year's success is the direct result of the
    ingenuity, dedication and hard work of Customs employees, we have also
    enjoyed many successes working cooperatively with other Federal, state,
    and local law enforcement agencies, the trade community, and foreign
    governments. We will look to strengthen these important partnerships
    further in the future.
                             narcotics enforcement
        Similar to past years, Customs remains in the forefront of our
    Nation's narcotics interdiction and investigative efforts. Our foremost
    priority continues to be narcotics interdiction. In fiscal year 1997,
    Customs nearly matched its all time high seizure record set in fiscal
    year 1996, by seizing 982,815 pounds of narcotics.
        In order to meet the challenge of policing the Nation's borders
    against drugs, Customs has continued to develop and wed new
    technologies with conventional inspectional and investigative
    techniques. Last fiscal year, over 118 million automobiles, 9.3 million
    trucks, 321,000 railcars, and 4.5 million sea containers entered the
    United States creating an enormous window of opportunity for drug
    smugglers and a massive drug enforcement dilemma for Customs. Each
    year, drug smugglers probe for and exploit weaknesses in Customs
    enforcement shield in, around, over and under our air, land, and sea
    ports of entry. Drug Smuggling Organizations continue to diversify
    their smuggling routes and have increased the sophistication of their
    smuggling techniques. They have established elaborate front companies,
    both foreign and domestic, to facilitate the movement of illicit drugs;
    conspired with dock workers and baggage handlers to form internal
    conspiracies to circumvent the Customs inspection process; deployed
    stealth boats and sophisticated air drop procedures to go around
    established ports of entry; and established sizable spotter networks in
    and around our ports of entry to ``pick and choose'' smuggling times
    and routes.
        In fiscal year 1997, Customs continued its efforts to fight
    smuggling along the Southern Tier of the U.S., including Puerto Rico
    and the Virgin Islands. Through Operations HARD LINE and GATEWAY, which
    were made possible with this Committee's support, we have hired,
    trained, and placed 677 new employees along the Southern border and
    Caribbean Basin.
        In fiscal year 1997, Southwest border seizures under Operation HARD
    LINE were 33,106 pounds of cocaine, 602,549 pounds of marijuana, and
    197 pounds of heroin. Operation GATEWAY, the multi-staged operation
    designed to address the air and maritime threat in Puerto Rico, the
    Virgin Islands, and their surrounding waters, also continued to show
    positive results. Since the start of the second year of operation,
    March 1, 1997, through January 31, 1998, GATEWAY has resulted in the
    seizure of $3.4 million in currency, 16,693 pounds of cocaine, 376
    pounds of marijuana, and 92 pounds of heroin.
        Customs has developed an investigative strategy that focuses
    activity and resources in those areas where it is estimated the
    majority of the illegal drugs enter the U.S. The strategy also targets
    those areas where our intelligence indicates Drug Smuggling
    Organizations' ``command and control'' structures are centered. The
    approach is designed to enhance both internal and external cooperation
    and intelligence sharing, while maximizing the unique investigative and
    interdiction capabilities of Customs.
    Industry partnerships
        To assist in deterring narcotics smuggling, Customs developed and
    deployed a number of innovative programs and detection technologies
    that act as force multipliers to meet our enforcement goals. Customs
    continues to expand its Carrier Initiative Program (CIP) with the truck
    industry and with Southwest border railroads as well. This program is a
    joint effort by Customs and the transportation industry to reduce
    smuggling in commercial conveyances. Presently, 3,900 carriers (875
    land, 110 air, and 2,915 sea) have signed agreements with Customs.
    Building on the CIP, Customs established the Business Anti-Smuggling
    Coalition (BASC) with Southwest border importers. In fiscal year 1997,
    information from these two programs resulted in 74 seizures totaling
    12,700 pounds of narcotics. We believe these partnerships play an
    important role in combating narcotics smuggling. Last year alone, 43
    percent of the cocaine seizures that were made by Customs as a result
    of prior intelligence, came from information that was provided to
    Customs by the trade community.
        Building on the success of these programs, Customs has developed
    the Americas Counter Smuggling Initiative (ACSI), which will expand our
    anti-narcotics security programs with industry and government
    throughout Central and South America. This initiative is designed to:
    strengthen cooperative efforts with legitimate businesses involved in
    international trade; increase actionable intelligence on narcotics and
    contraband interdiction; increase participation in CIP and BASC;
    prevent narcotics from entering the U.S. via commercial cargo and
    conveyances; increase narcotics seizures throughout the region; disrupt
    smuggling by an aggressive attack on internal conspiracies; and force
    smugglers to use riskier methods such as air drops and speed boats.
    Beginning in January 1998, the Offices of Field Operations,
    Investigations, International Affairs, and Intelligence began detailing
    Customs officers to South America to assist exporters, carriers,
    manufacturers, and other businesses. These employees will perform
    security site surveys, develop and implement security programs, conduct
    post-seizure analyses, foster information exchange and follow up
    activities, and provide guidance on technology deployment and
    application to safeguard legitimate trade from being used to smuggle
    narcotics. Target countries include Venezuela, Colombia, Peru, Ecuador,
    Panama, Costa Rica, and Mexico.
    Operation BRASS RING
        Although Customs seized nearly 1 million pounds of illegal drugs in
    fiscal year 1997, more than all other Federal agencies combined, the
    quantity of cocaine seized nationwide dropped 12 percent and the amount
    of cocaine seized in Southwest border cargo dropped significantly last
    year. To address this, Customs is undertaking a tough, new approach in
    fiscal year 1998 to combat narcotics smuggling called Operation BRASS
    RING.
        BRASS RING builds upon the enforcement momentum Customs has
    generated through the use of technology, information systems, and
    trained personnel. Forty-two high risk ports of entry along the
    Southern Tier and high threat airports and seaports have developed and
    begun implementing 180-day action plans which incorporate innovative
    approaches such as mobile blitz teams, cargo movement from small to
    larger locations which have x-ray technology, railroad inspections, and
    anti-smuggling spotter initiatives. BRASS RING is also innovative in
    that it was developed by field personnel and in partnership with the
    National Treasury Employees Union.
    Technology
        Technology plays an important role in all Customs counterdrug
    activities. It provides new capabilities to allow inspections to keep
    up with changing smuggling techniques, acts as a force multiplier,
    increases enforcement effectiveness and efficiency and allows us to
    cope with growing trade and traffic.
        With the support of the Administration, Customs has developed a
    comprehensive and structured 5-year plan to deploy counterdrug
    technology to the ports of entry, subject to budget resources, to
    significantly increase the smugglers' risk of detection along the
    entire Southern Tier of the U.S. This technology includes: non-
    intrusive technologies (e.g., fixed and mobile truck x-ray systems,
    gamma-ray inspection systems for trucks and railcars, and higher energy
    heavy pallet x-ray systems) to counter the entry of narcotics along the
    Southern Tier; technology for outbound currency and weapons at ports
    along the Southern tier; dedicated commuter lanes which depend on
    technologies such as voice recognition, biometric identification,
    ``smart cards'' (a chip on a credit card-sized card which stores
    information about the individual), and vehicle movement control
    technologies along the Southwest border; investigative, intelligence,
    and encrypted, digital, voice communications technology; and automated
    targeting systems. In addition, over the next five years, we intend to
    deploy similar non-intrusive inspection technology to high-risk
    airports and seaports which are not located along the Southern Tier,
    such as John F. Kennedy International Airport in New York and the
    Newark Seaport. Recent accomplishments in the development of new and
    larger-scale non-intrusive inspection systems will provide Customs with
    the opportunity for unprecedented improvement in the intensity and
    quantity of inbound inspections of cargo and conveyances.
        Customs currently operates four truck x-ray systems in El Paso and
    Pharr, Texas and Otay Mesa and Calexico, California. In addition, one
    prototype mobile truck x-ray system and one prototype gamma-ray system
    are in place at Laredo and El Paso, Texas, respectively. The prototype
    gamma-ray system uses gamma-ray radiation to penetrate the structure of
    heavier-bodied trucks, such as propane tankers, to allow Customs to
    examine both the conveyance and some cargoes for the presence of
    contraband. Since the first truck x-ray system became operational in
    August 1995, this system, and the three others that have become
    operational since March 1997, have been involved in 150 drug seizures
    totaling over 38,000 pounds of narcotics. By December of 1998, Customs
    will have four additional fixed site truck x-ray systems operational in
    El Paso, Laredo, and Brownsville, Texas; and Nogales, Arizona.
        We believe this type of technology is invaluable in enhancing
    Customs narcotics enforcement capabilities without impeding the flow of
    legitimate commercial traffic. The fixed site truck x-ray and mobile
    truck x-ray systems can inspect approximately eight full size tractor-
    trailer trucks per hour. The gamma-ray system can inspect 12-15
    tractor-trailer trucks per hour. Both of these systems can inspect any
    vehicle that is legal for operation on public roadways.
    Air and Marine Programs
        In fiscal year 1997, the Customs Air Program contributed to the
    seizure of 51,908 pounds of cocaine, 64,595 pounds of marijuana and 50
    pounds of heroin. It also continued assistance to Mexico in the air
    transit zone and to South American countries in the narcotics source
    zone.
        Since the implementation of HARD LINE and the strengthening of the
    ports of entry, the marine threat has risen dramatically from its
    previous levels. Over the past few years, the Marine Program has been
    scaled back to focus Customs efforts on other methods of deterring
    narcotics smuggling. In fiscal year 1997, the Customs Marine Program
    contributed to the seizure of 31,538 pounds of cocaine, 25,040 pounds
    of marijuana, and 39 pounds of heroin. It is imperative to sustain this
    successful program.
        The Customs National Marine Strategy places an emphasis on
    intelligence-driven interdiction operations and investigations.
    Smuggling methods have changed from the very simplistic (boats with
    bulk marijuana thrown on the decks or in cabins) to the very
    sophisticated (cleverly engineered hidden compartments, as well as air
    drops). The contraband has also changed from large, easily detectable
    cargoes of marijuana to smaller loads of cocaine. Customs future air
    and marine interdiction successes will be based on a flexible response
    in meeting new external challenges like those mentioned above.
    Railroad inspections
        In fiscal year 1997, Customs processed more than 320,000 rail cars
    at eight major crossings along the Southwest border--Laredo,
    Brownsville, Eagle Pass, Presidio and El Paso, Texas; Nogales, Arizona;
    and Calexico and San Ysidro, California. Approximately half this volume
    crossed at Laredo, Texas. In response to the emerging threat of
    narcotics smuggling via rail, Customs is increasing its intensive
    inspections of railroad equipment and is testing non-intrusive
    technology on railcars. Customs recently completed successful tests of
    the Vessel and Container Inspection System (VACIS), a gamma-ray imaging
    system that has been modified for use in the rail environment. Customs
    also plans to deploy 47 positions to increase rail inspections by
    Contraband Enforcement Teams, add rail inspection training to its
    existing Southern Border Interdiction Training course, and perform
    joint operations with other agencies.
        Recently, Customs and Border Patrol officials met to coordinate
    joint inspection operations on Southwest border railcars. Since the
    summer of 1997, joint operations have been held at each of the eight
    major rail crossings with successful results. To date, these efforts
    have produced several marijuana seizures totaling more than 700 pounds
    as well as the discovery of 17 railcars with false compartments. Custom
    is also an active participant in a multi-agency working group formed by
    Attorney General Reno to address the threat of narcotics smuggling via
    rail.
                                money laundering
        Fiscal year 1997 was one of dynamic change in the investigative
    approach taken in the area of money laundering investigations and
    initiatives. As a result of the programs implemented in fiscal year
    1997, Customs money laundering strategy is now more focused on the
    disruption and incapacitation of the two key business functions that
    are the lifeblood of most sophisticated international criminal
    organizations: laundering and investing the proceeds and profits of
    their criminal activity. Asset Removal Teams, undercover operations,
    training foreign counterparts, and the establishment of the Money
    Laundering Coordination Center, discussed below, have all contributed
    to improving our money laundering strategy.
        In fiscal year 1997, our money laundering efforts resulted in
    seizures of $257 million in monetary instruments, most of which were
    related to narcotics trafficking. The Customs-led El Dorado Task Force
    in New York met with tremendous results in disrupting money laundering
    in the wire remitter industry. Using a combination of undercover
    operations and regulatory interventions, such as Geographic Targeting
    Orders (GTO's), the task force targeted 12 remitters that sent over
    $1.2 billion a year to South America--$800 million of it to Colombia.
    Their efforts have reduced the amounts remitted to Colombia by over 30
    percent, driving the drug proceeds out of this system and contributing
    to the overall rise in the cost of laundering drug money.
        On legislative and regulatory matters, Customs worked closely with
    the Department of Treasury and the Financial Crimes Enforcement
    Network, which resulted in several notices of proposed rule making for
    enhanced reporting for money services businesses, wire transfer record
    keeping requirements, and currency and monetary instruments reporting
    on foreign bank drafts.
        For fiscal year 1998, our money laundering strategy will build upon
    the successes from the previous year. Our Money Laundering Coordination
    Center will become operational in fiscal year 1998 and will coordinate
    Customs nationwide undercover money laundering operations and follow-up
    investigations. Customs also plans to expand the use of covert
    undercover money laundering operations and continue to increase the use
    of non-traditional law enforcement methods, such as GTO's, in
    coordination with the Internal Revenue Service, the Department of
    Justice, the Financial Crimes Enforcement Network, and state and local
    law enforcement.
                                   integrity
        While there is no systemic problem of corruption at Customs, it is
    necessary to develop a strong integrity assurance program to counter
    perceived and potential threats of corruption. In fiscal year 1997,
    Customs began an enhanced integrity program to address these issues and
    redirected resources to strengthen the Office of Internal Affairs (IA).
    Of the 45 positions identified for this critical program, 35 have been
    filled or selections made. These employees will be devoted to the new
    Computer Analysis Division (which will perform forensics, analysis, and
    assessments of the integrity of automated systems), special operations,
    inspection and audit, and other similar functions. Activities, such as
    inspections and audits, will also increase current employee awareness
    of integrity issues.
        Pending funding availability requested for fiscal year 1999, IA
    will also develop ways to complete background investigations more
    quickly with a higher degree of reliability, expand its own polygraph
    capability to address internal investigations of alleged misconduct,
    and acquire the specialized hardware and software to accommodate the
    FBI's change to electronic fingerprint technology. Working in concert
    with the State Department, IA plans to continue to accommodate other
    countries' requests for integrity and internal investigative training.
    This effort fosters better coordination with other countries' customs
    services, and the development of initiatives of mutual benefit in
    thwarting international corruption of law enforcement personnel.
    Customs is exploring changes to its hiring mechanisms to ensure that
    the highest level of integrity in its work force is maintained.
                                   automation
        Customs has embarked on an aggressive strategy to improve its
    management of information technology in response to legislative
    mandates, such as the Clinger-Cohen Act and Government Performance and
    Results Act, the Federal Acquisition Streamlining Act, and guidance
    from OMB and GAO. Over the past year, Customs has developed an
    investment management process that considers the risks, costs and
    benefits associated with potential information technology (IT)
    investments. This provides a systematic process within which Customs
    Investment Review Board (IRB) can make funding decisions and exercise
    oversight of Customs IT projects. The process instills discipline by
    making the business sponsors responsible for IT projects, by
    integrating business and technical risk considerations, and by ensuring
    adherence to Customs systems development guidelines.
        In addition, major Customs IT projects are under ongoing review by
    the Treasury IRB in order to ensure that these investments meet the
    criteria of the Clinger-Cohen Act and the goals and strategies of the
    Treasury Department. One such project, the Automated Commercial
    Environment (ACE) is reviewed by the Treasury IRB every month. The
    Treasury IRB evaluates the project's progress against established
    milestones and performance measures, reviews and approves Customs IRB's
    ACE funding release requests, approves every status report that is sent
    to GAO and Congress, and ensures that ACE, as well as Customs
    enterprise architecture follows GAO's best practices.
        Also during the past year, Customs has undertaken an extensive
    self-examination of how its IT operations support business needs. This
    effort has enabled Customs to establish the foundation for developing
    both an enterprise architecture, which defines how information systems
    and applications support business needs, as well as a technical
    architecture describing the components of the IT infrastructure. As a
    result of this effort, Customs has strengthened its ability to develop
    comprehensive and integrated IT infrastructure assessments and budget
    proposals. Further, Customs is proceeding with an effort to more fully
    develop an enterprise architecture and a process for renewing that
    architecture in conformance with Treasury guidelines and industry best
    practices.
        Finally, Customs is intensively attacking the problem of Year 2000
    compliance. Customs recognizes the gravity of the situation of our
    automated trade and enforcement systems, on which the trade and other
    law enforcement agencies depend, if our systems are not ready for the
    Year 2000. Customs is devoting considerable attention and has shifted
    resources to support the necessary renovation and testing of IT
    systems; the replacement of IT software, hardware and
    telecommunications that is not capable of operating in the Year 2000;
    and in addressing Year 2000 problems in such non-IT areas as laboratory
    equipment, x-ray machines, and building infrastructure.
        While much work needs to be done and many problems can be
    anticipated, the Year 2000 conversion effort is meeting with some
    success. As of January, Customs is slightly ahead of schedule for
    ensuring that mainframe mission critical trade, enforcement and
    administrative systems are renovated and tested by October 1998.
    Further, these efforts are currently within budget, although Customs
    remains concerned about the rising costs of IT professionals in the
    current tight labor market.
                                trade compliance
        Through a complete redesign of the trade process and a focus on key
    industries and importers, Customs has made good progress toward
    attaining its goal of 90 percent overall compliance and 95 percent
    compliance for Primary Focus Industries (PFI). PFI's are industries
    which are of sufficient trade sensitivity to warrant a heightened
    degree of attention by Customs with respect to imported goods. The
    agency also has been able to sustain a close to 99 percent duty
    collection rate.
        However, with the substantial growth in world trade, coupled with
    limited resources, it is becoming clear that Customs ability to meet or
    sustain all of the goals for trade compliance is increasingly
    challenged. Customs is continuing to move forward by constantly
    refocusing its resources on the vital industries and imports, but has
    adjusted its performance targets to reflect limited resources.
        For fiscal year 1998, Customs has set forth an ambitious agenda. In
    the trade compliance area, Customs will initiate a number of positive
    initiatives. Included are: an initial prototype of elements of the
    modernization of Customs automated commercial operations at three land
    border ports; finalizing and implementing new drawback regulations to
    tighten control over this program (which was previously identified as a
    Federal Managers Financial Integrity Act weakness); instituting multi-
    port compliance efforts focused on three compliance areas (bearings,
    production equipment, and gloves) to see if greater organizational
    focus will result in higher levels of compliance sooner; continuing the
    informed compliance program with more focus on high impact areas; and
    continuing efforts to improve Customs compliance measurement program.
    Trade Compliance also plans to expand the account based-approach to 150
    accounts; initiate over 100 compliance assessments of companies;
    develop a similar compliance approach for Mexican and Canadian NAFTA
    goods; increase focus on our international cooperation efforts with
    other countries, the World Trade Organization, and the World Customs
    Organization; and finally continue improvement of our commercial
    financial systems to improve compliance with the Chief Financial
    Officers (CFO) Act. The $11 million appropriated to the Department of
    Treasury's Automation Enhancement account in fiscal year 1998, and
    subsequently transferred to Customs, will continue efforts to modernize
    Customs automated commercial operations.
    Account Management
        Customs has prototyped the concept of Account Management. The
    Account Manager is assigned an account (importer) or group of accounts
    and is responsible for overseeing the efficient application of Customs
    processes to the account(s). By viewing import practices from a
    corporate or account level, Customs can craft strategies to maximize
    compliance which are reflective of developing business practices. The
    importer benefits by having a single point of contact within Customs.
        In fiscal year 1997, Customs had 25 full-time National Account
    Managers in place and a growing list of accounts participating in the
    program. In addition, the prototype of Port Account Management was
    implemented. The Port Account concept also focuses on major accounts--
    importers with annual trade value in excess of $10 million. Successful
    prototyping has led to a January 1998 expansion of the program which
    now numbers 120 accounts, and further expansion is planned for later in
    1998. The Account Management approach, as exemplified by these
    programs, is the cornerstone for the future of the trade compliance
    process. While analysis of trade patterns and determination of
    compliance levels for industries and countries of origin will remain
    critical for effective operations, an account focus is the means for
    implementing strategies resulting from such analysis. Customs believes
    that the vast majority of companies who import goods wish to do so in
    compliance with laws, rules, and regulations. The Account approach
    enables Customs to assist compliant companies to maintain compliance,
    while better using its resources and processes to focus on non-
    compliant activities. Such a focus will enable Customs to maximize the
    enforcement of laws and further develop risk management.
                                   passenger
        In fiscal year 1997, the performance target of 60 percent of the
    arriving flights providing Customs advance passenger information was
    met, and Customs continued to attain a 5 minute or less processing rate
    for 95 percent of arriving air passengers. Informed compliance projects
    continued with the establishment of additional self-service
    informational kiosks at 12 airport departure lounges, production of
    brief television public service announcements for 8 airport television
    networks, and AM radio loops at the land borders.
        Passenger targeting and identification were enhanced through
    continued airport analytical unit training, additional automation
    improvements to the Advance Passenger Information System (APIS), and
    improvements to APIS primary processing screens. Port Quality
    Improvement Committees (PQIC's), which are multi-agency, empowered
    teams established to increase coordination on local passenger
    processing issues, are in place at numerous land border ports and
    airports, and are used to coordinate operations between government
    agencies and industry.
        Over the next year, improvements will be made to the passenger
    compliance measurement program in the commercial air program area.
    Customs will continue efforts to obtain advance passenger information
    for 65 percent of all international flights. This will be accomplished
    by working with various airlines and the Immigration and Naturalization
    Service.
        Customs will also continue to expand automated targeting
    capabilities; test or install several new technologies, such as
    automated license plate readers, at the land borders; and continue
    efforts to increase the compliance levels of non-willful violators.
    Most arriving persons choose to be compliant when information for
    compliance is easily available. If the number of inadvertent violations
    can be significantly reduced, inspectional resources can focus more
    fully on serious violators.
                                    outbound
        In fiscal year 1997, the Outbound Process made significant outbound
    interdictions of currency, stolen vehicles, and Exodus violations.
    Outbound seized more than $55 million in undeclared outbound currency.
    The majority of undeclared currency going out of the U.S. involved
    proceeds from illicit activities, with the majority being proceeds from
    narcotics smuggling into the U.S. Outbound also recovered 2,119 stolen
    vehicles worth an estimated $35.3 million. In fiscal year 1997, Customs
    Exodus Program, an intensified enforcement program intended to
    intercept illegal exportation of strategic technology and data,
    interdicted 1,034 shipments of weapons, munitions, and critical
    technology illegally leaving the United States, valued at more than $59
    million.
        Customs will continue to enforce a wide range of international laws
    related to illegal trafficking in materials and technologies which
    threaten U.S. national and economic security and impact on U.S. foreign
    policy.
        To the extent that funds are available, Customs will work to
    improve the compliance measurement program started last year; continue
    to work with the trade community to address their concerns in
    conjunction with the development of the Automated Export System (AES)
    which will capture all export information; initiate an automated export
    license system in AES; standardize used car export procedures; and
    further a number of initiatives to deal with willful violators (e.g.,
    test new outbound examination facilities funded by increased
    appropriations). Outbound will also evaluate new technologies; support
    Department of Defense and Department of Energy foreign export control
    programs; evaluate a stolen vehicle initiative started in the Port of
    Miami; work with our intelligence units to improve outbound currency
    interdictions; and continue efforts to implement a credible
    antiterrorism program in conjunction with the airlines, airport
    authorities and with the other Federal agencies tasked with this
    responsibility.
    Antiterrorism
        In fiscal year 1997, Customs received $62.3 million for
    antiterrorism initiatives to be used to meet the recommendations issued
    by the White House Commission on Aviation Safety and Security. To date,
    Customs has filled 137 of the 140 positions (100 inspectors, 33 agents,
    6 intelligence analysts, and 1 technical support position) authorized
    under the antiterrorism legislation. One hundred inspectors and 10
    special agent positions have been assigned to 14 of the largest
    international airports. In addition, 20 special agents and the
    intelligence research specialists are working jointly with the Federal
    Bureau of Investigation and the Central Intelligence Agency at both
    field and Headquarters locations.
        To support efforts to screen baggage and cargo at international
    airports, $35 million was specifically authorized to purchase equipment
    under this appropriation. Of this amount, $26.4 million has been
    designated to purchase joint-use equipment that can be shared with
    airports, airlines and cargo authorities. Equipment procurement will be
    accomplished over a three year period. Planned use of the funding
    includes the acquisition of: mobile x-ray vans with explosive and
    radiation detection technology; tool trucks; mail x-ray systems;
    explosive particle detectors; and radiation detection pagers. Also, for
    joint-use with airport entities, the heavy cargo pallet x-ray will be
    tested in July 1998 in Miami, Florida.
        An additional $16 million is available to further develop the
    Automated Targeting System (ATS) to identify cargo shipments that may
    pose terrorist threats. A prototype test of this system is scheduled to
    take place at New York's JFK Airport in June 1998.
        Since October 1, 1997, Customs made many significant interdictions
    that support aviation safety and security at 17 international airports
    that have received resources under this initiative. Customs has
    assisted in three terrorist related arrests, made 65 firearm seizures
    in baggage and cargo, and made 56 seizures of violative shipments of
    hazardous materials and dangerous goods that would have been placed on
    aircraft.
                        fiscal year 1999 budget request
        Customs proposed appropriation for fiscal year 1999 totals
    $1,804,025,000 and 16,766 Full Time Equivalent (FTE) positions.
    Budget Highlights
        Our Narcotics and Money Laundering Strategy will provide essential
    resources which will enhance our investigative and intelligence
    capabilities while enabling Customs to better anticipate and respond to
    changes in drug smuggling behavior. The $5 million and 27 FTE requested
    will provide us with additional personnel and investigative assets
    needed to exploit seizures made at the border and effectively identify
    and disrupt the transportation and distribution cells of Drug Smuggling
    Organizations (DSO's) within the U.S.
        The Customs Integrity Assurance Program (CIAP) Initiative of $6
    million requested for fiscal year 1999 will allow Customs to conduct
    more special operations in partnership with other Federal agencies,
    place a much stronger emphasis on intelligence and the analysis of
    investigative data, and increase contract and computer fraud
    investigations. In addition, Customs will change the process for hiring
    law enforcement officers by requiring increased emphasis on pre-
    employment screening.
        The quality recruitment component of the initiative will insure
    that applicants of the highest quality and integrity are hired by using
    written tests, suitability assessments, structured interviews, and the
    redesigned pre-employment process. Customs will use the requested funds
    to develop ways to expedite background investigations with a higher
    degree of reliability, expand polygraph capability in order to address
    internal investigations of alleged misconduct, and acquire specialized
    hardware and software to accommodate the FBI's change to electronic
    fingerprint technology.
        In order to fully implement an effective child labor enforcement
    plan, Customs is requesting $3 million and 4 FTE (7 positions) to fund
    the three main components of the Child Labor Enforcement Initiative:
        The first component is the establishment of the Child Labor Command
    Center which will be located at Customs headquarters and staffed by two
    special agents and two intelligence research specialists. The Command
    Center will act as a clearinghouse for information and provide 24 hour
    ``hotline'' telephone service to a wide variety of audiences in order
    to provide a venue for allegations about prohibited importations. The
    second component is the increase in crucial foreign staffing by
    assigning three additional special agents to areas where forced child
    labor is the most common. The third component is Customs engagement in
    outreach programs with the trade, government, and non-government
    organizations, taken in concert with in-house programs, to achieve
    successful enforcement of the Sanders amendment to Customs fiscal year
    1998 appropriations act (Public Law 105-61, 111 Stat. 1316).
        Our fiscal year 1999 budget request also includes a $54 million
    Non-Intrusive Inspection Technology Initiative for land and sea ports.
    As growth in trade and traffic volumes increase, tools to rapidly
    screen and comprehensively inspect arriving conveyances and cargo must
    be deployed. This technology will allow Customs to effectively target
    and detect high-risk traffic without impeding the flow of legitimate
    commercial traffic. This funding will allow Customs to acquire two
    higher energy container inspection systems for sea-going containers
    ($10 million), 12 automated targeting systems for Land and Sea Ports
    ($3.4 million), and multiple technologies for the Southern land border
    ($40.6 million). This investment in proven technologies is essential
    and critical for enabling Customs to blend state-of-the-art equipment
    with law enforcement intelligence, thereby enhancing counter-narcotics
    capability.
        Congress' fiscal year 1998 enactment of $9.5 million for the Land
    Border Automation Initiative is recurred in this budget. This will have
    the ancillary benefit of improving targeting of arriving vehicles for
    enforcement purposes. This is the second phase of a joint initiative
    with INS which began in fiscal year 1998. The automated targeting
    systems, license plate readers, and Treasury Enforcement Communications
    System replacement program, will free up inspectors to do more careful
    visual screening and questioning of vehicle occupants for enforcement
    purposes, thereby resulting in increases in detections of violations
    and subsequent seizures and arrests.
        In addition, Customs is requesting $7.252 million and 80 FTE as
    part of base resources in response to several mandates. The National
    Performance Review (NPR) goal to clear most travelers on the southern
    border in 30 minutes or less and on the northern border in 20 minutes
    or less by the year 2000 for land border travelers by vehicle, and the
    legislative mandate contained in the Illegal Immigration Reform and
    Immigrant Responsibility Act (IIRIRA) of 1996 account for $4.185
    million and 46 FTE. The NPR customer service goal is a joint initiative
    with the Immigration and Naturalization Service (INS) and the
    Department of Agriculture. The Immigration law authorizes Customs and
    INS to cover all primary lanes during peak processing hours and in
    equal numbers. This staffing and the staffing requested for the new
    border crossings, ($2.706 million/30 FTE) will help to support both
    requirements. Finally, the adjustments reflect the completion of
    resource levels for the requirement to staff an additional dedicated
    commuter lane in El Paso, Texas ($0.361 million/4 FTE).
        While we have much to be proud of, Customs is still keenly aware of
    the importance of continuing to explore new and innovative strategies
    for improving its performance in protecting our Nation's borders. This
    concludes my statement for the record. Thank you again for this
    opportunity to appear before the Committee.

                     Office of Professional Responsibility

        Senator Campbell. Let me ask a few questions, and I think
    we may have some that we will submit, if you could answer them
    for the record if we do not get to all of them.
        Secretary Kelly, the Office of Professional Responsibility
    was created by Congress as a way for the Department to maintain
    oversight over the Treasury law enforcement bureaus. Funding
    was provided in the fiscal year 1997 and again in 1998 for this
    office, and I am told that it has been somewhat slowgoing.
    Could you tell me the current status of that Office of
    Professional Responsibility?
        Mr. Kelly. Yes, Mr. Chairman; we have brought six people on
    board to date, two administrative personnel and four
    professional-level people.
        Again, the process was certainly much slower than we wanted
    it to be. It was partly as a result of receiving a very large
    number of applications. We had over 400 applications for the
    positions that we advertised for. So just processing those----
        Senator Campbell. What was the total manpower you were
    going to include?
        Mr. Kelly. A total of 13.
        Senator Campbell. Thirteen.
        Mr. Kelly. We are underway now. Hopefully, we will have all
    of the positions filled by the end of the fiscal year.
        Senator Campbell. During consideration of the fiscal year
    1998 bill, you requested and received additional statutory
    authority to allow the Department to become involved in the
    International Law Enforcement Training Academies. And how is
    that effort going?
        Mr. Kelly. Yes, Mr. Chairman; I think it is going well.
        We have established ILEA South, we call it, which is in
    Panama. We had our first class in Panama started in November.
    Thirty-two midlevel law enforcement personnel from Central
    America attended the course. The feedback was very positive. I
    went to the graduation, and I was very much impressed with the
    quality of the personnel and their enthusiasm.
        Senator Campbell. How long was the course?
        Mr. Kelly. The course was 6 weeks, I believe.
        Senator Campbell. Is there mostly American instructors?
        Mr. Kelly. American instructors from both Justice and the
    Treasury Department.
        We are now going to have another class starting March 9. It
    is also going to be in Panama. It is going to be in a hotel. We
    are looking still for a permanent home. We hope to have the
    facility located at Howard Air Force Base, which, of course, is
    in a transition stage now.
        It is contingent on negotiations between the Department of
    State, DOD, and Panama to get a central antinarcotics training
    center located there as well, but we are asking for an
    additional five FTE's for ILEA South because the FLETC staff
    is, quite frankly, thin, and we believe we need that type of
    permanent cadre to be in place as far as ILEA South is
    concerned.
        We also look to staff the Deputy Director's position in
    ILEA Budapest. We have an agreement with both the State
    Department and the Justice Department to have kind of rotating
    positions in the two current ILEA's and a third one proposed
    for Thailand. So we think that those positions would be
    necessary to help us move this initiative forward.
        Senator Campbell. If we could name the Panama Center the
    Noriega Center, there would be some poetic in that, wouldn't
    there? I am just kidding.

                        Office of Foreign Assets Control

        The Office of Foreign Assets Control falls also under your
    jurisdiction, and you are requesting additional employees for
    that function. Could you tell me where they will be located and
    primarily what they will be doing?
        Mr. Kelly. Yes, Mr. Chairman; their workload has gone up
    significantly in the last 2-year period. They are particularly
    involved in the specialty-designated narcotics traffickers
    initiative coming out of Colombia. We look to put at least two
    OFAC personnel in Colombia to help do on-the-ground research--
    --
        Senator Campbell. These would be Americans?
        Mr. Kelly. Yes, sir.
        And, in general, to address investigations and research
    that has to be in the area of narcotics-trafficking.
        Senator Campbell. You are getting good cooperation with the
    Colombian authorities and not too much danger to the agents?
        Mr. Kelly. No; and this has been very much supported by the
    Ambassador and the DCM there. They are looking for OFAC
    involvement.

                             Death of Customs Agent

        Senator Campbell. During the first week of January, there
    was a very unfortunate accident that ultimately resulted in the
    death of a U.S. Customs agent. I do not know if that question
    should be for you, but perhaps you can answer it.
        I understood that the agent was unable to get critical
    medical attention in a timely manner. Can you comment on that?
        Mr. Kelly. Yes; I can. I actually responded to the scene,
    and Commissioner Banks and I went to the funeral of Manny
    Zurita, who was the senior special agent.
        The accident occurred about 8:30 at night off the coast of
    the Virgin Islands. The boat ran into a rock, and three agents
    were seriously injured. Two others were injured attempting to
    rescue them.
        They ultimately made their way to shore, through other
    boats, on the Virgin Islands. There was a determination made
    there that the most seriously injured agent, Agent Zurita,
    should be medivaced to Puerto Rico. He was, in fact, medivaced.
    This took, of course, a period of time, several hours, and he
    was not medivaced until about 11:30 at night.
        He went to Central Medical Hospital in San Juan, PR. That
    hospital is a trauma center, but it has a very high volume of
    patients to deal with. It is the only trauma center on the
    island of Puerto Rico.
        As a result, a certain triage regime was in place when they
    arrived, and there was some delay in giving adequate medical
    attention.
        We arrived the next day. Agent Zurita had been treated, but
    one of the other agents who had a compound fracture of his arm
    had not yet been treated. That was about 4 o'clock in the
    afternoon. So it was an area of concern for us.
        Senator Campbell. Was the area where they were picked up an
    isolated location, too?
        Mr. Kelly. Yes; it was an isolated location. Again, it was
    in the dark of night. They had to be brought back to the Virgin
    Islands and then medivaced by helicopter to Puerto Rico.
        They did not arrive at the hospital until about 2 o'clock
    in the morning. This is roughly a 6-hour period of time where
    they were not in an adequate medical facility, and then, again,
    they ran into the triage issue.
        Senator Campbell. Well, they are dangerous jobs. That is
    for sure, and we certainly appreciate the courage of people
    that put their life on the line for us in doing that.
        Let me ask a couple of questions. From that experience,
    have you learned anything that would help in a future
    operation, if we have any future agents hurt like that or
    injured in firefights and so on?
        Mr. Kelly. I think one of the things that we have to look
    at is having adequate medical personnel close by during all
    operations. These are dangerous operations by their very
    nature, being out on the water in high-speed boats at night,
    for instance, and I think Secret Service and ATF, they do a
    fine job in having medical personnel available.
        One of the things--all the time, when they are doing, say,
    tactical operations--I think one of the areas that we want to
    explore is having, let us say, Customs personnel trained as
    emergency medical technicians, a certain ratio.
        Senator Campbell. As it is now, do the other members of
    these teams have training in anything other than pure first
    aid?
        Mr. Kelly. To the best of my knowledge, no. There may be
    some that are trained, but not as a result of a program.
        Senator Campbell. Let me go on to Mr. Magaw.

                 Gang Resistance Education and Training Program

        I am aware of the Gang Resistance Education and Training
    Program [GREAT]. It has been very successful in Colorado, but
    we have some questions about how local jurisdictions can get
    involved with that.
        Mr. Magaw. Well, local jurisdictions that are interested in
    the program--and we do spread the information around so that
    there would not be any major jurisdictions or even minor
    jurisdictions unaware--would be aware of the GREAT Program, and
    they make application. There is a set of guidelines because
    there are only a reasonable number----
        Senator Campbell. So you notify them first that there are
    applications available----
        Mr. Magaw. Yes, sir.
        Senator Campbell [continuing]. And that they can get
    involved in it?
        Mr. Magaw. Yes, sir; and we are forwarding those out almost
    daily upon request, and it is being passed along by
    instructors.
        There are almost 3,000 officers trained throughout the
    country and some in every State, and, as you know, last year we
    had trained quite a few in your State.
        Senator Campbell. Sure.
        Mr. Magaw. And as a result, the word spreads.
        Historically, GREAT was in Phoenix and in FLETC where
    police officers were trained. And now, because of the demand,
    we are spreading to three other areas in the country. We are
    going to go to a regional approach. There will be a unit in
    Oregon, one in Philadelphia, in Orange County, FL, and then the
    ones that we have now. We hope to continually meet those needs.
    Some of those cities are funded by their own funds, and then
    others are funded by the Federal moneys.
        Senator Campbell. As you know, there is sort of an exodus
    of some of the inner-city gangs going out on Indian
    reservations that are in the proximity of the cities. We have
    talked about that before.
        Are tribal groups also aware of the GREAT Program, and can
    they avail themselves to the GREAT Program?
        Mr. Magaw. Are you talking about on an Indian reservation,
    sir?
        Senator Campbell. Yes; on Indian reservations.
        Mr. Magaw. Yes, sir; in fact, we are in the process of
    arranging for and training Indian police officers to perform
    just that task.
        Senator Campbell. Thank you.

                   Federal Firearms License Security Measures

        At the January ATF briefing to the firearms industry in Las
    Vegas, the ATF representatives said at that time that they were
    preparing some recommendations to license firearms dealers
    regarding acceptable security measures. When will the committee
    be able to get a copy of that, and when would it be available
    to the industry?
        Mr. Magaw. I know it is fairly near final preparation. It
    will go to the Office of Enforcement and Treasury within a
    short period of time and be out. I cannot put weeks or months
    on it, but it is not going to be very long. I would say 60 to
    90 days.
        Senator Campbell. Sixty to ninety, perhaps. OK. I would
    appreciate it if the committee could get a copy of that when it
    is done.
        Mr. Magaw. Yes, sir.
        Senator Campbell. Thank you.
        Was the industry involved in helping develop those
    guidelines?
        Mr. Magaw. The industry is conferred with in this
    particular matter and has been conferred with in the 4 years
    since I have been here on virtually every firearms or explosive
    or alcohol study that we are doing.
        Senator Campbell. So these are basically guidelines, but
    not necessarily mandatory recommendations. Is that the way you
    see it?
        Mr. Magaw. That is right. They are basically guidelines,
    not mandatory.
        They are being drawn up from our experience in collecting
    information from police departments and others as to how these
    weapons are being stolen and what are some of the security
    things that they can take.
        Senator Campbell. All right. Thank you.
        Perhaps I should ask Under Secretary Kelly. Does the
    Department of the Treasury have plans to impose mandatory
    security requirements on firearms dealers or other industry
    entities?
        Mr. Kelly. Not to my knowledge. Obviously, we await
    recommendations from ATF, but, to my knowledge, there is no
    such plan.
        Senator Campbell. Thank you.

                               Year 2000 Program

        Also, Mr. Magaw, funding was provided last year to deal
    with costs associated with the year 2000 transition problem.
    Currently, it is called Y2K. Could you tell me a little bit
    about that conversion in your agencies?
        Mr. Magaw. Well, the Y2K program is actually very rigid and
    strict. A timeline program has been set up by Treasury looking
    at all of their bureaus and units, and we have been involved
    from the very beginning with that. There are schedules to meet,
    and we are meeting each one of those schedules. We anticipate
    that we will meet every requirement in preparation for that
    Y2K.

                               Revenue Collection

        Senator Campbell. Most people think of ATF only in terms of
    guns or tobacco, I guess, but there are a lot of
    responsibilities. I know you are more aware of them than I am,
    including the collection of alcohol and tobacco taxes, how much
    revenue was generated by the ATF in fiscal year 1997, and do
    you have a projection for fiscal year 1998?
        Mr. Magaw. In fiscal year 1997, there was $12.7 billion.
        Senator Campbell. $12.7 billion?
        Mr. Magaw. Yes; and we expect that this year, it will go
    slightly up to about $12.8 billion.
        Senator Campbell. Thank you.

                               Birmingham Bombing

        This question, you might not be able to speak about in
    public, but in your responsibility for the investigations of
    bombings--I read the newspaper like everybody else, and the
    recent incident in Birmingham, the man that was identified, it
    appears that he was the bomber. I know there is pretty much a
    nationwide search for him. Is there anything you can share with
    the committee in dealing with that search?
        Mr. Magaw. What I can share, clearly, is that all of the
    law enforcement entities are working very, very close together.
    We are using different units of ATF, different units of local
    police departments, and the FBI. There are over 3,000 leads
    that have come in.
        Senator Campbell. Are there calls that they think they saw
    him or things of that nature?
        Mr. Magaw. Well, bits and pieces of information, and as
    they are pieced together and as places are located where this
    individual and maybe some others involved, where they lived,
    where they stored things, and as we have probable cause to get
    search warrants--and when I say we, I am talking all of law
    enforcement as a team----
        Senator Campbell. Sure.
        Mr. Magaw [continuing]. And those searches take place,
    additional evidence is showing up. So that, the case is
    progressing very, very well.
        Senator Campbell. Thank you.
        I would like to go to Mr. Merletti now. This is your first
    appearance here before the committee. I am sure you have had an
    interesting first few months in your new appointment.
        Your budget request includes a significant amount of
    additional protection and protective intelligence, $7 million
    and 35 new employees, for about a 2-percent increase. These, I
    assume, are very necessary, and you have looked into that. Can
    you justify those?
        Mr. Merletti. Yes, Mr. Chairman; staffing on both the
    Presidential and Vice Presidential protective divisions has
    been increased due to operational changes necessary to meet an
    increased threat level.
        We in the Secret Service continually reexamine ourselves,
    and look at how we do our business. We compare ourselves to
    other worldwide security agencies, and we take a look at what
    the threat level is.
        We found that on the President and Vice President's
    details, every employee, every FTE, was working the equivalent
    of one and one-half FTE's. This was having an impact in our
    ability to train. It was also having an impact as far as our
    overall effectiveness.
        We actually had agents that would go for 30 days out of
    district, away from home, often in foreign countries, without a
    day off, return and go back out for a few more weeks. We
    believe that the impact was largely felt in the area of
    training.
        The training that we provide to the protective details, we
    term as ``perishable training''; if you are not continually
    redoing these phases of training they will not be second
    nature.
        We ask our agents to do things that may really go against
    what all natural instinct would be when having to step in the
    line of fire. So those perishable skills are necessary, and the
    repetitive nature of training is absolutely essential.
        Senator Campbell. Perishable skills, that is an interesting
    way to describe it.
        Was that an American car?
        Mr. Merletti. That is a Mercedes Benz. That is an armored
    limo.
        Senator Campbell. That was armored, and it blew up? I mean,
    it got torn apart that----
        Mr. Merletti. I would like to explain a bit about that
    particular photograph. As you can see, there was quite a bit of
    damage done to the front end of the limousine.
        Senator Campbell. Yes; right under the hood. It looks like
    something was set directly under the hood.
        Mr. Merletti. Well, what actually happened, it was struck
    with two rocket-propelled grenades, two antitank devices, and
    the limousine was immediately crippled. It burst into flames.
        Senator Campbell. This is a different car. Was this in the
    entourage?
        Mr. Merletti. That was the security vehicle, and as you can
    see, it has been impacted with hundreds of rounds of small arms
    fire.
        Senator Campbell. Small arms.

                               Armored Limousines

        Mr. Merletti. But the pertinent point on the limousine is
    that the limousine failed. That is a commercially available
    limousine, and they are produced as any normal car is off the
    assembly line, and then armored subsequent to production.
        Our limousines are built differently. Ours are made from
    the ground up, and that allows us to add extra mass, extra
    armament. Also, because we build them from the ground up, we
    are able to protect the critical electronic components that
    keep a car running. That particular car, that is what happened
    there. The electronics were knocked out, and the engine failed.
        We are able to relocate those critical electronic
    compartments into our armored compartment. Our vehicle probably
    would have survived that attack and would have driven away.
        Senator Campbell. You order them from the factory with
    certain specifications, and they build them at the factory for
    you?
        Mr. Merletti. Right. There is quite a bit of R&D that goes
    into it. In fact, it is years of R&D, and then we work as a
    team in partnership with the corporation that wins the contract
    and build the vehicle in that manner, but it takes years.
        Four vehicles that we are in the process of designing now,
    the first one will be delivered in the year 2000, and the other
    three will be delivered in 2001.
        Senator Campbell. These limos, we appropriated the moneys
    in 1997 and 1998 for that R&D that you talked about for the new
    technology that is going to go into them, in the manufacture of
    the cars, and we are going to provide additional money in 1999.
    Will that complete the project for these new series of cars?
        Mr. Merletti. No; that will not complete the project. There
    is a shortfall in total funding required of about $3 million.
    It is a unique funding situation, and we are working with the
    Treasury Department to resolve that issue.
        Senator Campbell. I am inclined to think that costs a
    little more than your average car, wouldn't you?
        Mr. Merletti. A few dollars more.

                                 Travel Budget

        Senator Campbell. Last year, there was a problem with
    closing out the Secret Service travel account. I know you guys
    have it tough, particularly in a Presidential year when you
    have everybody running and you have to change your plans almost
    hourly because of late commitments. I know the difficulty of
    doing that, and I admire you for trying to keep up with it, but
    that resulted in the need to transfer funds from other accounts
    to cover those expenses.
        Your staff has been very forthright about the need for
    change and to more closely account for the travel expenses.
    Having heard that already, it is already clear that we might
    not be providing enough money this year. Would you like to
    comment on that?
        Mr. Merletti. Yes; we are looking at a possible shortfall
    this year, also, and we have----
        Senator Campbell. What is your estimate for the shortfall?
        Mr. Merletti. At this time, I would say about a $13 million
    shortfall.
        I would like to address that issue a little further. Right
    after I became Director, I personally came to visit with you,
    and we did discuss that I would see that we put into effect
    certain mechanisms that would have better accountability and
    sooner notification. In this instance, we certainly have come
    to you right when we noticed a problem.
        Senator Campbell. Yes; you have.
        Mr. Merletti. The increase in travel is due not to one
    particular set of circumstances, but a convergence of
    circumstances.
        No. 1, we are doing business differently. There are new
    threats that we have developed new countermeasures for. This
    new technology requires that we send the people out that have
    the expertise to implement this technology as we travel on our
    protective assignments. So we do have an increase in the number
    of people going out on our stops.
        There is also an overall increase in the number of
    protectee stops, and that is due to a number of factors.
        We see that a number of foreign heads of states have been
    visiting the United States, and we have been trying to get an
    idea as to why that is occurring. Some of the poignant factors
    that are coming back to us are that the United States is now
    the sole superpower. Also, the strength of our economy is such
    that foreign leaders want to visit the United States in order
    to enter into business ventures in order to boost economies. It
    is now a global economy.
        They are also coming in order to foster international
    cooperation, and a number of them come here to take advantage
    of our medical treatment.
        So these foreign heads of state that visit our country, we
    do protect them, and they travel throughout the United States.
    We have, again, no control of them coming or the number of
    times that they come.
        Eighty percent of our travel budget is directly in support
    of protection. Twenty percent is nonprotective, and we are
    certainly able to have total control of it, but the 80 percent
    is really not within our control.
        It is the convergence of those factors that impact us, as
    well as increased costs that are associated with travel, such
    as hotel rates and car rentals.
        For example, we took a look at the hotel rates in New York
    City, a place visited by the majority of our protectees,
    especially foreign heads of state. Last year, we found that the
    hotel rates increased by approximately 20 percent. So it is
    factors such as this, all of the added expenses that go into
    travel, that are all coming together, and are causing a the
    shortfall in our budget.

                       Privilege for Not Giving Testimony

        Senator Campbell. This may be somewhat rhetorical, but you
    have been pretty much unwavering in your position that Secret
    Service agents should not be compelled to testify with what
    they may or may not have seen on duty.
        I am certainly a big supporter of the Secret Service, and
    it brings to mind, what kind of protections they would have if
    they did and how far we should go with that. Should an agent
    remain silent, for instance, if he saw a crime being committed
    while he was on duty? Do you have any comments about where you
    fall out on that, when they should and should not testify?
        Mr. Merletti. Absolutely, Mr. Chairman.
        The word that is being used, is ``privilege''--I like to
    use the word ``confidentiality.'' I firmly believe that we
    should have a privilege or confidentiality. However, that would
    not apply when it comes to a crime. We are not talking about
    crime.
        What we are discussing is everyday activity and
    conversations that we overhear or see because of our proximity
    to our protectees. Proximity is the heart and soul of our
    protective mission. We are there, as I said earlier, to step
    into the line of fire. If we would be moved away from our
    protectees, that would have a critical impact upon our ability
    to perform our mission.

                            Mexico's New Drug Force

        Senator Campbell. Thank you.
        Mr. Banks, in today's Washington Post, there is an article
    that talks about the training of Mexico's new drug force, which
    once trained in the United States. They will then return to
    Mexico to become a force in that country's counternarcotics
    efforts. What is your view on that? Do you think that is going
    to be successful?
        Mr. Banks. Well, I think it can be successful. I read it
    this morning, Mr. Chairman, and I think it could become a force
    in that country's counternarcotics efforts.
        We have actually worked with the military. I went down to
    Camp Lejeune with the military, and we worked with a number of
    countries in Central and South America to kind of look at
    coordinating and integrating both their military and police
    organizations so that they are prepared to interact not just
    within one nation, but even across borders. I have to say that
    I was fairly well impressed by the efforts being made to
    integrate those operations.

                    Custom's Weapons Restrictions in Mexico

        Senator Campbell. What is the disposition of our agents
    carrying weapons in Mexico?
        Mr. Banks. We still cannot carry weapons in Mexico.
        Senator Campbell. Still cannot do it?
        Mr. Banks. No, sir.

                       Nonintrusive Inspection Technology

        Senator Campbell. There is a $54 million request in your
    budget for 1999 on nonintrusive inspection technology. I have
    seen some of these things, and I will tell you what, they are
    marvelous. ONDCP, I have seen a number of them.
        I was talking to somebody today that said they have
    developed one that does not measure particles in the air and it
    does not do it by x ray, but it has a way of--you have to be a
    scientist just to understand this thing, but, apparently, all
    chemicals when they are subjected to some kind of rays, gamma
    rays, whatever it is----
        Mr. Banks. Gamma rays.
        Senator Campbell [continuing]. Leaves a signature of what
    that chemical is, and these people who are developing this have
    a way of measuring, for instance, what is inside of a landmine,
    what kind of chemicals are in there. It sounds like something
    we ought to look into.
        Mr. Banks. It is astounding. We are even looking at a
    potassium-40 reader because marijuana has large amounts of
    potassium in it. You can actually gauge that chemically.
        There is a lot of spectrograph type----
        Senator Campbell. It has got some dope in it, too, huh?
        Mr. Banks. Yes; it does.

                    Narcotics and Money Laundering Strategy

        Senator Campbell. OK, because I know the traffickers are
    very good at identifying our resources. More power to us.
        There is also a $5 million request for narcotics and money
    laundering strategy to enhance this Customs investigation and
    intelligence capabilities. Can you describe that a little bit
    to us?
        Mr. Banks. We are trying to put the agents heavily into
    money laundering efforts and some undercover narcotics areas.
    There is also a piece for intelligence research specialists,
    and what we have done is establish what we call intelligence
    collection and analysis teams, especially along that Southwest
    border to try to integrate tactical intelligence. So they are
    going there.
        And then the last piece of it is on the marine program, and
    you mentioned what happened in the Virgin Islands with the
    marine program. The work is dangerous, difficult.
        The threat is increasing significantly in the Small Boat
    Program. The Coast Guard and Customs have really done a decent
    job of stopping a lot of commercial traffic into Puerto Rico,
    but now we are getting lots of small boats in from Haiti and
    the Dominican Republic. So it is a real growth area in terms of
    the threat.

                                  Seizure Rate

        Senator Campbell. Mr. Kelly's testimony mentioned that 1
    million pounds of illegal drugs were seized in fiscal year 1997
    through programs like Hard Line and Gateway, but, as I
    understand it, the seized cocaine has dropped by 12 percent. Do
    you have any reasoning for that?
        Mr. Banks. Our numbers in 1997 did indeed drop by 12
    percent nationally, and it actually dropped in the Miami area.
    That is, south Florida is where we saw the drop.
        Senator Campbell. Yes.
        Mr. Banks. A lot of people have read the article and think
    that our cocaine seizures dropped on the Southwest border, and
    that is not the case. They changed where the traffickers were
    moving the drugs.
        Senator Campbell. Yes; they flow like water. The land of
    least resistance is where they move to.
        Mr. Banks. That is absolutely correct.
        Now, in south Florida, the concern we have is that they are
    moving into smaller, deeper concealed loads. We are seeing
    that.
        Some of it is in Coast Guard seizures. Their seizures
    tripled last year in the transit zone. This is actually where
    we would like to have the seizures happen. We would like to
    take the drugs before they ever get to the U.S. shores, and we
    have got our air program and marine program working in tandem
    with the Coast Guard. So they have done a dynamite job.
        So there is no question. The flux is changing continually.

                            Methamphetamine Seizures

        Senator Campbell. Well, I live in the Southwest, and one of
    the things we are seeing is a huge increase of
    methamphetamines, as you probably know, and it is also in small
    lots and apparently very small, movable labs, and all the
    problems. Are you seizing more of the chemicals along the
    border that go into the manufacture of meth, or are you seeing
    more methamphetamines that have already been concocted?
        Mr. Banks. Actually, we are seizing more of both.
        Senator Campbell. Both.
        Mr. Banks. This year, we seized more in the first 4 months
    than we seized all of last year in both methamphetamine and
    ephedrine, which is the precursor to make methamphetamine, and
    it is not huge amounts. So far, this year, we have made 154
    seizures of 655 pounds. Most of it----
        Senator Campbell. Say that again?
        Mr. Banks. 655 pounds.
        Most of it is in California; however, we have seized some
    in New Mexico and some, the smallest amount, in Arizona.
        Senator Campbell. The border States.
        Mr. Banks. It is primarily toward the border States and
    toward the West. Yes, sir.
        Senator Campbell. OK, I thank you.
        Senator Kohl, did you have some additional questions?
        Senator Kohl. Yes; thank you, Mr. Chairman.
        Senator Campbell. I may have touched on a few already, but
    feel free.

                            Child Labor Enforcement

        Senator Kohl. I just want to ask a few Customs questions,
    if I may.
        I was pleased to work last year with Senator Harkin on a
    provision that requires Customs to include forced or indentured
    child labor and its interpretation of section 307 of the Smoot-
    Hawley Tariff Act of 1930.
        Senator Harkin had hoped to be here today to ask some
    questions about child labor enforcement and the new proposal to
    establish a child labor command center, but he had to be in
    South Korea. So I have included some of his questions with my
    own.
        It is my understanding that Customs is requesting $3
    million and four employees to establish a child labor command
    center. Would you please explain what services this center will
    provide and how the center will be staffed?
        Mr. Banks. Senator Kohl, first of all, I would like to say
    this is going to be a very difficult issue to enforce, since it
    is so difficult to try to determine what products entering the
    United States are made by child labor. I do not want to
    underestimate the complexity and the difficulty of doing this
    job.
        The way that we are trying to approach this is in a very
    collaborative way, especially where there are a lot of advocacy
    groups out there that have information in terms of where child
    labor products might exist.
        The first thing that we are setting up is the child labor
    command center in Washington. We have two intelligence research
    specialists, and we are setting up a hotline to be able to get
    basic information to do research. For instance, we were
    provided some information about hand-knotted rugs, especially
    out of central Asia. We are trying to do analysis with that
    information to see if we can trace it down to find an actual
    violation that we can take legal action on in the United
    States.
        The second thing that we are looking to do with that money
    is we would like to station three agents overseas to
    specifically work on trying to identify factories, products,
    and locations where child labor occurs, so that we can attempt
    to work with overseas countries on this issue to see if we can
    gain their support.
        And then, last, we will try to build a coalition with labor
    groups, and with child protection groups. It is kind of like
    trying to deal with the clothing and the wearing apparel that
    is made by groups. You cannot do it through law enforcement
    alone. This has got to be a coalition of groups trying to do
    this, and there has got to be a lot of education on it. There
    has to be a lot of communication and building support on a
    broad basis if we are truly going to impact this issue of
    products being made by child labor coming into this country.
        Senator Kohl. All right. Well, then----
        Mr. Banks. I can provide you a more detailed breakdown in
    terms of exactly our strategy and our tactics for approaching
    this issue.
        [The information follows:]

                           Child Labor Command Center

        The Child Labor Command Center will be staffed by two
    Special agents and two Intelligence Research analysts. In
    addition, verification teams drawn from the field offices will
    be used to travel to suspect countries and examine suspect
    child labor facilities to confirm information as it is
    developed by the command center. The command center will also
    conduct conferences within the government and with private
    industry to sensitize these groups to this issue and to
    facilitate the development of information. Confidential sources
    will be used in connection with the development of information
    about criminal involvement in child labor. In addition, the
    foreign offices covering countries suspected of exporting
    forced child labor made products to the United States will
    receive additional staffing.
        An outreach program is planned in order to build support on
    a broad based initiative to identify violative sources of
    merchandise. This program is also expected to support United
    States importers' efforts to preempt such merchandise from
    reaching the United States. A public relations effort will
    involve various media. Including international and national
    websites, foreign and domestic toll-free numbers,
    advertisements in the Asian Wall Street Journal and other
    foreign public service announcements.

        Senator Kohl. What can Customs agents actually do in the
    event that they identify forced child labor?
        Mr. Banks. What we can actually do is detain the products,
    and then if we can prove that the products were made by forced
    labor, then we can take action to seize those products.

                               Customs Authority

        Senator Kohl. Is there a need to expand the authority of
    Customs?
        Mr. Banks. I think that our first point on this is we would
    like to gain better experience in trying to work with
    coalitions to prove the case so that we can do something about
    it. We would like to make sure we can operate effectively in
    this area before we would ask for additional resources.

                              Child Labor Hotline

        Senator Kohl. All right. Let us talk about the hotline in
    the United States for the public to report child labor
    importation violations. How will consumers be able to identify
    goods purchased with forced child labor?
        Mr. Banks. Well, it is going to be very difficult for
    consumers to specifically identify it.
        One of the things that we are talking about, obviously, is
    to meet with manufacturers and to get them to perhaps tag their
    goods to say that this is not made with child labor. If we can,
    we will try to get them to label some of their products and get
    those manufacturers to take a stronger measures, because they
    actually do factory visits for quality control and a variety of
    other things. We would like them to go out and check to ensure
    that those factories that they are buying their products from
    are not using child labor to manufacture those products.
        Senator Kohl. Well, on that point, don't we already have
    documentation of goods produced with forced child labor
    entering the U.S. market?
        For example, in the case of hand-knotted carpets, shouldn't
    we be focusing our efforts on preventing these goods from
    entering the U.S. market in the first place?
        For example, does Customs plan on communicating with the
    hand-knotted carpet importers about abusive child labor in
    their industry?
        Mr. Banks. Yes, sir.
        Senator Kohl. What do you----
        Mr. Banks. That is precisely part of what we need to do: an
    education effort.
        The difficulty is in trying to convert a generic allegation
    into actual evidence that we can take a legal action on. That
    has been the most difficult part of this whole enforcement
    area.

                    Confiscating Forced Child Labor Products

        Senator Kohl. What kind of additional information does
    Customs need to bring a case against importers who violate the
    law or to issue a detention order on goods made with forced
    child labor?
        Mr. Banks. The first issue is that we have to prove the
    case that it was made by forced labor, which is very difficult
    to do. As soon as we have our people go out and start going
    into factories, they disappear.
        We go out and we do this kind of work on textile
    transshipment. We can go in and take a look at the types of
    equipment that they have, and we can look at their employment
    records and even their payroll records, but with child labor,
    you cannot just do that. It is even more complex.
        When we have put our agents out on the ground overseas, the
    word spreads unbelievably quickly, and they just scatter on us.
    Trying to come up with the actual hard evidence so that we have
    a case that we can take action on is very difficult to do.

                        Importation of Child Labor Goods

        Senator Kohl. Senator Harkin has been particularly
    concerned about the past reluctance of Customs to block the
    import of goods produced with child labor. Do you believe that
    the Harkin provision is a reasonable interpretation of section
    307? Is child labor enforcement an appropriate task for
    Customs?
        Mr. Banks. Yes, sir; I think that it is an action that,
    obviously, the Congress wants us to take, that we should take.
    We want to be able to ensure that we can deliver on this
    requirement.

                       Child Labor and Other Forced Labor

        Senator Kohl. Well, how does child labor differ from the
    forced labor found in Chinese prison camps and Customs efforts
    to prevent goods made by prison labor from reaching U.S.
    markets?
        Mr. Banks. Well, some of it is the same in terms of the
    reluctance of some of the countries to let us into the
    factories. In that case, it is the same.
        Some of the differences with the forced labor is if you can
    actually get to the factory, they are there. You can see them.
    You can see who is working. You can check them.
        There are also other indicators in terms of, if you go into
    a prison labor environment, shaved heads. There are a lot of
    telltale signs that you can see.
        The difficulty of walking into a factory overseas that is
    using child labor is they just scatter the kids that are
    underage. As soon as they know you are in the area, they
    scatter those kids. They either go out of business or they just
    have other workers there. That is where it gets much more
    difficult, when you actually get on the ground and try to do
    this enforcement work.

                            Child Labor Regulations

        Senator Kohl. When can we expect additional regulations
    relating to child labor enforcement, or do existing regulations
    for section 307 apply?
        Mr. Banks. We would like to continue to work with this
    package that you have provided us. We would like to come back
    with some experiences that we have run into, brief you in terms
    of the progress that we are making on this and what we can
    deliver, and then jointly decide where we should take it.
        Senator Kohl. Mr. Banks, on November 5, 1997, the
    International Labor Rights Fund filed a complaint with Customs
    seeking enforcement of a ban on hand-knotted carpets made with
    child labor in south Asia. The complaint was based on data from
    the U.S. Department of Labor's report on child labor. Yet, it
    is my understanding that there has been no response to the
    complaint. What is the status of this complaint, and why has it
    taken so long now for Customs to respond?
        Mr. Banks. Well, it is still a lot of the things that we
    have talked about in terms of being able to come up with the
    hard evidence and which shipments have been made by child
    labor.
        We have had a lot of discussions of whether we should go
    forward with a general ban on all hand-knotted carpets; whether
    that is equitable and fair to people legitimately trying to
    bring goods into the country or whether to go with a specific
    ban or try to get it nailed down in terms of which
    manufacturers could be involved; is there any complicity on the
    part of the U.S. importers involved in this, et cetera. These
    are the difficulties of trying to chase this thing down.
        Senator Kohl. Can you give us some hope as to when we can
    see a resolution of this particular complaint, Mr. Banks?
        Mr. Banks. I would rather have a private briefing with you
    in terms of exactly where we are with that investigation.

                          Child Pornography Detection

        Senator Kohl. All right. I would like to ask some questions
    on the child pornography detection. Customs enforces the Child
    Protection Act and investigates trafficking in child
    pornography into and throughout the United States. Through the
    use of the Customs-established Child Pornography Investigation
    and Coordination Center, special agents assist the field
    offices with cases and coordinate Customs efforts to combat
    child pornography. Can you explain how Customs gets brought
    into these cases?
        Mr. Banks. I would be happy to.
        Actually, there is a variety of ways that we can be brought
    into a child pornography case. One of the ways it has
    traditionally been done in the past is we actually intercepted
    the mail coming into the country. We would intercept magazines
    and videotapes of child pornography, and I believe we seized
    last year 325 or so items that came in that were child
    pornography, either by videotape or by magazine, but the bulk
    of the work today is actually on the Internet.
        We have got 300-plus investigations going on today on
    Internet child pornography cases. We had 145 arrests last year
    of people engaging in child pornography--some were family
    physicians, some were police officers. We have a whole variety
    of people that are involved in youth programs around the
    country.
        We have set up, as you said, our International Child
    Pornography Investigation Center in Washington. It is staffed
    with five agents. We receive tips through a variety of sources.
    We use confidential informants. We do a lot of the cyber-
    smuggling-type work through the Internet and then they support
    field agents around the country to actually work these cases.
        We are also working with the National Center for Missing
    and Exploited Children and have supported their cyber tipline.
    When this thing gets up and running, the estimate is that we
    can get between 300 to 400 leads a day. It is being supported
    by both the FBI and ourselves. FBI handles mostly the domestic
    cases. We handle mainly the international cases, the ones
    across the border.
        Senator Kohl. What is your level of funding for these
    activities, Mr. Banks?
        Mr. Banks. I am not sure if I could give you a precise
    level of funding. I would have to research that a little bit
    for you further, sir, because of the investigative hours in the
    field. I would have to give you that for the record, if I
    could.
        [The information follows:]

                       Child Pornography and Exploitation

        Customs has approximately 50 Special Agents in the field
    dedicated to Child Pornography investigations along with non-
    personnel costs of $100,000 for fiscal year 1996, $190,000 for
    fiscal year 1997 and $327,000 for fiscal year 1998. The Customs
    Child Pornography Enforcement Center has a current staffing
    level of eight Special Agents which coordinate the
    investigative activities of the field offices as well as
    liaison with other federal, state and local law enforcement
    agencies.
        In addition, Customs fiscal year 1998 appropriation
    included $275,000 for the National Center for Missing and
    Exploited Children to promote public awareness of the child
    pornography tipline ($75,000) and to train retired law
    enforcement officers to assist in the investigation of unsolved
    missing children cases nationwide (Project Alert) ($200,000).

                           Child Pornography Tipline

        Senator Kohl. OK. Mr. Banks, funding has been provided
    since 1995 to promote the child pornography tipline. In fiscal
    year 1999, funds were also requested to coordinate Customs
    efforts with the National Center for Missing and Exploited
    Children, the U.S. Postal Service, the U.S. Secret Service, and
    the GSA.
        Obviously, the tipline is an effort that we and the House
    support. Have additional resources for the tipline been
    requested in fiscal year 1999, and if not, why not? Isn't this
    something that Customs considers important?
        Mr. Banks. Yes, sir; we consider it extremely important,
    and there were some requests made for this. We did not receive
    those requests. We did receive in fiscal year 1998 the $25,000
    which we gave to the Center for Missing and Exploited Children
    to help them, and that amount, along with the $50,000 level
    prior to fiscal year 1998, is recurred in fiscal year 1999 for
    a total of $95,000 for the tipline.
        As a matter of fact, they just recently had an event up on
    the Hill advertising some of the public education campaign, and
    along with Under Secretary Kelly, we participated with them in
    that effort, but, no, sir, we do not have anything added to the
    $75,000 base in our fiscal year 1999 budget to further enhance
    our enforcement efforts on child pornography.
        Senator Kohl. What is the status of the effort to
    coordinate Customs efforts on child pornography with the other
    Government and non-Government entities?
        Mr. Banks. Again, we work with everyone. We work with other
    law enforcement agencies, including State and locals. They have
    been really wonderful.
        We just had an Internet case in Spokane, where a physician
    actually engaged in a conversation with an undercover police
    officer about his desire to have sex with a minor. We got the
    Spokane policewoman to volunteer to act as the mother in this
    particular effort, and she did a wonderful job and we made the
    arrest.
        We get tremendous support from State and local police. We
    get tremendous support working in tandem with the FBI. We have
    gotten the Postal Service involved. The Secret Service has also
    been involved in some of these cases.
        So this is one area where--when you come up with a specific
    case--almost everyone is willing to pitch in.

                     White House Security Clearance Process

        Senator Kohl. OK. Mr. Merletti, I would like to ask you a
    question.
        Last year, when visiting the White House with a staffer, we
    were ushered into the White House without showing any
    identification. When I later asked about this, I was told the
    White House was expecting me. I guess they were also expecting
    my staff.
        Last week, I read that Alice Rivlin, Vice Chairman of the
    Federal Reserve, was ushered into the White House complex
    without going through any security clearance. When she
    questioned why this occurred, she was told that the guards were
    expecting her, Donna Shalala.
        There have been numerous requests to acquire additional
    security measures around the White House. What good is it to
    acquire these security devices if people are allowed into the
    complex without going through the security clearance process?
        Mr. Merletti. Senator Kohl, we do attempt to facilitate a
    member and staff of the Senate coming into the White House. We
    would want to make sure that you were there for your
    appointment and received a welcome and were easily processed
    into the White House complex. That really does not impact our
    security in that we are looking for those that would be
    attempting to enter to attempt some type of physical harm, and
    present a danger to the President or to the White House.
        The circumstances you referred to regarding Donna Shalala,
    I am not familiar with the facts. It would be difficult for me
    to comment on that, but did you say that she came into the
    complex?
        Senator Kohl. Alice Rivlin entered without any security
    clearance, and then she was told that the guards were expecting
    her, Donna Shalala.
        Mr. Merletti. I see. I would have to look into that set of
    circumstances.
        Senator Campbell. Senator Kohl, I think it has something to
    do with the vehicle you go over there on. I went over there on
    my motorcycle one time, and I had to answer a whole lot of
    questions. I will tell you, I thought I was going to be spread-
    eagle from you guys, but if you are in a big, black Town car,
    you are probably a little safer.
        Senator Kohl. If I were in your situation, I would be
    worried stiff that something awfully sinister could happen,
    just in the way in which we are discussing it, and it would be
    so inexcusable, with all the money and all the security that we
    have to protect our President, and the White House, of all
    places, that security systems and regulations would not be the
    toughest anywhere in the world, and I think everybody in this
    room would expect security at the White House to be the
    toughest anywhere in the world.
        When you have an experience like mine, as I say, my staff
    and I got through, and we were simply told that they were
    expecting us. And then, Alice Rivlin goes through security
    and--and does not go through security, but is told that it is
    fine because we were expecting you, Donna Shalala; that that
    would be--and there must be other incidents that that would be
    a huge red flag to the Secret Service with respect to security
    around the White House. What is your thought?
        Mr. Merletti. Well, Senator, I do not want to have
    misinterpreted what I said as a lack of concern about security
    at the White House.
        Senator Kohl. I do not. I do not.

                     White House Security Clearance Process

        Mr. Merletti. I am extremely sensitive to all security at
    the White House. We will always continue to look at new methods
    and new technology.
        If there was a mistake made, we will find out about that
    very soon, and I will get the details of that.
        However, we do try to have a balance between members of
    Congress coming up and just someone that would be showing up
    unexpectedly. We really do quite a bit of training. I mean,
    training is critical to our mission, and we train our personnel
    to show proper respect for those that, as we said, are coming
    for a proper appointment with the President or other members of
    the administration.
        However, if a mistake took place, it is unacceptable and we
    will look into it and make the necessary adjustments. As I
    said, I am not aware of that set of circumstances, but I do
    know about when you came to visit, because after I had visited
    with you after becoming the Director you had mentioned this,
    and I did check into that, and we do have photographs of all
    Senators and Members of the House of Representatives. If you
    are on the schedule, or if you are coming and we receive a call
    from the Capitol Police, we do want to expedite your entry.
        Now, the other set of circumstances, I will have to look
    into that.
        Senator Campbell. Capitol Police have photographs like
    that, and I think they are required to memorize the new
    Senators and Congressmen coming in. Do you have a book like
    that over there----
        Mr. Merletti. Yes; we do.
        Senator Campbell [continuing]. That you have at the gates
    so people can recognize you before you came through?
        Mr. Merletti. Absolutely. We require our people to look at
    these photographs and try to memorize them.
        Actually, I am very glad you brought this up today because,
    normally, what I am being addressed on is that someone was held
    up maybe 5 minutes and they did not like being held up when, in
    fact, they did have an appointment, and people were saying,
    ``Well, can't you make this process faster? I have an
    appointment.'' It is refreshing to hear the other side of this,
    that someone is actually concerned about our security. So I do
    thank you for that, sir.
        Senator Campbell. Would you put glasses and a helmet on my
    picture so I do not get any more hassles over there?
        Mr. Merletti. Yes, sir, Mr. Chairman; we will do that.
        Senator Campbell. OK. Well, I have no further questions.
    Senator Kohl, do you?
        Senator Kohl. No.
        Senator Campbell. OK. With that, I appreciate your
    appearance to this whole panel, and, Under Secretary Kelly, we
    will be looking forward to working with you and all of your
    other divisions. Thanks for coming.
                            Internal Revenue Service

    STATEMENT OF TED F. BROWN, ASSISTANT COMMISSIONER,
                CRIMINAL INVESTIGATION

                    Federal Law Enforcement Training Center

    STATEMENT OF W. RALPH BASHAM, DIRECTOR

                      Financial Crimes Enforcement Network

    STATEMENT OF WILLIAM BAITY, DEPUTY DIRECTOR

                           Introduction of Witnesses

        Senator Campbell. We will now move right along here. I have
    another commitment. So, hopefully, this next panel can move
    along a little quicker.
        Panel II will be Ted Brown, Assistant Commissioner for
    Criminal Investigation with the Internal Revenue Service [IRS];
    Ralph Basham, Director of the Federal Law Enforcement Training
    Center [FLETC]; and William Baity, Director of the Financial
    Crimes Enforcement Network [FinCEN].
        All right. If we can move right along.
        Were you also staying with this panel, Under Secretary
    Kelly?
        Mr. Kelly. Yes, Mr. Chairman.
        Senator Campbell. Did you want to make any additional
    statements?
        [No response.]
        We will just go on, then, with Assistant Commissioner
    Brown. Then we will go to Ralph Basham and William Baity.
        We are running out of time a little bit. We have about 30
    or 45 minutes in here. So you might like to abbreviate your
    comments. All the testimony will be included in the record, and
    we will study it copiously.

                           Statement of Ted F. Brown

        Mr. Brown. Thank you, Mr. Chairman. My name is Ted Brown. I
    am the Assistant Commissioner with IRS Criminal Investigation.
        Senator Campbell. You are safe, too, by the way. Our
    colleague from the Carolinas is not here now.
        Mr. Brown. Yes, sir; I did not expect the target to be
    painted on me quite that fast.

                           IRS Criminal Investigation

        I appreciate the opportunity to be here today to discuss
    the Criminal Investigation Division of the Internal Revenue
    Service. We have unique financial investigative skills which
    allow us to meet criminal tax enforcement challenges in support
    of the overall IRS mission. I also welcome this opportunity to
    describe the contributions which the fine agents and employees
    of the Division make to the Federal law enforcement community.
        For over 79 years, IRS Criminal Investigation has been
    solving financial crimes. Our investigations take us to
    corporate boardrooms, as well as crackhouses. This is because
    IRS Criminal Investigation special agents fill a unique niche
    in the law enforcement community, that of financial
    investigators. The special agent's combination of accounting
    and law enforcement skills are essential qualities in
    conducting investigations which have led to the conviction of
    high-profile criminals who commit sophisticated financial
    crimes.
        It has been our experience that whenever greed leads to
    crime, whether income tax evasion or international money
    laundering, IRS Criminal Investigation should be involved.
        Further, the success of our investigations enhances
    voluntary compliance with the tax system, increasing confidence
    of the American taxpayers in that administration, as well as
    deterring others from similar conduct.
        There is a great demand for the expertise of my agents by
    other Federal law enforcement agencies and by the offices of
    the U.S. attorneys. Therefore, it is incumbent upon us to
    marshal our resources to ensure that our law enforcement
    program is balanced, not only to protect the revenue and our
    tax administration system, but to combat financial crime. We
    deliver this balanced law enforcement program through three
    mutually supportive strategies: tax gap, money laundering, and
    international.

                                Tax Gap Strategy

        The tax gap strategy enables CI to pursue comprehensive
    financial investigations that have the greatest impact on
    narrowing the tax gap. That is a phrase that we have coined to
    describe the difference between the amount of tax owed and the
    amount paid. The income tax gap was last estimated to be in
    excess of $127 billion, and our tax gap investigations
    encompassed the entire spectrum of legitimate industries.
        Voluntary compliance with the tax laws relies heavily on
    the deterrent effect of successful prosecutions. It is critical
    for Criminal Investigation to identify and investigate cases
    which would generate the maximum deterrent effect and, thus,
    have the most impact on voluntary compliance. Our objective in
    this strategy is to increase the rate of voluntary compliance,
    which will reduce the tax gap.

                           Money Laundering Strategy

        In our money laundering strategy and in concert with our
    mission of increasing voluntary compliance, we are responsible
    for enforcing title 31 of the United States Criminal Code and
    using its financial investigative expertise to investigate the
    most complex types of money laundering. By doing this, we
    financially disrupt and dismantle criminal organizations in
    cooperation with other Federal law enforcement agencies. Our
    objective is to identify, investigate, and prosecute the most
    significant tax, currency, and money laundering offenders, and
    to pursue the assets of those offenders both domestically and
    internationally for tax and asset forfeiture purposes.
        Due to our limited resources and the increasing need for
    our expertise, CI prioritizes its efforts in currency reporting
    and money laundering enforcement to address investigations
    whose size, scope, and complexity require the value-added
    expertise of our agents.

                             International Strategy

        Recognizing that financial crimes do not stop at the U.S.
    border, our international strategy places special agents in
    strategic foreign countries. These agents are responsible for
    developing financial information obtained from host governments
    relating to U.S. income tax violations or money laundering
    schemes.
        The placement of these agents allows us flexibility to
    gather evidence to support ongoing domestic investigations with
    international implications. With State and Treasury Department
    approval, IRS special agents are permanently placed in Mexico,
    Colombia, Germany, Canada, and Hong Kong. The international
    strategy enables special agents to work more closely with our
    foreign counterparts.
        Working within these three strategies, we devote our
    resources to two major programs. The first one described is the
    fraud program. It encompasses a broad range of illegal activity
    primarily involving legitimate industries. All statutes under
    our jurisdiction may be utilized in these investigations. This
    includes not only criminal provisions of the Internal Revenue
    Code, but also violations of the Bank Secrecy Act and the Money
    Laundering Control Act.

                                 Fraud Program

        The fraud program consists of investigations relating to
    tax violations, such as failure to file, tax evasion, and money
    laundering. In this area, we work investigations involving
    general tax crimes, excise tax violations, illegal tax
    protestors, illegal return preparers, and questionable refunds.
    Other fraud programs involving tax and money laundering
    violations include bankruptcy fraud, financial institution
    fraud, illegal gaming, health care fraud, insurance fraud,
    telemarketing fraud, and public corruption.

                               Narcotics Program

        Our other major program is narcotics. The first IRS
    narcotics investigation was a tax case completed in 1920 when
    an opium grower failed to claim the income earned from his
    product. Today, we utilize all available statutes within our
    jurisdiction to dismantle or disrupt the financial operations
    of targeted narcotics organizations. Part of the narcotics
    program includes our participation in the Organized Crime Drug
    Enforcement Task Force. In fact, in fiscal year 1997, we were a
    principal partner in nearly 56 percent of all OCDETF
    investigations nationwide, a level of participation second only
    to the Drug Enforcement Administration.
        During fiscal year 1997, 87 percent of all narcotics
    investigations initiated by CI involved money laundering or
    currency crime violations. The quality of the investigations
    conducted by my agents was evident during fiscal 1997, with 84
    percent of our cases resulting in prosecution recommendations
    and 89 percent of those with convictions being sentenced to
    prison.
        I will be glad to take your questions when you are ready,
    sir.

                               Prepared Statement

        Senator Campbell. Thank you, Mr. Brown. We have your
    complete statement and it will be made part of the record.
        [The statement follows:]
                       Prepared Statement of Ted F. Brown
        Mr. Chairman and Distinguished Members of the Subcommittee:
        I appreciate the opportunity to be here today to discuss the
    Internal Revenue Service Criminal Investigation Division's mission and
    its ability to meet criminal tax enforcement challenges in support of
    the overall IRS mission. I also welcome this opportunity to demonstrate
    the unique contributions which the Criminal Investigation Division
    makes to the federal law enforcement community.
        For over 79 years IRS Criminal Investigation has been solving
    financial crimes. And for nearly that long, IRS Criminal Investigation
    has been answering the question, ``Why is IRS Involved?''
        Our investigations take us to corporate boardrooms as well as crack
    houses. This is because IRS Criminal Investigation special agents fill
    a unique niche in the law enforcement community: that of financial
    investigators. The special agent's combination of accounting and law
    enforcement skills are essential qualities in conducting investigations
    which have led to the conviction of high profile criminals who commit
    increasingly sophisticated financial crimes. It has been our experience
    that whenever greed leads to crime, whether income tax evasion or
    international money laundering, IRS Criminal Investigation is likely to
    be involved. Further, the success of our investigations enhances
    voluntary compliance, increasing confidence in the federal tax system
    and deterring others from engaging in similar conduct.
        There is a great demand for the expertise of IRS special agents by
    other Federal law enforcement agencies and by the offices of the United
    States Attorneys. Therefore, it is incumbent upon us to marshal our
    resources to ensure that our law enforcement program is balanced to not
    only protect the revenue but to combat worldwide financial crime. We
    deliver this balanced law enforcement program through three mutually
    supportive strategies: tax gap, money laundering, and international.
                                tax gap strategy
        The Tax Gap Strategy enables Criminal Investigation to pursue
    comprehensive financial investigations that have the greatest impact on
    narrowing the tax gap. The TAX GAP is a phrase coined to describe the
    difference between the amount of tax owed on all sources of income and
    the amount paid. The Income Tax Gap is estimated to be in excess of
    $127 billion.
        Tax Gap investigations encompass the entire spectrum of legitimate
    industries. The focus of these investigations is to detect violations
    of all statutes under Title 26 of the Internal Revenue Code and Title
    18, Sections 286, 287, and 371 of the United States Criminal Code.
        Voluntary compliance with the tax laws relies heavily on the
    deterrent effect of successful prosecutions. It is critical for
    Criminal Investigation to identify and investigate cases which will
    generate the maximum deterrent effect and thus, have the most impact on
    voluntary compliance.
        Criminal Investigation's objective in this strategy is to increase
    the rate of voluntary compliance which will reduce the tax gap. We can
    best achieve this through high impact tax fraud investigations.
                           money laundering strategy
        In concert with our mission of increasing voluntary compliance with
    the tax laws, IRS Criminal Investigation is responsible for enforcing
    Title 31 of the United States Criminal Code and using its financial
    investigative expertise to investigate the most complex types of money
    laundering. By doing this, we financially disrupt and dismantle
    criminal organizations in cooperation with other federal law
    enforcement agencies.
        Our objective is to identify, investigate and prosecute the most
    significant tax, currency and money laundering offenders and to pursue
    the assets of those offenders both domestically and internationally for
    tax and asset forfeiture purposes.
        Due to our limited resources and the increasing need for the
    financial investigative expertise of our special agents, Criminal
    Investigation prioritizes its efforts in currency reporting and money
    laundering enforcement to address investigations whose size, scope and
    complexity require the value-added expertise of our special agents.
                             international strategy
        Recognizing that financial crimes do not stop at the United States
    border, Criminal Investigation's International Strategy places special
    agents in strategic foreign countries. These special agents are
    responsible for developing financial information obtained from host
    governments relating to U.S. income tax violations or money laundering
    schemes. The placement of these special agents allows us flexibility to
    gather evidence to support ongoing domestic investigations with
    international implications. With State and Treasury Department
    approval, IRS special agents are permanently placed in Mexico,
    Colombia, Germany, Canada and Hong Kong.
        The International Strategy enables special agents to work more
    closely with their foreign counterparts. The obvious benefit of such
    relationships is to stop the infusion of money from illegal financial
    crimes into the global economy. The movement of such funds creates a
    major concern regarding the underground economy in America as well as
    in foreign economies.
        As a result of our International Strategy, we have been able to
    help some foreign governments in the drafting of money laundering laws
    that will assist the entire international law enforcement community in
    its money laundering investigative efforts. This type of close working
    relationship, coupled with our money laundering and financial
    investigative training efforts at the International Law Enforcement
    Academies, has led to an increase in international cooperation and
    understanding of the complexities surrounding money laundering
    activities.
                        criminal investigation programs
        Working within these three strategies, Criminal Investigation
    devotes its resources to two major programs: Fraud and Narcotics.
                               the fraud program
        The Fraud Program encompasses a broad range of illegal activity,
    primarily involving legitimate industries. In this area we work
    investigations involving; General Tax Crimes, Excise Tax, Illegal Tax
    Protesters, Return Preparers and Questionable Refunds. Other fraud
    programs involving tax and money laundering violations include:
    Bankruptcy Fraud, Financial Institution Fraud, Gaming, Health Care,
    Insurance, Telemarketing, and Public Corruption. All statutes under
    Criminal Investigation's jurisdiction may be utilized in these
    investigations; this includes the criminal provisions of the Internal
    Revenue Code as well as violations of the Bank Secrecy Act (also known
    as the Bank Records and Foreign Transactions Act) and the Money
    Laundering Control Act (also known as the Anti-Drug Abuse Act which
    included substantive amendments to Title 31).
                               narcotics program
        The mission of the IRS Criminal Investigation narcotics law
    enforcement program is to identify, investigate, and assist in
    prosecuting members of significant narcotics organizations and related
    enterprises. In fact, the first IRS narcotics investigation was a tax
    case completed in 1920 when an opium grower failed to claim the income
    earned from his product.
        IRS Criminal Investigation utilizes all available statutes within
    its jurisdiction to dismantle or disrupt the financial operations of
    the targeted organizations. Part of the Criminal Investigation
    Narcotics program includes Organized Crime Drug Enforcement Task Force
    (OCDETF) investigations. Criminal Investigation Special Agents are a
    principal partner in nearly 56 percent of all OCDETF investigations
    nationwide, second only to the Drug Enforcement Administration (DEA).
        During fiscal year 1997, 87 percent of all narcotics investigations
    initiated by Criminal Investigation involved money laundering or
    currency crimes violations. The quality of investigations conducted by
    Criminal Investigation was evident during fiscal year 1997, with 84
    percent of our narcotics cases resulting in prosecution recommendations
    and almost 89 percent of those convicted of narcotics crimes being
    sentenced to prison.
                       training, expertise and work force
        IRS Criminal Investigation is very much aware of consequences of
    rapidly changing technology, particularly in the field of information
    systems. Therefore, our training for IRS special agents continues to
    evolve so that their skills as computer investigative specialists keep
    their pursuit of financial evidence on the cutting edge of technology.
    It is interesting to note that with the support of the Under Secretary
    for Enforcement at Treasury, Criminal Investigation initiated a program
    to share our expertise in this area with the other Treasury Enforcement
    Bureaus.
        Our Financial Investigative Techniques Course is taught at
    Treasury's Law Enforcement Training Center in Brunswick, Georgia. The
    unique investigative techniques utilized in conducting financial
    investigations make our training in high demand by Federal, state,
    local and even international law enforcement agencies. Other courses
    taught to state and local law enforcement agents include: Special Agent
    Basic Training and Special Agent Investigative Techniques.
        We also recognize that the well-rounded law enforcement officer of
    the future must have the ability to follow a financial trail. This,
    coupled with our need to recruit a diverse work force, prompted IRS
    Criminal Investigation to develop a college curriculum course geared
    toward the college sophomore to pique his/her interest in law
    enforcement and the investigation of financial crimes. This course is
    currently being taught in over 20 colleges throughout the United
    States.
        We accomplish our mission with nearly 3,200 special agents and
    1,500 support personnel. Some of these special agents and support
    personnel assist our field agents through forensics at our National
    Forensic Laboratory in Chicago; through our two permanent employees at
    INTERPOL; our Trial Illustration Team in Kentucky; the Detroit
    Computing Center where our Currency Transaction Reports and Forms 8300
    are filed and analyzed; and through our Criminal Investigation
    employees stationed at the El Paso Intelligence Center (EPIC), the
    Financial Crimes Enforcement Network (FinCEN) and at the Federal Law
    Enforcement Training Center (FLETC) in Brunswick, Georgia.
                                   conclusion
        This brief overview of our strategies and programs provides some
    insight into the role of the Internal Revenue Service Criminal
    Investigation Division.
        Thank you Mr. Chairman for this opportunity to brief you and the
    members of the subcommittee on the important role of Internal Revenue
    Service Criminal Investigation. I will be glad to answer any questions
    you might have.

                          Statement of W. Ralph Basham

        Senator Campbell. OK. We will continue with Mr. Basham,
    please.
        Mr. Basham. Mr. Chairman, Senator Kohl, I am pleased to be
    here today to report on the current operations and performance
    of the Federal Law Enforcement Training Center and to support
    our appropriations for fiscal year 1999.
        Even though I am new to this position, I am well aware of
    the outstanding reputation this organization has acquired over
    nearly three decades of delivering high-quality training to law
    enforcement officers from across the country and around the
    world, and I assure you that I will continue to preserve and
    build on that reputation.
        I would also like to acknowledge my predecessor, Charlie
    Rankovich. Under Mr. Rankovich's leadership, the Center
    experienced tremendous growth and came to be recognized as the
    Nation's premier law enforcement training organization.
        While he was at the Center, FLETC grew into a partnership
    of over 70 participating agencies providing the best law
    enforcement training available anywhere in the world. Mr.
    Rankovich leaves behind an organization with a highly motivated
    and talented staff dedicated to the mission of providing
    quality, cost-effective training for law enforcement
    professionals.
        I would like to express my deep respect and sincere
    appreciation for the outstanding and selfless leadership
    provided by Mr. Rankovich over the last 15 years.
        Under the leadership of Secretary Rubin and Under Secretary
    Kelly, the Center has received strong support and active
    assistance for carrying out its responsibilities, and
    throughout the Center's 28-year history, this committee has
    also been most supportive in its funding of consolidated
    training and discerning in its oversight role. The success
    enjoyed by the Center and the success of the consolidated
    training concept are directly attributable to this committee's
    strong and consistent support.
        Today, I am prepared to discuss the initiatives in our
    request, which include mandatory workload increases, master
    plan staffing, the International Law Enforcement Academy, and
    master plan implementation.

                          Mandatory Workload Increases

        The Center continues to face an unprecedented increase in
    its training workload. Last year, the Center delivered more
    student weeks of training than any other time in its history.
    The majority of the increase in training workload results from
    initiatives by the administration and Congress to improve the
    effectiveness of INS and protecting our Nation's borders. Other
    factors contributing to the Center's increased workload are
    security enhancements at Federal facilities, new Federal
    prisons coming online, and a significant increase in the
    workload of the Bureau of Indian Affairs.
        The initiatives outlined in our request are targeted at
    increasing the Center's training capacity in response to this
    growing workload, and they tie directly to the goals outlined
    in the Center's current strategic plan. As you are aware, I
    have only been Director for a few days, and, therefore, I have
    not had sufficient time to review and assess all the goals and
    measures in the plan. I will be looking at the plan over the
    next few weeks, and I will be asking the Department, OMB, and
    this committee for input and support in determining the future
    of FLETC as we move into the new millennium.
        I would like to take a few minutes and discuss in more
    detail two of the initiatives I mentioned earlier, the master
    plan and the International Law Enforcement Training Academy for
    the Latin American and Caribbean region, otherwise known as
    ILEA South.

                            Master Plan Construction

        To meet the dramatic rise in this training workload, the
    Center is moving forward on its master plan construction
    program to increase capacity at both Glynco and Artesia.
    Through 1998, the Congress has appropriated nearly $83 million
    for master plan construction projects. By necessity, the master
    plan has been updated several times over the last few years,
    and copies of these updates have been furnished to this
    committee.
        It should be recognized, however, that the cost of fully
    implementing the master plan has increased over time because of
    inflation and changes necessary to meet the training
    requirements of our customers. I want to assure you that the
    FLETC will continue to work through Treasury, OMB, and Congress
    in dealing with any additional master plan changes.
        In the past 2 fiscal years, the Center has completed
    construction on two additions to the main classroom building at
    Glynco and has expanded the driver training complex.
    Additionally, construction is underway on a new dormitory and
    administration building at Glynco, and a contract was recently
    awarded for the construction of a new dormitory in Artesia.
        Our 1999 request includes just over $16 million to continue
    implementation of the plan. These funds will be used to
    construct another dormitory and classroom building at Glynco
    and for expansion of the cafeteria, construction of a laundry
    facility, and infrastructure improvements at Artesia. These
    additional facilities are vital if the closure of the temporary
    facility in Charleston is ultimately to be realized. However, I
    must tell you that workload projections have increased since
    the submission of our budget, and we are now in the process of
    further analyzing facility requirements to meet this additional
    workload increase.

                 International Law Enforcement Training Academy

        Our request for ILEA South is aimed at building strong and
    lasting relationships with and among law enforcement officials
    from Latin America and the Caribbean. Current demand for
    training assistance for the international community resulting
    from congressional administrative initiatives already exceed
    the FLETC's available resources. That demand coupled with the
    added responsibility for management oversight and
    administrative support of ILEA South make it essential that
    additional resources be provided.
        Mr. Chairman, men and women of the Federal Law Enforcement
    Training Center are proud of the contribution that they make in
    providing our Nation's law enforcement officers the training
    necessary to carry out their vital mission.
        I look forward to working with you in the future, and that
    concludes my comments.

                               Prepared Statement

        Senator Campbell. Thank you, Mr. Basham. We have your
    complete statement and it will be made part of the record.
        [The statement follows:]
                     Prepared Statement of W. Ralph Basham
        Mr. Chairman and Members of the Committee, I am pleased to be here
    today to report on the current operations and performance of the FLETC
    and to support our appropriations request for fiscal year 1999. As you
    know, Secretary Rubin appointed me as Director of the FLETC effective
    February 15, 1998. I am honored by this appointment. While I am new to
    this position, I can report to you that I am very well aware of the
    outstanding reputation this organization has acquired over nearly three
    decades of providing high quality training to law enforcement officers
    across the country and around the world. My 27 years with the U. S.
    Secret Service as an Agent, Special-Agent-In-Charge of several field
    offices, Deputy Assistant Director for Training and most recently as
    Assistant Director for Administration, have helped prepare me for this
    challenging assignment. I consider myself most fortunate to have had a
    long career with a great organization, the U. S. Secret Service, and
    now the opportunity to lead another great organization, the FLETC, into
    the next century.
        The Center has seen tremendous growth since its establishment in
    1970 when a handful of agencies joined together and established the
    Consolidated Federal Law Enforcement Training Center. The Department of
    Treasury has been the lead agency for the United States Government in
    providing the administrative oversight and day-to-day direction for the
    FLETC since its creation. Under the leadership of Secretary of the
    Treasury Robert E. Rubin, and Under Secretary for Enforcement Raymond
    W. Kelly, the FLETC has received strong support and active assistance
    for carrying out its responsibilities. This Committee, Mr. Chairman, is
    owed a debt of gratitude. Throughout the Center's 28 years of service
    to Federal law enforcement, this Committee has been most supportive in
    its funding of consolidated training and insightful in its oversight
    role. Although I have been at the Center for only a short time, it is
    obvious to me the strong and active role you have played in the success
    of the Center, and I am looking forward to working with you in the
    future.
        There are now 70 agencies which train at the Center and we expect
    this growth to continue as more agencies recognize the many benefits of
    consolidated training, not the least of which is a tremendous cost
    savings to participating agencies and the Government. Congress can be
    proud of the quality of the training being provided at the FLETC and
    the savings realized through consolidation. FLETC's success is the
    direct result of the strong support we have received from Treasury
    leadership, this Committee and our participating organizations.
        Today, I am prepared to discuss a number of our initiatives
    outlined in the President's fiscal year 1999 budget. The Center's
    fiscal year 1999 request is for a Salaries & Expenses (S&E)
    appropriation of $71,923,000 and 553 FTE, an increase of $6,260,000 and
    27 FTE from the fiscal year 1998 level. Our request for Acquisition,
    Construction, Improvements & Related Expenses (ACI&RE) is $28,360,000,
    a decrease of $4,188,000 from the fiscal year 1998 level. The S&E and
    ACI&RE funding requested will support four important initiatives:
    Mandatory Workload Increase ($1,614,000 and 10 FTE); new construction
    support ($1,400,000 and 12 FTE); an International Law Enforcement
    Academy for the Southern hemisphere ($1,500,000 and 5 FTE); and new
    construction pursuant to our facilities Master Plan ($13,000,000).
        In addition to our budget request, the Department of the Treasury
    will provide the FLETC with $900,000 from the Asset Forfeiture Fund for
    the purchase of 30 front-wheel-drive driver training vehicles. This is
    the beginning of a five year phased initiative that will convert our
    driver training vehicle fleet from rear-wheel drive sedans to front-
    wheel drive sedans and is necessary to meet the training needs of our
    participating agencies. I will discuss this and the other initiatives
    in more detail later in my testimony.
        The S&E and ACI&RE request represents an increase of $2,072,000
    over the fiscal year 1998 level. Coupled with $900,000 from the Asset
    Forfeiture Fund and $29,000,000 in funds to be reimbursed to us by our
    agencies for training related services, our total budget for fiscal
    year 1999 is $130,183,000.
        Before providing this Committee with an overview of Center
    operations and discussing each of our initiatives in more detail, I
    would like to take a moment and address progress being made in
    complying with the requirements of the Government Performance and
    Results Act (GPRA). As you know the GPRA requires agencies to publish
    strategic plans covering five years, publish annual performance plans
    which include measurable goals, and, after the year is completed, to
    report on actual performance.
        In the Center's testimony last year, it was mentioned that the
    Center embraced GPRA early. At that time the FLETC was working with the
    Department and the Office of Management and Budget (OMB) to ensure that
    the Center's strategic plan, development of which began in 1994, was in
    full compliance with GPRA requirements. Since that time the Center's
    plan has been shared with this Committee and comments made by this
    Committee, OMB and the Department to improve the plan have been
    addressed. Our plan is a part of the Department of the Treasury's
    strategic plan and was submitted to Congress on September 30, 1997 in
    accordance with GPRA requirements.
        Performance plans required by GPRA are now an integral part of the
    budget documents sent to you each year. In our fiscal year 1998 budget
    request last year, we incorporated measures of program performance in
    addition to the traditional output-oriented workload measures. As you
    know, good measures of program performance are not always available.
    Ours are not perfect. However, we are making progress in developing
    meaningful, quantifiable measures for our programs. As we gain more
    experience, we hope to improve on the performance measures we use, and
    we would welcome your continued feedback and suggestions in this area.
        Included in our budget request this year is a report on whether or
    not we achieved each of the targets we proposed for the most recently
    completed fiscal year (fiscal year 1997). The performance measures used
    for law enforcement training in fiscal year 1997 included: (1) results
    of our student quality of training survey, (2) number of student-weeks
    trained, (3) number of students trained, and (4) variable unit cost per
    basic student-week of training funded. Plant operations performance
    measures include results of our student quality of services survey.
        The student quality of services survey and student quality of
    training survey performance measures are outcome measures. The overall
    student quality of training index is based on a six point scale, and
    the overall student quality of services index is based on a five point
    scale. Both indices are computed using evaluations completed by
    students attending Center programs. The variable unit cost per basic
    student-week of training funded is also an outcome measure and is based
    on training dollars divided by funded student-weeks of training. The
    final two measures--students trained and student-weeks of training--are
    output measures and show the student workload at the Center.
        I am pleased to report that the Center's performance against
    established targets was excellent overall. The index for the most
    critical performance measure in our plan, the student quality of
    training survey measure, was ``5.4''. This exceeded the Center's
    existing standard and performance plan target of ``5.0''. The student
    quality of services actual performance index was ``4.0'' which equals
    our performance target measure of ``4.0''. Additionally the FLETC's
    training costs were below the cost figure established for the variable
    unit cost per basic student-week of training.
        The performance targets for students trained and student-weeks
    trained as shown in the performance plan were not met. While the
    workload conducted was somewhat less than the initial projections and
    the targets in our performance plan, the FLETC did conduct 100 percent
    of the basic training requested by our agencies in fiscal year 1997.
    Because workload estimates used in the performance plan are based on
    Spring 1995 estimates of our customers, it is not surprising to find
    that there is a variance between the targets and actual workload. The
    budget process requires that the Center's participating agencies
    provide these estimates well in advance of funding actions by the
    Congress and Administration. Although estimates are based on the best
    available data and the agencies' best guess at the time, changes in
    Congressional and Administration policy and initiatives that occur in
    the interim can and do have a dramatic impact on the outcome of actual
    workload. Therefore, the best measure of the FLETC's performance in
    this area is whether the Center provided 100 percent of the basic
    training requested, which in this case we did.
        As stated earlier and in the Center's testimony last year, the
    FLETC will continue to refine existing performance measures and/or
    identify new performance measures in an effort to more accurately
    reflect its performance. In the fiscal year 1999 budget request you
    will find that the Center has revised and added to its performance
    measures to ensure better linkage between the performance measures
    being used and the Center's strategic goals. This is part of our
    continuing effort to provide this Committee with the information it
    needs to make informed budget decisions.
        I believe that this system--setting strategic goals and strategies
    for the long term, setting annual targets, managing to achieve those
    targets, and reporting on annual performance--will help all of us
    manage the Center's programs more efficiently and effectively.
        In reviewing our request, and later in our discussions today, I am
    sure you will find that there is a strong and direct relationship
    between our budget initiatives and the mission and goals outlined in
    the Center's Strategic Plan. That mission is to provide quality, cost
    effective training for law enforcement professionals. It is a vitally
    important mission and is essential if we are to equip our law
    enforcement personnel with the skills necessary to deal with
    increasingly sophisticated and violent crimes.
        Four key strategic goals guide the Center in fulfilling its
    mission. They are:
      --Provide high quality training for law enforcement;
      --Develop, operate, and maintain state-of-the-art facilities and
            systems responsive to interagency training needs;
      --Effectively organize, develop, and lead FLETC's personnel in
            support of the Center's mission; and,
      --Strengthen partnerships among participating organizations and the
            FLETC.
        The initiatives outlined in our fiscal year 1999 request directly
    support the mission of the Center and can be tied to one or more of the
    goals in the Center's strategic plan. Equipment and FTE's requested
    under S&E for mandatory workload, Master Plan implementation, and the
    International Law Enforcement Training Academy, are essential if the
    Center is to provide quality training that is responsive to the needs
    of its customers. Failure to fund these initiatives could result in a
    degradation of the services and jeopardize training, putting the Center
    in a position where it could not meet its customers' training
    requirements.
        For example, if the FTE requested in the mandatory workload
    initiative are not provided, the Center will not have the instructor
    resources required to meet the basic training requirements projected by
    our customers.
        Funding requested in the ACI&RE account will allow the Center to
    continue implementation of its Master Plan. Continued implementation of
    the Master Plan is necessary if, in the future, we are to avoid the
    need to invest in costly temporary facilities to meet the training
    needs of our customers during periods of peak demand. Additionally,
    temporary facilities adversely impact on the quality of training
    provided and the quality of life of the student, even though we take
    steps to mitigate that impact as much as we can. I will discuss this
    issue more fully, later in my testimony.
                             overview of operations
        Now Mr. Chairman, I would like to provide the Committee with a
    brief overview of the operations of the Federal Law Enforcement
    Training Center.
        The Center was established by a Memorandum of Understanding in 1970
    and has experienced tremendous growth over the last 28 years. We
    currently conduct basic and advanced training for the majority of the
    Federal Government's law enforcement personnel. We also provide
    training for state, local and international law enforcement personnel
    in specialized areas and support the training provided by our
    participating agencies that is specific to their needs. Currently, 70
    Federal agencies participate in more than 200 different basic and
    advanced training programs at the Center.
        There are entry level programs in basic law enforcement for police
    officers and criminal investigators along with advanced training
    programs in areas such as marine law enforcement, anti-terrorism,
    financial and computer fraud, and white-collar crime. Training is
    conducted at either the main training center in Glynco, Georgia, our
    training center in Artesia, New Mexico, a temporary training facility
    in Charleston, South Carolina, or on an export basis at sites across
    the country.
        The temporary training site in Charleston was established in fiscal
    year 1996 to accommodate an unprecedented increase in the demand for
    basic training by the participating agencies, particularly that of the
    Immigration and Naturalization Service (INS) and United States Border
    Patrol (USBP). Charleston is the direct result of recent Administration
    and Congressional initiatives to control illegal immigration along the
    United States borders. Cost for the site's operation and facility
    maintenance are being funded by the INS.
        In addition to the training conducted on-site at one of the FLETC's
    residential facilities, some advanced training, particularly that for
    state, local and international law enforcement, is exported to regional
    sites to make it more convenient and/or cost efficient for our
    customers. The tremendous demand for basic training over the next four
    years will increase the FLETC's reliance on export training sites to
    meet these advanced training requirements. The Center's driver,
    firearms and physical techniques training facilities cannot accommodate
    all of the training being requested. Therefore, much of the advanced
    training requiring the use of special training facilities will have to
    be accommodated elsewhere.
        Realizing that a short-term solution was needed to meet the
    advanced training needs of our customers until additional facilities
    are completed under the Master Plan, the FLETC began to identify state
    and local facilities that could be used to accommodate this training.
    Several sites have now been identified, and the Center will seek this
    Committee's permission to enter into agreements with these non-Federal
    organizations for the use of their facilities on a reimbursable basis.
    No funding of the FLETC will be used to make capital improvements at
    the sites. Essentially, FLETC will serve as a ``broker'' in setting up
    training arrangements with select non-Federal sites that can
    accommodate only training that cannot otherwise be conducted at a FLETC
    site. If approved, the Center will be able to assist its customers in
    meeting their advanced training needs by facilitating the scheduling of
    their training at one of these sites. At the same time, with the Center
    serving as the mechanism for the use of these facilities, the concept
    of consolidated training through the FLETC will be protected.
    Additionally, continued implementation of the Master Plan will
    eventually allow this advanced training to be returned and conducted at
    the Glynco and Artesia training centers.
        Over the years, the FLETC has become known as an organization that
    provides high quality and cost efficient training with a ``can do''
    attitude and state-of-the-art programs and facilities. There are many
    substantial advantages of consolidated training for Federal law
    enforcement personnel, not the least of which is an enormous cost
    savings to the Government. Consolidated training avoids the duplication
    of overhead costs that would be incurred by the operation of multiple
    agency training sites. Furthermore, we estimate that consolidated
    training will save the Government $114 million in per diem costs alone
    during fiscal year 1999. This estimate is based on projected fiscal
    year 1999 workload and per diem rates in Washington and other major
    cities of $152/day versus the cost of housing, feeding, and agency
    miscellaneous per diem of $29.95/day for a student at Glynco.
    Consolidation also ensures consistent high quality training and fosters
    interagency cooperation and camaraderie in Federal law enforcement.
        FLETC and consolidated training can be viewed as a National
    Performance Review concept ahead of its time. Quality, standardized,
    cost-effective training in state-of-the-art facilities, interagency
    cooperation, and networking are indisputable results of consolidation.
    However, the concept of consolidated training is fragile and needs
    constant nourishment and support if it is to remain intact.
                                    workload
        As I mentioned earlier, the Center is facing an unprecedented
    increase in its training workload that began in fiscal year 1996 and is
    projected to continue through fiscal year 2002. The majority of the
    increase in training workload is the result of the fiscal year 1995
    initiative by the Administration and Congress to increase the
    effectiveness of the Immigration and Naturalization Service (INS) in
    controlling our borders by increasing the number of INS and United
    States Border Patrol (USBP) law enforcement personnel. Other factors
    contributing to the increase include security enhancements at Federal
    facilities and new Federal prisons coming on-line. Additionally, the
    Bureau of Indian Affairs (BIA) is also projecting a dramatic increase
    in the number of students it will need trained beginning in fiscal year
    1999.
        During fiscal year 1997 the Center graduated 23,329 students,
    representing 109,116 student-weeks of training. This total included
    16,628 students who were trained at Glynco, Georgia, 2,962 students
    trained at Artesia, New Mexico, 861 students trained at Charleston,
    South Carolina, and 2,878 students trained in export programs conducted
    at various locations throughout the United States. There were 10,741
    basic students, 9,226 advanced students, 2,562 state and local
    students, and 800 international students trained, equating to an
    average resident student population (ARSP) of 2,098. Although the total
    number of students and student-weeks trained were below the performance
    targets established for fiscal year 1997, the Center did provide 100
    percent of the basic training requested by its customers. The
    performance targets established for fiscal year 1997 were based on
    Spring 1995 projections of the 70 agencies we serve. These projections
    are made in advance of appropriations. Because of circumstances beyond
    the control of the agencies or the FLETC, the projections changed by
    the start of the fiscal year, and fewer training requests materialized.
    This performance measure has been revised in the fiscal year 1999
    budget submission and now is based on FLETC providing 100 percent of
    the basic training requested by the participating agencies.
        The Center has seen enormous growth in the training demanded by its
    participating agencies over the past decade. We have been able to
    accommodate many, but not all, of these increased training demands by
    being innovative and undertaking extraordinary measures.
        To accommodate training during fiscal year 1985 and again in fiscal
    year 1989, the Center had to temporarily expand its capacity for
    housing, dining, classroom, office space, storage, and special training
    facilities by using temporary buildings and contracted or licensed
    temporary facilities. Further, the Center has not always had space to
    accommodate all of our students in on-Center housing and has used
    contractual arrangements with local motels to house our overload. Many
    of the temporary measures taken to meet these training demands were
    costly, and they adversely impacted the Center's operations.
        As you are aware, a temporary training facility was established in
    Charleston, South Carolina, during 1996 because our current facilities
    do not have the capacity to accommodate all of the training being
    requested. Principally used to conduct USBP training that cannot be
    accommodated at the Glynco and Artesia training centers, this facility
    will be closed once requirements for the Border Patrol buildup are
    completed. We expect that in fiscal year 2000, sufficient capacity will
    exist at Glynco and Artesia to meet most or all of the projected
    training requirements of our participating agencies and Charleston can
    be closed.
        This is the third time since fiscal year 1985 that FLETC has taken
    extraordinary measures to meet the training demands of its
    participating agencies. More importantly, it is the second time in the
    last nine years that a temporary training facility has had to be
    established. A temporary training facility was established at Ft.
    McClellan, Alabama, in 1989 to meet a similar increase in the USBP
    training workload.
        Opening temporary training facilities is a time-consuming and
    expensive process. Capital improvements must be made to bring the
    facility on line and, unlike capital improvements made at Glynco or
    Artesia, there is no permanent return on that investment. The dollars
    expended are lost when the facility is closed. It also impacts on the
    cost effectiveness of the training provided and on the student's
    quality of life and overall training experience. However, as was done
    in 1989, the Center is taking steps to mitigate any impact the
    temporary training facility might have on the quality of training
    provided. We are extremely proud of our reputation for providing high
    quality, cost effective training and will take the steps necessary to
    ensure that the quality of training provided at Charleston remains
    high.
                             facilities master plan
        Now, Mr. Chairman, if I may, I would like to brief you and the
    other Committee members on progress being made in expanding the FLETC's
    facilities. The Master Plan, presented to Congress in June 1989,
    provided a basis for the efficient and orderly development of the
    Center's land and facilities resources. It was and is a comprehensive
    blueprint to guide the expansion of the Center so that it can more
    effectively support the present training workload as well as the
    workload projected for the future. The original plan called for a total
    investment of $86,010,000.
        The Center has recently completed an update of the Master Plan. The
    update, which is being reviewed by the Department and the Office of
    Management and Budget, will be provided to the Congress when that
    review is completed. Through fiscal year 1998, Congress has
    appropriated $82,717,000 for Master Plan construction. Of this amount
    $66,960,000 was for Glynco projects and $15,207,000 was for Artesia
    projects.
        At Artesia, major projects that have been completed include:
    rehabilitation of the cafeteria/student center complex and main
    classroom building; construction of a physical training complex,
    completed in October 1991; interim driver/firearms ranges, completed in
    1991; a much needed road and sidewalk network at the Artesia main
    campus, completed in 1992; permanent firearms ranges, completed in
    1993; and a driver/firearms administrative support/classroom building,
    completed in 1996. At Glynco, completed projects include: a dormitory,
    completed in April 1993; an expansion of the indoor firearms range
    complex, completed in August 1993; consolidation/expansion of the
    physical techniques facility, completed in October 1993; an expansion
    of the cafeteria, completed during 1994; construction of two 25 firing
    point outdoor ranges completed in 1994; an addition to the Steed
    classroom building (two state-of-the-art classroom buildings),
    completed in May 1996; and an expansion of our driver training complex
    (the addition of control tower, defensive driving and highway response
    ranges), completed in February 1997.
        In addition to those MP projects already completed, construction
    recently began on a new dormitory and an administrative building at
    Glynco. These projects are expected to be completed in fiscal year
    1999. A contract was also awarded in late January for construction of a
    dormitory in Artesia. Construction on this project will begin in early
    March and should be completed in early fiscal year 2000.
        The Center's fiscal year 1999 ACI&RE request is in the amount of
    $28,360,000 and includes $16,124,000 to continue implementation of the
    Master Plan. The remaining funds in the ACI&RE account are for
    environmental projects necessary to comply with laws and regulations
    and to support the minor construction and maintenance projects
    necessary to protect the Government's investment. Additionally a small
    amount of the S&E appropriation is used to meet certain facility
    maintenance requirements.
        The $13,000,000 in Master Plan funds requested in our fiscal year
    1999 initiative will provide funding to construct a classroom building
    and a dormitory at Glynco. These facilities are necessary to support
    the increased basic training workload of the participating agencies.
    Except for a small amount ($308,000) that will be used for a classroom
    at Glynco, the remaining $3,124,000 contained in the base will be used
    for expansion of the cafeteria, a commercial laundry and infrastructure
    improvements at the Artesia center.
        Our Master Plan initiative directly supports goal two in FLETC's
    strategic plan. That goal is to develop, operate, and maintain state-
    of-the-art facilities and systems responsive to interagency training
    needs. Funding is required if the Center is to meet the training needs
    of its customers. Not funding these initiatives will result in the
    continued reliance on the more costly method of establishing temporary
    training facilities to meet training requirements. It also endangers
    the concept of consolidated training as the larger agencies look at
    alternatives, such as individual agency sites, to meet their training
    requirements.
        The Center continues to consult closely with its participating
    agencies so that the design features of each project will meet current
    and future needs. This close consultation sometimes prolongs the period
    it takes to design and construct facilities; however, we feel the time
    and effort are well spent because it ensures that funds are efficiently
    and wisely used.
        Obviously, changing events have and will continue to dictate
    modifications to the various projects outlined in the Master Plan. For
    example, the Center's unprecedented workload has resulted in
    adjustments to the priority and the reprogramming of funds between some
    of the projects at Glynco to ensure that the temporary facility in
    Charleston is closed as soon as possible. However, I want to assure you
    that the FLETC will continue to work through the Treasury Department,
    Office of Management and Budget, and the Congress in dealing with these
    changes.
        Mr. Chairman, I want to thank you and members of the Subcommittee
    for the support given the Center in its Master Plan development and
    implementation. We are pleased and grateful that Congress has seen fit
    to appropriate the funds necessary to expand our facilities and better
    equip the Center to meet the training needs of our customers. Only by
    doing so is the concept of consolidated training nurtured and
    strengthened.
        Now, if I may, Mr. Chairman, I would like to take this opportunity
    to further discuss the four remaining initiatives in the Center's
    fiscal year 1999 budget request which I briefly referred to earlier in
    my testimony.
                   mandatory basic training workload increase
        In our fiscal year 1999 request the Center is asking for $1,614,000
    and 10 FTE to support the direct cost of basic training resulting from
    workload increases. As I discussed in some detail already, the Center
    is faced with an unprecedented increase in its workload. This
    initiative will allow the Center to fund 100 percent of the direct cost
    of the discounted projected basic training in fiscal year 1999
    (excluding recently updated projections in INS/BIA's workload) and
    supports goal one in FLETC's strategic plan--to provide high quality
    law enforcement training.
        Our request is in accordance with the current Treasury/FLETC policy
    that requires funding of the direct cost of basic training. The
    participating agencies do not request funding for these costs in their
    budget submissions and are fully expecting and relying upon the FLETC
    to provide that funding.
                                master plan fte
        As I touched on in my testimony earlier, the Center is requesting
    $1,400,000 and 12 FTE in support of the Master Plan implementation.
    Master Plan construction funding provided in fiscal year 1998 and that
    contained in our fiscal year 1999 request totals nearly $35,000,000.
    Because FLETC's current administrative staff, including engineering and
    procurement specialists, are already fully utilized on existing Master
    Plan and minor construction and maintenance projects, we need
    additional resources to ensure the prompt processing and completion of
    these projects. The Master Plan FTE contained in this request will give
    the Center the additional support personnel necessary for management
    and oversight of these projects from design through construction and
    will ensure their timely completion.
        This initiative supports goal two of the FLETC's strategic plan
    which is to develop, operate, and maintain state-of-the-art facilities.
                     international law enforcement academy
        The FLETC has been involved in foreign training for more than 20
    years. Since 1979 the FLETC has provided training to more than 4,000
    foreign law enforcement officials from more than 102 countries.
        The Center's Office of State, Local and International Training
    (OSI) serves as the focal point for all foreign training requests
    received by the FLETC. OSLI, originally established in 1982 by the
    President to provide much needed training for state and local law
    enforcement agencies, has proven to be the ideal conduit for FLETC's
    international training efforts. Since its inception, the OSLI has
    received broad support from the Federal, state, and local law
    enforcement communities. They provide subject matter experts for course
    and program development as well as instructional services. The same
    network and support structure in place to assist state and local
    agencies in meeting their training needs made the OSLI a logical focal
    point for international training at the FLETC.
        Two Administration and Congressional initiatives, the Freedom
    Support Act and the Support for Eastern European Democracies Act, are
    responsible for much of the upswing in foreign training. As you know,
    these acts provide law enforcement technical assistance in combating
    organized crime, financial crime, and narcotics trafficking to Russia,
    the newly independent states of the former Soviet Union, and other
    eastern European countries.
        The majority of recent training has been provided under the
    sponsorship of the Department of State's Office of Antiterrorism
    Assistance and Bureau for International Narcotics and Law Enforcement
    Affairs. During the last three years programs have been conducted in
    Russia, Poland, Hungary, Romania and Moldavia. In addition to this
    training, the FLETC also provides instruction in financial crimes to
    students attending each session of the program conducted at the
    International Law Enforcement Academy (ILEA) in Budapest, Hungary.
        Requests for training have grown substantially in the last few
    years, with student weeks of training increasing by more than 200
    percent since 1994. During fiscal year 1997 the Center trained 800
    foreign students, representing 1,300 student-weeks of training.
        In fiscal year 1998 the Center expects to train 1,132 students,
    representing 2,084 student-weeks of training. The growth in foreign
    training has been so explosive that FLETC now finds it must deny or
    delay in responding to some of these requests because facilities or
    staff to support the request are not available.
        Adding to this already heavy international training workload are
    other Congressional and Administrative initiatives also aimed at
    increasing international cooperation in combating crime. These
    initiatives are out pacing FLETC's resources and its ability to support
    training in the international arena.
        In 1995, as part of Congress' and the Administration's objective to
    enhance cooperation and strengthening international law enforcement
    efforts, the Department of State established the ILEA in Budapest,
    Hungary. Drawing on the expertise of U.S. law enforcement agencies and
    participating nations, ILEA has proven to be a successful model.
    Although FLETC does not have the lead responsibility for ILEA, FLETC
    has been actively involved in supporting the training requirements of
    ILEA since its inception, providing instructional and program
    development support.
        The ILEA in Budapest has enhanced cooperation and strengthened
    international law enforcement efforts. The great success of the ILEA
    model has encouraged the Administration to expand on this concept by
    establishing international law enforcement academies in Latin America
    and the Far East. At the San Jose Summit on May 8, 1997, President
    Clinton announced that an international law enforcement training
    academy would be created in Latin America (ILEA-South) before the end
    of 1997. Patterned after ILEA-Budapest, the goals of ILEA-South are to
    expand relationships with and among foreign law enforcement officials
    from Latin America and the Caribbean, support democracy by stressing
    the rule of law in international and domestic police operations, foster
    international cooperation and raise the professionalism of law
    enforcement judicial officials.
        The Department of State selected the Department of the Treasury as
    the lead agency to establish ILEA-South. In turn, the Department, at
    the request of the Under Secretary for Enforcement, selected the FLETC
    to provide management oversight, administrative support, and guide
    program development for ILEA-South.
        The FLETC will serve as the coordinator for this effort on behalf
    of all the Treasury law enforcement bureaus who are joined together in
    support of ILEA. A pilot training program, the Criminal Justice
    Managers Training Program (CJMTP), was recently conducted in Panama
    City, Panama, during November and December 1997.
        Thirty-two students attended the first program offering of the
    CJMTP. The program was well received and was considered by all those
    involved to be a great success. Countries represented by students
    included Belize, Costa Rica, Dominican Republic, El Salvador,
    Guatemala, Honduras, Nicaragua, and Panama.
        Our fiscal year 1999 request includes $1,500,000 and 5 FTE for the
    management of the ILEA-South. Current demand for training assistance
    from the international community already exceeds the FLETC's available
    resources. That demand coupled with the added responsibility for
    management oversight and administrative support of ILEA-South makes it
    critical that additional resources be provided.
        The ILEA-South initiative contained in our request supports goal
    one in FLETC's strategic plan. That goal is to provide high quality
    training for law enforcement.
             conversion of the fletc driver training vehicle fleet
        Now, Mr. Chairman, I would like to brief this Committee on the need
    to begin conversion of FLETC's driver training vehicle fleet from rear-
    wheel drive to front-wheel drive sedans. Although not part of the
    Center's budget request, this $900,000 initiative will allow the Center
    to purchase 30 front-wheel drive police package training vehicles and
    begin the conversion of its driver training vehicle fleet. It will be
    funded from the Department of Treasury's Asset Forfeiture Fund.
        Over the last few years American automobile manufacturers have
    slowly converted their production from rear-wheel drive to front-wheel
    drive vehicles. Because of this change, U.S. manufactured police
    package automobiles are now predominantly based on front-wheel drive
    car platforms. As agency fleets age, older rear-wheel drive vehicles
    are now being replaced by the newer front-wheel drive vehicles. Nearly
    half of FLETC's 20 on-site participating agencies have started to
    convert their vehicle fleets to front-wheel drive vehicles, and GSA
    advises that 96 percent of the cars they purchased in 1996 were front-
    wheel drive cars.
        Since front-wheel drive cars handle differently from rear-wheel
    drive cars, the FLETC must begin to update its fleet if it is to meet
    the training needs of the participating agencies. Students must be
    trained with the same type of equipment they will use when they
    graduate. This is the only way they can master skills that are
    essential for them to perform well in their jobs. Failure to provide
    this training will increase the potential that accidents may occur
    because the officers were not trained using the appropriate vehicle.
        With the funding requested the FLETC will purchase 30 vehicles in
    fiscal year 1999. Smaller numbers of front-wheel drive vehicles cannot
    be added to the driver training fleet, as a class cannot have mixed
    vehicle types during evaluation exercises that require different
    reactions based on the vehicle type. Thirty is the minimum number of
    vehicles needed to integrate a different type vehicle into the training
    and provide continuity as a class rotates through the various special
    driving ranges.
        Currently there are approximately 150 driver training vehicles in
    the FLETC fleet, and by fiscal year 1999 the average age of these
    vehicles will be nine years old. This is a five-year initiative with a
    total cost of $4,500,000.
        The FLETC's heavy workload, the addition of two new driving ranges,
    the aging of the FLETC's driver training vehicle fleet, and the need to
    train students with the same type of equipment they will use in the
    field makes it imperative that FLETC begin the conversion of its driver
    training vehicles from rear-wheel drive to front-wheel drive in fiscal
    year 1999. This initiative directly supports FLETC's strategic plan
    goal one which is to provide high quality law enforcement training.
        Now, Mr. Chairman, if I may, I would like to take a moment and
    briefly update the Committee on activities of our satellite training
    center in Artesia, New Mexico, and the activities of our National
    Center for State, Local and International Training.
                               artesia operations
        The Artesia center was purchased and became operational in 1989.
    Training facilities at Artesia include a 164-room dormitory (of which 4
    rooms are utilized as a library and snack bar), a cafeteria capable of
    serving 275 students per sitting, two auditoriums--one with seating for
    166 and the other with seating for 85, and a physical training complex.
    There are 23 general purpose classrooms which will accommodate up to
    740 students. Special purpose classrooms include a 24-person computer
    classroom and a 24-person fraudulent document lab. Other specialized
    facilities at Artesia include practical exercise areas, a mock
    courtroom, 3 matted rooms for physical techniques training, driver
    training and firearms ranges, an obstacle course, 36 breakout rooms, a
    heliport and a rappelling tower.
        The Department of Interior's Bureau of Indian Affairs (BIA) Indian
    Police Academy moved to Artesia during 1993. In addition to the BIA
    training that is conducted, Artesia also serves as an advanced training
    site for students posted in the western United States. Additionally,
    because of its diverse special training facilities, it can accommodate
    overflow basic training that cannot be done at Glynco due to space
    limitations. Artesia is playing and will continue to play an important
    role in meeting the training requirements of the BIA and INS over the
    next few years.
        During fiscal year 1997, the Center trained 2,962 students at
    Artesia. In fiscal year 1998 we expect to train 4,493 students based on
    April 1997 and later projections of our participating agencies and we
    estimate that 5,791 students will be trained at Artesia in fiscal year
    1999. The majority of the increase in the fiscal year 1999 training
    workload is due to the advanced training requirements of the INS, USBP,
    and Bureau of Prisons.
        Other users of Artesia in addition to those already mentioned above
    include the Bureau of Land Management, National Marine Fisheries
    Service, and the FLETC's National Center for State, Local and
    International Training.
        The expansion of the Artesia center as authorized by the Congress
    is continuing essentially as planned. As I mentioned earlier in my
    testimony when discussing the Master Plan, many of the Artesia Master
    Plan projects have been completed and are in use. Nine modular
    buildings have also been installed to accommodate the increase in
    training workload resulting from the INS buildup and a contract for the
    expansion of the Artesia dormitory to add an additional 76 rooms was
    awarded in January of this year. In fiscal year 1998, the Center
    received Master Plan funding for expansion of the Physical Training
    Complex, construction of an Office Building and the balance of funds
    needed for a Classroom/Practical Exercise Complex. Initial planning for
    those projects is underway.
          national center for state, local, and international training
        Mr. Chairman, earlier in my testimony I discussed Glynco's National
    Center's role in supporting the Administration's and Congress'
    international training initiatives. However, we must not forget the
    important role played by OSLI in meeting the training needs of State
    and local law enforcement agencies. If I may, I would like to take a
    few minutes and brief this Committee on OSLI's state and local training
    activities.
        As I mentioned previously the National Center was established in
    1982 by the President to provide much needed training for state and
    local law enforcement agencies. Since its inception, the National
    Center has received broad support from the Federal, state, and local
    law enforcement communities. They provide subject matter experts for
    course and program development as well as instructional services.
        In addition to its international training responsibilities, the
    National Center is charged with training personnel from state and local
    agencies in advanced topics designed to develop specialized law
    enforcement skills.
        By combining the staff expertise of the participating agencies and
    the FLETC with the specialized training facilities already available at
    the FLETC, the Center is able to provide participants with instruction
    in advanced programs meeting their specific needs. In most cases the
    training enables these agencies to be more supportive of Federal
    agencies and their missions.
        During fiscal year 1997, there were 2,562 state and local students
    trained through the National Center in more than 40 advanced training
    programs. In fiscal year 1998 we project that 1,812 state and local
    students will receive training through the National Center.
        Because of the success of the National Center, many of these
    programs are being conducted on an export basis at sites across the
    country, including our Artesia center. This has proven to be a cost
    effective method to provide training to state and local agencies.
    Additionally, exporting training to state and local academies and other
    locations throughout the country increases the Center's visibility and
    leads to improved cooperation between the Center and state and local
    agencies.
        In fiscal year 1998, the Center received $1,000,000 and 3 FTE for
    its Rural Drug Training initiative. The initiative provided funding for
    the delivery of training programs to state, local, suburban and rural
    jurisdictions to enhance their effort in combating the flow and sale of
    illicit narcotics. These programs, the Small Town and Rural Training
    Series (STAR) were developed in response to an identified need for low
    cost or no cost training to be provided to small town and rural law
    enforcement.
        Originally the STAR series consisted of four programs: Airborne
    Counterdrug Operations Training Program, Advanced Airborne Counterdrug
    Operations Training Program, Drug Enforcement Training Program, and
    Rural Crime and Drug Enforcement Task Force Training Program. However,
    in keeping with the original intent of the initiative and as crimes
    associated with the flow, sale, and use of illicit narcotics continue
    to grow in numbers and complexity, the STAR series has been expanded to
    address the many varied elements that contribute to these types of
    crimes. Programs added to the STAR series by the National Center
    include: Community Policing Training Program, First Response Training
    Program, Gangs in Indian Country, and Hate and Bias Crimes Training
    Program.
        I am pleased to report that the Center will conduct approximately
    57 STAR series programs and reach approximately 1,500 students during
    fiscal year 1998. These numbers are even more significant since STAR
    programs are train-the-trainer programs. They are directed toward
    either managers or trainers/facilitators who upon completion of a
    program are capable of replicating the training in their local
    jurisdictions using the techniques and the materials provided. This has
    the effect of substantially reducing the cost of training to local
    jurisdictions and increasing the number of people reached by the
    training--a multiplier effect.
                                    closing
        Mr. Chairman, I am committed to the mission of the Center to
    provide high quality training at the lowest possible cost. Substantial
    savings are being realized through the operation of the Center as a
    consolidated training facility. I look forward to the continued support
    of this Committee as the FLETC strives to remain a partnership
    committed to excellence.
        I am available to answer any questions you may have concerning this
    appropriation request.

                           Statement of William Baity

        Senator Campbell. Mr. Baity.
        Mr. Baity. Thank you, Mr. Chairman, Senator Kohl.
        On behalf of the men and women of FinCEN and especially our
    Director, Stan Morris, who as you know will be retiring this
    Friday after 30 years of Federal service, we want to thank you
    for the opportunity to discuss the mission and our fiscal year
    1999 budget request of the Financial Crimes Enforcement Network
    [FinCEN].

                        Fiscal Year 1999 Budget Request

        The fiscal year 1999 budget request of $24 million
    continues FinCEN's support to law enforcement investigations,
    regulatory efforts, and international coordination. In
    addition, we are proposing that the violent crime reduction
    trust fund support three program initiatives, $500,000 to
    produce a statistically based model to measure the magnitude of
    money laundering, $200,000 to continue training for State and
    local law enforcement under our Gateway program, and $300,000
    to more effectively analyze reports filed by banks and other
    financial institutions under our regulatory program.
        As its name states, FinCEN is a network, a link between the
    law enforcement, regulatory, and the financial communities. Our
    strategy, therefore, is to maximize information sharing among
    our partners in these communities and to foster cost-effective
    and efficient measures to address the complex problem of money
    laundering.
        As you have heard us before describe to this committee,
    FinCEN provides case support to more than 150 Federal, State,
    and local law enforcement agencies. Using advanced technology,
    specialized analysis, and a variety of data sources, FinCEN
    links together various elements of the crime, helping
    investigators find the missing pieces of the criminal puzzle.
        To perform this analysis, FinCEN accesses a variety of data
    bases, one of the largest repositories of information available
    to law enforcement in this country. Critical information
    collected in these data bases comes from the financial
    community, another part of FinCEN's network.

                                Bank Secrecy Act

        The Bank Secrecy Act, known as the BSA and administered by
    FinCEN, requires banks and other financial institutions to
    report and keep records on certain financial transactions.
        To further close off avenues to money launderers, FinCEN
    has ongoing efforts to bring nonbank financial institutions,
    known as NBFI's, under the umbrella of the Bank Secrecy Act.
    NBFI's include casinos, broker/dealers, money transmitters, and
    other financial service providers.
        By necessity, FinCEN's network extends to the international
    community. Building international cooperation, both in the
    private and public sector, is imperative for two reasons.
    First, the Federal law enforcement cases involving
    international crime that we support frequently spill over into
    multiple national jurisdictions. The only way we can adequately
    assist our Federal law enforcement counterparts in following
    the trail of the multinational money launderer is through
    linkages through multinational arrangements, such as the G-7
    financial action task force and building alliances with
    financial intelligence units [FIU's], organizations similar to
    FinCEN that have been established throughout the world.
        Second, criminals seek out countries with weak money
    laundering controls; if antimoney laundering laws are strong in
    one country, criminals run to another one with weaker links.
    Organizations like FATF and the FIU's help establish and
    strengthen laws against money laundering. Building a global
    consensus in this area is essential.

                         Magnitude of Money Laundering

        FinCEN's program initiatives of fiscal year 1999 will
    further support its network capabilities and strategies. The
    first initiative under the proposed fiscal year 1999 budget
    request is to construct a viable model for measuring the
    magnitude of money laundering. This will provide information
    that is indispensable for measuring our performance. We will
    know whether we are making a difference. With adequate measures
    of the extent of the problem, it also becomes easier for the
    Congress, law enforcement authorities, and international
    organizations to determine the amount and allocation of
    resources which should be devoted to antimoney laundering and
    to identify where it fits in national and international
    enforcement and regulatory agendas.
        Although attempts have been made over the years by a number
    of countries and organizations to estimate the extent of money
    laundering, these studies have only exposed the lack of
    sufficient, available data and highlighted the need to develop
    a model or models for using this data. FinCEN's overriding
    objective over the next few years, therefore, will be to
    construct a viable model for measuring the magnitude of money
    laundering.

                                Gateway Program

        A second initiative addresses one of our most important
    networking functions, our Gateway Program. State and local
    enforcement agencies, working with the designated State
    coordinators, trained on FinCEN-designed software, have direct
    access to BSA reports, information not readily available from
    any other source.
        Gateway also saves investigative time and money because
    user agencies can conduct their own research and not rely on
    the resources of intermediary agencies to obtain BSA reports.
    All States and the District of Columbia are now online with
    this system.
        In addition, Gateway enables FinCEN to assist State and
    local agencies in coordinating their investigations among
    themselves and with Federal agencies through information
    sharing and exchange of case data.
        FinCEN has worked diligently to make this system accessible
    to as many people as possible. The Gateway training initiative
    will enable FinCEN to respond to the increasing number of
    requests it receives each month from State and local law
    enforcement. It also furthers our goal of leveraging FinCEN's
    resources to more efficiently and effectively serve our
    customers.

                                Money Laundering

        The third initiative addresses the importance of technology
    in our efforts to combat money laundering. As you have heard us
    say before, the world of money laundering is complex and ever-
    changing. Five years ago, the BSA concentrated on the reporting
    of currency being deposited in banks. Today, money laundering
    methods, as well as the financial sector itself, are undergoing
    constant and dramatic changes. Needless to say, the
    Government's resources dedicated to this fight have not
    increased at the same rate. Therefore, we have to do more with
    what we have and adopt innovative uses of technology.
        Our initiative in this area will support the use of
    advanced technology, often referred to as data-mining. The
    combination of software and hardware uses a variety of
    automated and analytical tools to discover patterns and
    relationships in the data that would otherwise not be found.
    Taking artificial technology to its next level, data-mining
    will help make use of very large volumes of data bringing to
    the surface meaningful groups of information. Hidden activities
    and interrelationships previously unknown will be discovered.
    It is using technology at its best.
        FinCEN's fiscal year 1999 budget request continues the
    programs which enable it to support law enforcement
    investigation, regulatory efforts, and international
    coordination. The three program initiatives, which we are
    respectfully proposing be funded from the violent crime trust
    fund are modest in terms of dollars and cents, but each
    initiative serves to enhance FinCEN's mission.
        The ability to produce a statistically based model to
    explain and measure the magnitude of money laundering will not
    only provide law enforcement with indispensable information,
    but will be cost effective in the long run. The funding for
    Gateway will improve tools and information for law enforcement
    in the fight against money launderers.
        We appreciate the committee's consideration of our request
    and the time you have given us today, and we look forward to
    answering any questions.
        Thank you very much, Mr. Chairman.

                               Prepared Statement

        Senator Campbell. Thank you, Mr. Baity. We have your
    complete statement and it will be made part of the record.
        [The statement follows:]
                     Prepared Statement of William F. Baity
        Mr. Chairman and members of the Subcommittee, thank you for this
    opportunity to discuss the mission and fiscal year 1999 budget request
    of the Financial Crimes Enforcement Network (FinCEN).
        FinCEN works to make the prevention, detection, and prosecution of
    money laundering and other financial crimes more effective by adding to
    the knowledge and resources that law enforcement and the regulatory
    agencies can use to fight them.
        The fiscal year 1999 budget request of $24 million continues
    FinCEN's support to law enforcement investigations, regulatory efforts,
    and international coordination. In addition, under FinCEN's
    appropriation, we are proposing that the Violent Crime Reduction Trust
    Fund support three program initiatives: $500,000 to produce a
    statistically-based model to measure the magnitude of money laundering;
    $200,000 for continued training for state and local law enforcement as
    part of the Gateway program; and $300,000 to more effectively analyze
    reports filed by banks and other financial institutions under our
    regulatory programs.
                           complexity of the problem
        To better understand FinCEN's strategies in combating money
    laundering, it is important to provide an explanation of the complexity
    of the problem. Money laundering is the fuel for drug dealers,
    terrorists, arms dealers, and other criminals to operate and expand
    their enterprises. In order to unravel their illegal activities, law
    enforcement must be able to ``follow the money trail'' made by criminal
    enterprises. And ultimately, following the money leads to the top of
    the criminal organization, and thus the dismantling of these
    enterprises.
        The problem of money laundering is enormous and extends far beyond
    hiding narcotics profits. The dimensions of the problem increase
    rapidly when one considers, for example, trade fraud and tax evasion.
    Bank, medical, and insurance fraud also adds billions of dollars to the
    criminal's profits.
                        fincen's network and strategies
        As its name states, FinCEN is a network--a link between the law
    enforcement, regulatory, and financial communities. Our strategy,
    therefore, is to maximize information sharing among our partners in
    these communities and to foster cost-effective and efficient measures
    to address the complex problem of money laundering.
        As you have heard us describe before, FinCEN provides case support
    to more than 150 federal, state and local law enforcement agencies.
    Using advanced technology, specialized analysis, and a variety of data
    sources, FinCEN links together various elements of the crime, helping
    investigators find the missing pieces of the criminal puzzle. To
    perform this analysis, FinCEN accesses a variety of data bases--one of
    the largest repositories of information available to law enforcement in
    the country.
        Critical information collected in these databases comes from the
    financial community, another part of FinCEN's network. The Bank Secrecy
    Act (BSA), administered by FinCEN, requires banks and other financial
    institutions to report and keep records on certain financial
    transactions. This requirement serves as a means to deter money
    laundering and as a way to create a financial trail for investigators
    to follow criminals and their assets. BSA records include information
    not only on large currency transactions, but information related to
    transactions that the banks believe are suspicious; currency
    transactions at casinos; international movements of currency; and
    foreign bank accounts. FinCEN puts the rules in place that banks and
    others must follow to prevent and detect money laundering and also is
    one of the primary users of the information collected. To further close
    off avenues to money launderers, FinCEN has ongoing efforts to bring
    non-bank financial institutions (known as NBFI's), under the umbrella
    of the BSA. NBFI's include casinos, broker/dealers, money remitters and
    other financial service providers.
        By necessity, FinCEN's network extends to the international
    community. The proceeds of crime generated in the U.S. move quickly
    across national boundaries and into the world's financial systems.
    International crime is just that--international. Building international
    cooperation, both in the private and public sector, is imperative for
    two reasons.
        First, the federal law enforcement cases involving international
    crime that FinCEN supports frequently spill over into multiple national
    jurisdictions and the web of global financial services. The only way we
    can adequately assist our federal law enforcement counterparts in
    following the trail of the multinational money launderer is through
    linkages with multi-national arrangements such as the G-7 Financial
    Action Task Force (FATF) and building alliances with the Financial
    Intelligence Units (FIU's)--organizations like FinCEN--established
    around the world.
        Second, criminals seek out countries with weak money laundering
    controls; if anti-money laundering laws are strong in one country,
    criminals run to another with weaker ones. Organizations like FATF and
    the FIU's help establish and strengthen laws against money laundering,
    leaving fewer avenues for money launderers. Building a global consensus
    is essential.
        FinCEN's program initiatives for fiscal year 1999 will further
    support its network capabilities and strategies.
            initiative: measuring the magnitude of money laundering
        No assessment of an agency's or government's anti-money laundering
    programs can be a true gauge of its effectiveness, unless it is based
    on an understanding of the breadth of the problem being addressed. The
    first initiative under our proposed fiscal year 1999 budget request
    will help leverage limited law enforcement resources by providing
    information on where anti-money laundering efforts would best be
    directed. I would also stress that this initiative is the foundation
    for our strategic planning and at the heart of measuring our
    performance. If we are able to construct a viable model for measuring
    the magnitude of money laundering, FinCEN will be able to review all of
    its objectives in a more meaningful way. We will know whether we are
    making a difference.
        We believe the ability to measure the magnitude of money laundering
    will add value in four key areas:
        Understanding the magnitude of the crime.--With adequate measures
    of the extent of the problem, it becomes easier for the Congress, law
    enforcement authorities, and international organizations to determine
    the amount of resources which should be devoted to anti-money
    laundering and where it fits in national and international enforcement
    and regulatory agendas.
        Understanding the effectiveness of counter-money laundering
    efforts.--Without a baseline, it is difficult to measure how--and
    whether--efforts to prevent and detect money laundering are working.
    The absence of scales for measurement, in turn, makes evaluation of
    particular programs or approaches problematic. It hampers the efficient
    allocation of resources among various enforcement functions or regions.
    And it hinders effective justification for (sometimes costly)
    regulatory measures designed to deter money launderers.
        Understanding the macro-economic effects of money laundering.--A
    central justification for counter-money laundering, especially
    international counter-money laundering programs, is the adverse effects
    of money laundering on financial institutions and economies. The
    International Monetary Fund, in studies of this problem, has indicated
    a number of possible effects:
      --changes in demand for money;
      --exchange and interest rate volatility;
      --heightened risks to the safety and soundness of financial
            institutions;
      --adverse effects on tax collection and, ultimately, on fiscal policy
            projections; and
      --contamination effects on particular transactions or sectors and
            behavioral expectations of market actors.
        Without reliable data or models that measure the degree of money
    laundering, it is impossible to prove the fact or gauge the size of
    these effects.
        Understanding the components of money laundering.--Money laundering
    is often misunderstood. It is not one act or kind of transaction; it
    can take many different forms, and the proceeds of various crimes are
    laundered in different ways. Trying to measure the magnitude of the
    problem forces us to focus on these distinctions and on the different
    components of the crime we call money laundering.
        Although attempts have been made over the years by a number of
    countries and organizations to estimate the extent of money laundering,
    these studies have only exposed the lack of sufficient, available data
    and highlighted the need to develop a model or models for using the
    data which has been collected.
        FinCEN's overriding objective over the next few years, therefore,
    will be to construct a viable model for measuring the magnitude of
    money laundering.
              initiative: network for state and local governments
        FinCEN's second initiative addresses one of its most important
    networking functions--the Gateway Program. The Gateway network extends
    to state and local governments in order to ensure the widest possible
    anti-money laundering effort.
        State and local law enforcement agencies, working with designated
    state coordinators who are trained on the special FinCEN-designed
    software, have direct access to over one hundred million reports filed
    under the Bank Secrecy Act, the largest currency transaction reporting
    system in the world. These investigators also have access to the
    Suspicious Activity Reporting System which contains reports filed by
    banks on transactions that appear to represent attempts to launder
    funds or violate the banking laws. This information often provides
    invaluable assistance for investigators because it is not readily
    available from any other source.
        The Gateway system saves investigative time and money because
    subscribing agencies can conduct their own research and not rely on the
    resources of an intermediary agency to obtain BSA reports. All states
    and the District of Columbia are now on-line with the system. In fiscal
    year 1997, Gateway processed 57,663 queries from 50 states. As of
    February 1, 1998, there were approximately 400 active users of the
    system.
        During the research and analysis process, Gateway electronically
    captures the information gathered on incoming inquiries and
    automatically compares this information to subsequent and prior queries
    from Gateway customers. Over 25,000 subjects have been identified
    through Gateway.
        In addition, Gateway users ask FinCEN to match about 600 new
    subjects each month against its other databases to identify potential
    parallel investigations. This technique enables FinCEN to assist state
    and local agencies in coordinating their investigations among
    themselves, and with federal agencies through the sharing and
    exchanging of case data. (In other words, FinCEN has the ability to
    ``alert'' one agency that another has an interest in their subject.) In
    fiscal year 1997, 460 ``alerts'' were given to agencies that had an
    interest in the same investigative subject. In just the past four
    months, 240 ``alerts'' were issued.
        Since the inception of Gateway in 1993 , almost 650 representatives
    of state and local law enforcement (including state attorneys general
    offices) have been trained on Gateway. In fiscal year 1997, 166
    investigators or analysts from 33 states were trained on the Gateway
    system.
        FinCEN has worked diligently to make this system accessible to as
    many people as possible. The need for training, however, continues to
    increase. FinCEN is currently receiving 12 to 15 new training requests
    each month. The training initiative in FinCEN's fiscal year 1999 budget
    request is a result of two factors: turnover in positions held by state
    financial investigators and an increase in the overall number of
    investigators who are requesting use of the system. Since fiscal year
    1996, there has been a 46 percent increase in training requests.
        This initiative will further FinCEN's goal of leveraging its
    resources to more efficiently and effectively serve its customers.
                     initiative: greater use of technology
        The world of money laundering is complex and ever-changing. Five
    years ago, the BSA concentrated on the reporting of currency being
    deposited into banks. Today, money laundering methods, as well as the
    financial service sector, have changed dramatically. Our success at
    deterring and identifying large currency deposits has forced criminals
    to use alternative and more sophisticated methods to gain access to the
    financial systems. As a result, we have had to employ more
    sophisticated counter measures. Now financial services are provided by
    hundreds of thousands of entities ranging from traditional depository
    institutions to broker dealers, state and Indian casinos, check
    cashers, currency exchangers, issuers and sellers of money orders and
    travelers checks as well as money transmitters.
        Needless to say the government's resources dedicated to this fight
    have not increased at the same rate. Therefore, we have had to do more
    with what we have. As indicated earlier, we have done this by
    developing partnerships with the affected industries that share our
    mission, as well as with other nations. And we have found another
    weapon in our arsenal--innovative uses of technology. In this area,
    FinCEN analysts are pioneers. They use state-of-the-art technology not
    only to strengthen their own capabilities, but also to improve the
    means by which they provide investigative support and analysis to law
    enforcement.
        Our initiative in this area will support the use of advanced
    technology--data mining. This combination of software and hardware uses
    a variety of automated analytical tools to discover patterns and
    relationships in data that may otherwise be overlooked. Taking
    Artificial Intelligence technology to its next level, data mining helps
    make use of very large volumes of data--bringing to the surface
    meaningful groups of information.
        Let me offer a very simplistic explanation as it relates to the
    retail industry. Data mining has been used for several years in the
    retail industry to try and predict the buying habits of consumers. For
    instance, in what is called the ``shopping cart phenomenon,''
    supermarkets use data mining techniques to analyze the buying patterns
    of shoppers--which in turn help them decide which grocery items should
    be in close proximity to each other in the shopping isles.
        I see FinCEN's application of data mining in a very similar way,
    not using consumer data--but the data that we already require from
    banks and other financial institutions. As described earlier, FinCEN
    uses a variety of information for its analysis--including Currency
    Transaction Reports; Suspicious Activity Reports; Reports of
    International Transportation of Currency or Monetary Instruments;
    Currency Transaction Reports filed by Casinos; and, in the future,
    reports filed under the proposed Money Services Businesses regulations.
    Through the implementation of data mining techniques, our analysts
    would be able to bring to the surface hidden activities and
    interrelationships that were previously unknown between these various
    data sources.
        For instance, let's assume a business--XYZ Corporation--is under
    investigation by law enforcement authorities for money laundering
    violations. After examining the pattern of XYZ's financial activity, we
    can apply this suspicious activity pattern to the rest of the data
    bases--and ``mine'' for other businesses which match the profile we
    have created. Much like the supermarket trying to determine its
    customer's buying habits, we also want to predict activity--of
    potential money launderers. Data mining will allow us to do just that.
    It's technology at its best.
                                   conclusion
        FinCEN's fiscal year 1999 Budget request continues the programs
    which enable it to support law enforcement investigations, regulatory
    efforts, and international coordination. The three program initiatives
    which we are respectfully proposing be funded from the Violent Crime
    Reduction Trust Fund are modest in terms of dollars and cents, but each
    initiative serves to enhance FinCEN's mission.
        The ability to produce a statistically-based model to explain and
    measure the magnitude of money laundering will not only provide law
    enforcement with indispensable information but will be cost effective
    in the long term. The funding for Gateway, along with our technology
    efforts, improves the tools and information for law enforcement in its
    fight against money launderers. We appreciate the Committee's
    consideration of our request and the time you have given us today to
    illustrate key aspects of FinCEN's mission.

                        Montana Secret Banking Proposal

        Senator Campbell. I would like to yield to Senator Kohl, if
    he has some questions.
        Senator Kohl. All right. Well, I will ask Mr. Baity a
    question and keep it to that.
        Mr. Baity, we keep hearing about the Montana secret banking
    proposal. Last month, they developed regulations that would
    establish the State as an offshore banking haven to allow
    special depositories for overseas clients seeking privacy.
        Would an overseas client receive any benefit from placing
    their money in Montana as opposed, for example, to the Cayman
    Islands or Switzerland? First question.
        Mr. Baity. Well, if I could, Senator, to put it in context,
    as we understand it, the Montana Foreign Currency Depository
    Act, as they call it, allows only foreign citizens to invest in
    a newly created depository institution.
        When they first announced their intent to enact this
    statute, we along with the Department of Justice, met with them
    and actually testified to ensure that our concerns, especially
    from the money laundering aspect, would be met. In fact, we did
    get compliance from Montana. They included in their legislation
    that any such depository institution would be subject to the
    Bank Secrecy Act.
        We are of the opinion that any depository charter that they
    would give would clearly be subject to the BSA including all of
    the reporting requirements.
        Senator Kohl. Are there other States that have shown any
    interest in establishing such an operation?
        Mr. Baity. Yes, sir; in fact, Hawaii is in the process of
    actually studying the possibility of creating a similar act.
        I would point out, to date there has been no charter
    granted to any institution in Montana, but there remains
    several issues that we intend to keep monitoring. As you know,
    when a foreigner or foreign institution wants to open a bank in
    the United States, a supervisory regulatory agency has the
    ability to ensure that those persons are not suspected of any
    criminal activity.
        We are concerned with Montana that there is no such
    provision in place, and we are under discussions with them to
    ensure that before they move forward, a vetting process will
    exist, as well as an ability to train their people for
    compliance. So we are carefully paying attention to that.
        Senator Kohl. I thank you, and I thank you, Mr. Chairman.

                              Submitted Questions

        Senator Campbell. I have a number of questions to submit to
    each one of you, and if you could, get those back in writing as
    soon as you can. We will keep the record open for about 2
    weeks, if you could answer those questions for me.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]
                    Questions Submitted by Senator Campbell
                        Under Secretary for Enforcement
        Question. Based upon the protective travel shortfalls in the Secret
    Service budget, what specific recommendations is the Treasury
    Department considering to address this problem for the long term?
        Answer. The Department is carefully reviewing this situation to
    first determine exactly what is causing the Service's need for
    increased protective travel funding, and second to identify ways to
    address it. Once we determine whether the increased level of costs
    relative to protective travel are expected to continue, and are not
    simply the result of a temporary and extraordinary jump in protective
    workload, the Department may consider proposing changes to the
    Service's fiscal year 1999 Budget Request.
        Question. In light of the fact that the Secret Service expects to
    have a $13 million shortfall in their protective travel budget for
    fiscal year 1998, how does the Treasury Department plan on providing
    funds for such shortfalls--now and in the future?
        Answer. The Department is considering several options for
    addressing the Service's protective travel shortfall this fiscal year
    and will be discussing these options with the Committee.
        Question. The fiscal year 1998 Treasury appropriations included a
    directive to the Office of Professional Responsibility to conduct a
    study to assess the vulnerability of U.S. Customs Service personnel.
    Please provide an update on this study. Has the difficulty in hiring
    staff for the Office of Professional Responsibility delayed or impacted
    the study?
        Answer. We share the Committee's concern regarding potential
    corruption issues at the U.S. Customs Service and we appreciate your
    support for the Office of Professional Responsibility (OPR) which will
    allow us to more closely examine and propose integrity initiatives.
    Because we did not have the OPR staff on board we hired an individual
    to conduct a preliminary assessment of Customs' Office of Internal
    Affairs. This individual is extremely experienced in this area and
    served as a Federal prosecutor and as the head of the New York City
    Police Department's Office of Internal Affairs. He has submitted a
    final draft report to my office, which serves as the starting point of
    OPR's review.
        Unfortunately, it did take longer than anticipated to hire our OPR
    staff. We received a very large number of applications and the Federal
    personnel rules made review of those applications cumbersome. We did an
    extensive review of the applications, which included interviews of
    candidates conducted by a number of senior officials including myself
    and the law enforcement bureau heads. As a result of this thorough
    process, we have hired four professional staff and two support staff
    for OPR. One of our new hires is a highly qualified Internal Affairs
    Advisor who has reviewed our consultant's draft report and is now
    commencing the study requested by the Committee.
                 government performance and results act of 1993
        Agencies were required by the Government Performance and Results
    Act of 1993 to submit their performance plans with the fiscal year 1999
    budget request. The performance of agencies during fiscal year 1999 in
    meeting their strategic plans will play a large role in the budget
    decisions made in fiscal year 2000.
        Question. Does each account and program activity for the Office of
    Enforcement have performance measures associated with it?
        Answer. While we do not classify the measures by account and
    program activity, we do have specific performance measures for each of
    the office's missions.
        Question. Does your plan include performance measures for which
    reliable data are not likely to be available until March 2000?
        Answer. No, we currently expect to have sufficient information.
        Question. Do you have the technological capability of measuring and
    reporting program performance throughout the year on a regular basis,
    so that the agency can be properly managed to achieve the desired
    results?
        Answer. We currently believe that technological capabilities will
    not restrict our capability to measure program performance.
        Question. Throughout the development of the fiscal year 1999
    performance plan, what overlapping functions or program duplications
    were identified?
        Answer. No significant overlapping functions or program
    duplications were identified as part of the performance plan
    development for the Office of Enforcement.
        Question. Did those duplicative programs receive funding in the
    fiscal year 1999 budget?
        Answer. Not applicable. No significant overlapping functions or
    program duplications were identified as part of the performance plan
    development for the Office of Enforcement.
        Question. What do you believe will be the most difficult
    performance goal for the Office of Enforcement to reach in fiscal year
    1999?
        Answer. While we currently feel it is attainable, annual goal 1
    will probably be the most challenging. It incorporates the
    establishment of a new office and the myriad issues that are
    encountered in such an effort: staffing, organization, operating
    procedures, etc. in addition to the achievement of the office's goals
    for the year.
        Question. Have you redirected resources to that particular goal?
        Answer. Yes. As noted above, this goal involves the creation of a
    new office within Enforcement, and includes the additional staffing and
    resources required to meet this goal.
                                     ______

                    Bureau of Alcohol, Tobacco and Firearms
                           violent crime coordinators
        Question. The Administration is requesting $2 million for ``violent
    crime coordinators''. It is my understanding that these folks will be
    assigned to work directly with the U.S. Attorneys, at their request, to
    build cases involving firearms violations. Will the Justice Department
    assist in funding this program?
        Answer. The Justice Department will not assist in funding this
    program.
                             explosives inspections
        Question. You have received funding in fiscal year 1998 for
    additional explosives inspectors. When those folks are all on board,
    what percentage of explosives storage locations will be inspected each
    year?
        Answer. Once all staff are hired, trained, and performing
    inspections, ATF plans that 80 percent of explosives storage locations
    will be inspected annually.
                                    vehicles
        Question. Your fiscal year 1999 Budget includes a request of
    $3,700,000 for vehicle replacement. This is in addition to the planned
    $4,000,000 disbursement from the Treasury Forfeiture Fund in fiscal
    year 1999 for vehicles and radios. In fiscal year 1998, ATF received
    $4,500,000 from the Violent Crime Reduction Trust Fund (VCRTF) for
    vehicle replacement. This is a total of $12,200,000. ATF currently has
    3,894 employees, and is hoping to increase that to 4,038 in fiscal year
    1999. That is over $3,000 per employee, including part-time and
    temporary employees, for vehicles over two years. How do you justify
    this level of expenditure?
        Answer. The average price of an equipped sedan is actually over
    $20,000 and special purpose vehicles such as special response team vans
    or mobile laboratories cost much more. Additionally, each ATF employee
    is not issued a government vehicle.
        ATF's fleet has an average mileage rate of over 67,000 miles per
    vehicle. The average replacement cycle should be three years if the
    fleet is to remain up to GSA standards. The funding request maintains a
    direct base so that a regular replacement cycle can be maintained,
    rather than have sporadic purchases from other funding sources.
                    gsa surcharge for security requirements
        Question. The General Services Administration has decided that they
    will no longer foot the bill for security enhancements at locations
    housing Federal agencies. As a result, those increased costs are being
    billed to the agencies themselves, and funding is requested in fiscal
    year 1999 Budget for this increase. ATF headquarters is currently
    leased space and the owner refuses to allow installation of additional
    security, which is part of the reason why ATF is requesting funding for
    a new building. However, if GSA is not supplying additional security at
    headquarters, what is the $1,221,000 increase in GSA rent for?
        Answer. The $1,221,000 is not for headquarters nor is it for GSA
    rent. These funds are for security requirements at our field facilities
    and are considered a GSA surcharge. GSA is requesting reimbursement for
    annualized operating costs associated with security enhancements.
                    youth crime gun interdiction initiative
        Question. The expansion of the Youth Crime Interdiction Initiative
    into an additional 10 cities also envisions hiring six agents for each
    of the 27 YCGII cities for a total of 162 agents. The actual tracing of
    the crime guns is conducted by the National Tracing Center. Will
    additional resources be necessary to handle the increased number of
    guns which you hope will be traced as a result of this expansion?
        Answer. The additional agents will improve ATF's ability to follow
    up on investigative leads produced through increased tracing. As far as
    the National Tracing Center is concerned, we believe that the present
    staffing levels are sufficient for handling the additional trace
    requests we anticipate as a result of the YCGII expansion. As the
    service expands to meet the demands of law enforcement in the long
    term, we will re-evaluate space and other issues as they become
    relevant.
                                     great
        Question. ATF is requesting $10,000,000 from the VCRTF for grants
    to State and local jurisdictions for Gang Resistance Education and
    Training (GREAT) Program. This is the same amount that was appropriated
    in fiscal year 1998. Will this be sufficient to accommodate all state
    and local entities who have expressed an interest in participating in
    GREAT?
        Answer. No. ATF has received applications for funding which exceeds
    the current appropriation by $8,000,000.
        Question. If not, what funding level would be necessary in order
    for all interested parties to participate?
        Answer. To meet the current demand for funding, an additional
    $8,000,000 would be needed.
              amendment to the federal firearms regulations--nprm
        Question. You will recall that the Department published a notice of
    proposed rule making on August 27, 1997 concerning an amendment to the
    Federal firearms regulations. This amendment would require federal
    firearms licensees to not only post a sign on their premises, but to
    also provide written notification with each handgun that they sell.
    This notification would, for example, advise each firearms purchaser
    about the dangers of a handgun and how to handle one safely. I am sure
    that the Bureau received many comments on the proposed rule making,
    Where do we stand on that proposed rule making?
        Answer. Over 62 comments were received and evaluated in response to
    ATF's notice of proposed rulemaking. The final rule and poster are now
    in review within ATF and should be published in the near future.
        Question. What does the Department intend to require in these
    notices?
        Answer. The notice will advise that it is illegal to transfer
    handguns to juveniles, provide possible penalties for transferring a
    handgun to a juvenile, state that handguns contribute to juvenile
    violence, and indicate that safe storage of handguns is advisable. The
    Bureau is currently evaluating the comments received regarding the
    notice and will incorporate any appropriate changes in the final rule.
          reclassification of conventional shotguns--nra concerns and
                                  registration
        Question. It has come to my attention that ATF sent letters last
    summer to a number of Federal firearms licensees regarding ATF rulings
    concerning the reclassification of conventional shotguns, such as the
    Striker 12, the Streetsweeper, and the USAS-12, as destructive devices
    under the National Firearms Act. These rulings were made by the
    Secretary of the Treasury in 1994. It appears that the letters sent
    last summer is the beginning of efforts by ATF to implement the rulings
    through a voluntary compliance initiative.
        I have been told that the National Rifle Association has written to
    ATF on this matter, offering to widely publish and disseminate
    information about how owners of these particular firearms can
    voluntarily comply with the National Firearms Act. The NRA has not yet
    received a written response. What action is ATF currently taking to
    address the NRA's concerns and the information dissemination offer with
    regard to the rulings?
        Answer. In August 1997, ATF began to notify Federal firearms
    licensees of the need to effect registration of certain destructive
    devices, Striker 12, Streetsweeper, and the USAS-12, under the National
    Firearms Act. On August 21, 1997, Ms. Tanya Metaksa, Executive Director
    of the Institute for Legislative Action of the NRA, wrote a letter to
    Director Magaw regarding this initiative. In its letter, the NRA
    offered to assist the Bureau in informing the general public on this
    issue by working with ATF on an article for publication in American
    Rifleman. We apologize for the delay in our response and are in the
    process of finalizing our reply.
        Question. I understand that ATF is not requiring that a tax be paid
    to register the shotguns under the National Firearms Act, and that ATF
    is not trying to obtain the law enforcement certification for
    registration purposes. However, it will be difficult for the public to
    respond without any general awareness that they need to do so. What is
    ATF doing to make the gun owning public aware of this compliance
    matter?
        Answer. The tax situation is only applicable to the registration of
    the Striker 12, the Streetsweeper and the USAS-12. When an entity or
    individual attempts to register one of these weapons, on an ATF Form 1,
    Application to Make or Register a Firearm, ATF does not require the
    payment of tax or the law enforcement certification. ATF's efforts
    towards making the public aware of this matter are noted above.
                    youth crime gun interdiction initiative
        Question. You have asked for an additional $16 million for the
    Youth Crime Gun Interdiction Initiative and 81 FTE's to go with it.
    Realistically speaking, how many of those FTE could be hired in fiscal
    year 1999?
        Answer. ATF will hire 162 positions which will equate to the 81 FTE
    requested in the fiscal year 1999 President's budget request.
        Question. Is there any intention to take the funds that would be
    allocated for salaries and expenses in this additional $16 million and
    use it to pursue measures that would present additional obstacles or
    requirements for law abiding citizens to own firearms?
        Answer. ATF will not take funds allocated for salaries and expenses
    in the additional $16 million and use it to pursue measures to present
    additional obstacles or requirements for law abiding citizens to own
    firearms.
        Question. Is the use of the funds restricted solely to efforts to
    target the unlawful diversion of firearms to gangs and criminals?
        Answer. Yes. All Youth Crime Gun Interdiction Initiative funding is
    to be used to address the problem of illegal diversion of firearms to
    juveniles, youth gang offenders, and criminals.
         government performance and results act--atf's performance plan
        Question. Agencies were required by the Government Performance and
    Results Act of 1993 to submit their performance plans with the fiscal
    year 1999 Budget request. The performance of agencies during fiscal
    year 1999 in meeting their strategic plans will play a large role in
    the Budget decisions made in fiscal year 2000. Does each account and
    program activity at ATF have performance measures associated with it?
        Answer. Each activity at ATF has performance measures associated
    with it as outlined in the table below:

                             Program activity                                                           Performance measures

    Reduce violent crime.......................................  Crime related costs avoided.
                                                                 Future crimes avoided.
                                                                 Number of persons trained/developed (non-ATF).
                                                                 Number of Traces.
                                                                 Average Trace response Time (in working days).
    Collect the revenue........................................  Taxes/fees collected from alcohol, tobacco, firearms, and explosives industries (dollars in
                                                                  billions).
                                                                 Ratio of taxes and fees collected vs. resources expended to collect.
                                                                 Burden hours reduced.
    Protect the public.........................................  Response to unsafe conditions and product deficiencies discovered. (Explosives).
                                                                 Commodity seminars held.

        More detailed definitions of our performance measures may be found
    on pages AFT-34 through 36 of the Department of the Treasury Budget.
        Question. Does your plan include performance measures for which
    reliable data are not likely to be available until March 2000?
        Answer. All data is either available now, or under development and
    will be readily available by March 2000
        Question. Do you have the technology capability of measuring and
    reporting program performance throughout the year on a regular basis,
    so that the agency can be properly managed to achieve the desired
    results?
        Answer. We are in the process of designing and implementing
    tracking and reporting systems, compatible with our Enterprise Systems
    Architecture (ESA), which will capture the results of key projects and
    programs.
        Question. Throughout the development of the fiscal year 1999
    performance plan, what overlapping functions or program duplication
    were identified?
        Answer. ATF has contributory goals with the Department of the
    Treasury and the Office of National Drug Control Policy (ONDCP) in that
    ONDCP's success in meeting its ten year goals, relies on implementation
    of Treasury's and ATF's goals on drug interdiction and reduction of
    violent crime.
        ATF's Integrated Ballistics Identification System (IBIS) project is
    somewhat duplicated by FBI's Drugfire program, but the National
    Integrated Ballistic Network Board (composed of representatives from
    ATF, the FBI, and the National Institute of Standards and Technology)
    is working to interlace the two systems. No other program overlaps were
    identified during the development of the fiscal year 1999 performance
    plan.
        Question. Did those duplicative programs receive funding in the
    fiscal year 1999 Budget?
        Answer. No other program overlaps were identified during the
    development of the fiscal year 1999 performance plan.
        Question. What do you believe will be the most difficult
    performance goal for ATF to reach in fiscal year 1999?
        Answer. The performance goals associated with the Reduce Violent
    Crime activity will likely be the most difficult.
        Question. Have you redirected resources to that particular goal?
        Answer. Yes. The Bureau has moved the Gang Resistance Education and
    Training (GREAT) Program from the Protect the Public activity to the
    Reduce Violent Crime activity.
        Question. The fiscal year 1997 performance plan was based upon
    goals of specific performance percentages, some of which were exceeded
    and others which were not met. For example, the goal for firearms
    applications was that 84 percent would be processed within 60 days, was
    not met. However, the number of traces conducted by the National
    TRACING Center far exceeded the goal of 150,000. Do you also have
    similar detailed goals for fiscal year 1999?
        Answer. We are in the process of developing a set of performance
    measures and indicators which will reflect the outcome, or results, of
    ATF's work at the project, program and activity levels. We will
    continue to track output measures in our records, but future
    performance measures will be more reflective of outcome oriented
    results.
                                     ______

                              U.S. Customs Service
                      non-intrusive inspection technology
        Question. You have mentioned in your testimony that Customs has
    developed a five-year technology plan. What did Customs use as its
    guideline during the development of this plan?
        Answer. Customs has briefed Administration and Congressional staffs
    on this plan between December 1997 and February 1998. Several factors
    guided us in the development of this plan. These included:
      --Our own extensive experience in developing and deploying effective
            new technologies for non-intrusive inspection, covert tracking
            and surveillance, communications, and vehicle processing.
      --Technical advice and assistance from several agencies, but
            principally from the DOD Counterdrug Technology Development
            Program, the ONDCP Counterdrug Technology Assessment Center
            (CTAC), and the FAA Aviation Security R&D Program.
      --The workload volumes, smuggling opportunities, commodity
            characteristics, and operational constraints at each port
            included in the plan.
      --Knowledge of the new and emerging technologies that will provide
            effective, timely, and affordable support to our requirements.
        Question. Does the five year plan implement a five year replacement
    cycle for all of Customs' technology?
        Answer. We hope that these technologies would have a useful life
    closer to 10 years rather than five. The plan includes funding for the
    maintenance, repairs, spare parts, and other logistics support that
    will keep the new equipment useful through this time period. The plan
    does not provide a five year replacement cycle or any logistics support
    for our current technologies that are now in the field.
        Question. There is $54 million requested in your fiscal year 1999
    budget for non-intrusive inspection technology. Would you characterize
    this equipment as mobile or stationary?
        Answer. These funds will provide a variety of inspection technology
    including $41 million of new equipment for the Southwest Border, $10
    million for equipment at high-risk seaports (2 systems), and $3 million
    for Automated Targeting System modules for both sea and land ports (12
    systems).
        A potential array of technology to be procured could be itemized as
    follows:
        The Mobile Truck X-ray Systems (7 systems) are just that; they can
    travel over any roads to reach a port, can operate in any area wide
    enough for two trucks to pass, and can be set up or taken down within
    minutes.
        The Gamma-ray Imagers (11 systems) for trucks and sea containers
    are easily relocated; they require less than half a day to set up or
    take down and are easily transported in a small truck between ports.
        The Heavy Cargo Pallet X-ray System (7 systems) can be transported
    to another site when necessary, but will require several days to
    assemble or disassemble. This is a large system, as it must be to
    handle cargo weighing up to 10,000 pounds and up to 8 feet wide and
    high.
        The Rail Car Examination System (4 systems) we are currently
    considering is a variation of the Gamma-ray Imager for trucks; it also
    would be easily relocated between rail sites, although some prior site
    preparation may be necessary.
        Customs, in partnership with DOD, ONDCP, OMB, and the Congress,
    will continue to evaluate new technologies as they evolve to determine
    if they would meet our mission requirements. If such technology is
    found to better fulfill Customs requirements, current plans would be
    modified to take advantage of this development.
        Question. What will be the approximate annualization of maintenance
    costs for the $54 million of technology requested in fiscal year 1999?
        Answer. We expect the annual recurring maintenance costs for this
    equipment to be approximately $5-$8 million. This includes preventive
    maintenance, repairs, spare parts, initial and recurring training of
    operators, compilation of service and performance records, and other
    logistics support throughout the life cycle of the equipment.
        Question. Are there any research and development costs included in
    the $54 million technology request?
        Answer. The requested funding is for the acquisition of proven
    technology that was developed and evaluated under previous programs by
    Customs, DOD, or ONDCP. Therefore, there are no R&D costs included in
    this request. We know that we must remain alert to changing operational
    requirements and technological capabilities, but expect that any
    necessary R&D would occur from sources other than this request.
        Question. In last year's information submitted as part of the
    record, Customs listed those technologies which were the most
    effective, are those same technologies included in the five year plan?
        Answer. The technologies we listed last year were the large-scale
    truck X-ray system, mobile truck X-ray system, transportable gamma-ray
    imaging system, X-ray vans and pallet X-ray machines, and various hand
    held devices such as Busters, laser range finders, and contraband
    detection kits.
        The five year plan includes a large number of mobile truck X-ray
    and gamma-ray imaging systems; the plan also includes an eventual up-
    grade of the current large scale truck X-ray systems.
        The five year plan also includes three inspection technologies that
    were not fielded or fully defined last year; these are the heavy cargo
    pallet X-ray, the sea container X-ray, and rail examination systems.
                              detection technology
        Question. Is there currently technology available to Customs which
    could be used for the different aspects of the Customs mission,
    specifically the detection and monitoring of air, land and marine
    operations?
        Answer. There is no single technology or multiple-use system that
    we are aware of that could detect and monitor targets for all air,
    land, and maritime activities. However, there are several types of
    satellite-based electronic tagging and tracking systems that could
    monitor suspect air, land, or marine movements once the target plane,
    vehicle or boat has been detected and a tracking device covertly
    installed.
        There are some radar systems currently deployed that either are, or
    can be, capable of detecting and monitoring most air and maritime
    targets of interest to Customs. These include the airborne radars in
    Customs P-3 AEW aircraft and the DOD aerostats that can detect targets
    up to 150 miles away, and the radars in the Customs Citations and other
    Customs, Coast Guard, or military aircraft that can detect targets up
    to several miles away.
        The land-based DOD Relocatable Over-the-Horizon Radar (ROTHR) can
    detect and monitor air targets, and ultimately marine targets, that are
    several hundred miles away.
        Cost benefit analyses for the effectiveness of the P-3, aerostat,
    and ROTHR were conducted in the early development and cost
    justification days of these programs. They concluded that each was
    effective for the multi-agency applications for which they were being
    used (e.g., Customs, Coast Guard, INS, and DEA enforcement activities,
    and DOD early warning missions).
                             information technology
        Question. Why did Customs propose a User Fee to fund the ACE
    program?
        Answer. Customs is proposing legislation to increase to the
    Merchandise Processing Fee (MPF) to generate the revenue necessary to
    fund the development of the Automated Commercial Environment (ACE) and
    an enterprise architecture. The funds generated from the MPF increase
    would be directly available to Customs solely for this purpose. The
    current automated system is over 14 years old, costly to maintain, and
    does not provide the flexibility and efficiency required in today's
    environment. It is widely recognized that Customs must modernize its
    automated commercial operations in order to meet the needs of the trade
    community and to comply with various legislative requirements, such as
    the Customs Modernization and Informed Compliance Act (MOD Act) and the
    Chief Financial Officers Act.
        While some appropriated funding will be required in lieu of MPF
    collections for costs associated with processing merchandise from
    countries exempted under NAFTA, the remaining costs for modernization
    cannot be absorbed from base funds. The Administration sought
    alternative ways to fund this high priority initiative. The MPF
    increase was chosen because it attributes the costs directly to those
    who will benefit the most, and it can consistently generate the funds
    required over the time needed for deployment.
        Question. How will Congress and Treasury be able to maintain its
    oversight responsibilities of the program if a User Fee is enacted?
        Answer. Customs proposal to increase the Merchandise Processing Fee
    (MPF) is strictly a mechanism to generate additional funding for the
    modernization of Customs automated commercial operations. It is not
    intended to circumvent any oversight responsibilities of Congress or
    the Treasury. If Customs proposal is enacted, the legislation would
    provide funding through a ``current'' and ``indefinite'' appropriation.
    This would mean that Customs would have to request authority from the
    Appropriators each year to use the offsetting receipt funds generated
    by an MPF increase. In addition, Customs would still be accountable for
    the controls set forth in the Clinger-Cohen Act and Congress would
    continue to maintain an important oversight role on this project.
        In addition, the proposal would not have any impact on Treasury
    oversight responsibilities. Customs currently provides monthly updates
    and milestone revisions to the Treasury Investment Review Board (TIRB),
    and conducts regular working group meetings with Treasury Management
    and Chief Information Officer (CIO) staff. Moreover, Customs provides
    periodic briefings to OMB to ensure compliance with ``Raines Rules.''
    The OMB apportionment process and Treasury's TIRB oversight role
    provide additional assurance that resources will be responsibly used.
    Customs does not anticipate any diminishment in the oversight
    responsibilities within the Administration or the Congress if the MPF
    increase is approved.
                     customs integrity assurance initiative
        Question. Customs integrity is a continuing hot-button issue, and
    there is a new initiative this year for $6 million which would allow
    Customs to conduct more special operations with other Federal agencies
    and increased emphasis in integrity throughout the hiring process. What
    impact will this new initiative have on the vulnerability of Customs
    Service personnel?
        Answer. Customs plans to use the requested funding to reduce the
    vulnerability to integrity problems of Customs employees. Customs will
    also revise the pre-employment screening process, thereby reducing the
    likelihood that unsuitable personnel are hired. Elements of the
    initiative which will decrease Customs vulnerability include:
        Special Operations.--Undercover operations are essential to the
    successful investigation of allegations of criminal misconduct and
    corruption by Customs employees. (Corruption investigations are those
    involving bribery, smuggling, and narcotics.) These operations have
    special approval mechanisms, in accordance with the Department of the
    Treasury guidelines, and allow for use of covert activities in
    accordance with the provisions of Title 19 USC. Customs requires
    additional funding to conduct additional special operations. During
    fiscal year 1997, the Office of Internal Affairs conducted 5 undercover
    operations. These operations cost approximately $425,000, and resulted
    in 20 arrests, including 5 Customs employees; in addition, 3 Customs
    employees resigned in lieu of prosecution.
        Polygraph Examinations.--Upon OPM approval, pre-employment
    polygraph examinations will be given to all applicants for criminal
    investigator positions. This action will reduce the potential of hiring
    candidates at risk for integrity problems. Polygraphs are presently
    used as an aid in the investigation of possible criminal activity by
    employees. During fiscal year 1997, 18 polygraph examinations were used
    in these investigations: 3 revealed no deception; 10 indicated
    deception, which resulted in 2 admissions of guilt; 2 were
    inconclusive; and 3 employees exercised their right to decline
    participation.
        Quality Recruitment Initiative.--Corruption vulnerabilities in the
    recruitment and hiring process for law enforcement occupations will
    also be addressed through a revised screening process. This process
    will consist of a series of ``hurdles,'' including automated
    prescreening, a test of reasoning skills, suitability assessment tests,
    and structured interviews. The automated prescreening process will
    allow use of a touch-tone telephone to answer questions concerning OPM
    minimum qualifications and general suitability requirements, such as
    previous or current drug use.
        Electronic Fingerprint Technology.--The FBI processes fingerprint
    checks as a required part of the background investigations performed on
    all applicants for Customs positions. Background investigations reduce
    the potential of hiring at risk candidates, thereby improving the
    integrity of the Customs work force. The FBI has implemented an
    automated system and expects all Federal agencies to do likewise.
    Electronic transmission and processing is more efficient and less
    costly than the use of manual fingerprint cards.
        Investigative Support Equipment.--Technical surveillance equipment,
    communications equipment, forensic equipment and similar items are
    essential to the successful conduct of additional criminal
    investigations of Customs employees.
                           base funding and programs
        Question. In your fiscal year 1999 request you continued base
    funding for the Softwood lumber, child pornography investigations, and
    Project Alert, please list the amount of funding each program will
    receive as part of your fiscal year 1999 budget. Please elaborate on
    the Customs' money laundering coordination center, which is to be in
    operation in 1998, where it is located, and its purpose.
        Answer. In addition to standard trade compliance and inspection
    operations, the President's fiscal year 1999 Budget requests continued
    base funding for these items as indicated below:

    Enforcement of the Softwood Lumber Agreement............      $2,000,000
    Child Pornography Investigations........................          75,000
    Project Alert...........................................         200,000
                        --------------------------------------------------------
                        ____________________________________________________
          Total.............................................       2,275,000

        The Money Laundering Coordination Center (MLCC) was created in 1996
    for the purpose of supporting money laundering investigations within
    the Office of Investigations (OI). The MLCC, which is located at the
    Financial Crimes Enforcement Network (FinCEN), serves as the
    centralized clearinghouse for both domestic and international money
    laundering pickup operations within OI. All money laundering pickup
    information collected by the MLCC is collated and stored in the MLCC
    data base for the purpose of identifying relationships, methods, and
    trends that exist between past, current, and future money laundering
    investigations.
                      money laundering coordination center
        Question. How will the Money Laundering coordination center work or
    interact with FinCEN?
        Answer. The MLCC will work with FinCEN to utilize its resources.
    FinCEN's Suspicious Activity Reports (SAR's) and artificial
    intelligence will be utilized to identify money laundering trends that
    the Office of Investigations field offices are encountering and provide
    real time intelligence to the field.
                               base funding level
        Question. Is your base fully funded?
        Answer. The Custom's Service fiscal year 1999 budget fully funds
    the necessary cost adjustments for continuing the fiscal year 1998
    enacted level of service and the corresponding number of staff years.
    In the passenger environment, this also includes added full time
    equivalent (FTE) positions to address statutory requirements for
    keeping existing lanes open longer and opening newly required crossing
    points.
        Question. How many FTE positions are unfilled?
        Answer. Based on the ``Explanation of fiscal year 1998 Increases
    and Decreases'' portrayed in the budget as the enacted starting point
    for building the fiscal year 1999 request, all FTE positions for fiscal
    year 1999 are funded. Customs' budgeted staffing is expressed in a
    staff year measurement generally referred to as full time equivalent
    (FTE) positions. Each budget request, including the current proposal,
    attempts to identify as accurately as possible the number of FTE that
    can be ``realized'' or achieved with the level of funding being
    requested. ``Realized'' FTE reflect the conversion into staff years of
    the aggregate number of positions encumbered for the full year, or
    shorter periods of time, and other factors such as the number of part
    time positions. The actual number of positions encumbered at any given
    point during the year will vary, based on attrition and accession
    patterns. As a fiscal year progresses, hiring scenarios are fine-tuned
    so that total realized FTE do not exceed the available budget authority
    to pay for their labor and support costs, nor the number of FTE that
    were estimated in the budget. The full number of FTE for a fiscal year
    is not achieved or known until the fiscal year is completed.
    Contingencies, such as rent costs for new border crossings in fiscal
    year 1997, can result in fewer FTE being realized than were proposed.
        There is no articulation of authorized versus unfilled positions in
    the budget. However, each organization uses its own position
    authorization process as an internal management tool that aims to
    achieve the FTE usage proposed in the budget. Over a multi-year period,
    the number of actual or realized FTE is a good approximation of the
    average positions that were authorized over the course of the year. The
    number of FTE in the Salaries and Expenses (S&E) appropriation actually
    realized in fiscal year 1997 was 16,722; the number planned for fiscal
    year 1998 is 16,655; and the fiscal year 1999 request is 16,766 FTE.
        Question. What would it take to fill those positions?
        Answer. Although there are no unfilled positions presented in the
    fiscal year 1999 budget, the cost of realizing any more FTE, by means
    of establishing new positions, varies greatly with the type of position
    being funded. Moreover, all of the support costs (e.g., rent,
    equipment, training, supplies) are a necessary component of new
    position costs. By way of example, the cost of filling new positions to
    achieve a higher FTE realization than proposed in the budget would have
    the same initial cost range as the 111 FTE that are proposed in the
    budget. For all of the FTE being proposed, the assumption is that the
    hiring stream would result in an average start date of April 1, meaning
    that twice as many positions would be filled as FTE realized (i.e., 221
    positions are being proposed to realize 111 FTE). In fiscal year 2000,
    the budget will have to reflect the cost of the average one-half year
    additional compensation cost for each of these positions, although
    there will also be a substantial downward adjustment for non-recurring
    costs such as vehicles, investigative and communications equipment,
    training, etc.
        Question. Is the amount requested to maintain current levels
    accurate? Please provide a breakout for this funding.
        Answer. The maintaining current levels (MCL's) amounts are
    accurate. All of these amounts, except for the rent and security
    figures, are generated centrally by Treasury using standardized factors
    and methodology, based on the economic policy assumptions contained in
    the President's budget.
        Customs is requesting a total of $60.6 million to meet its
    increasing obligations due to pay raises, benefits, agency
    contributions to the civil service retirement funds, and other expected
    increases in the cost of operations.
        Of the total amount, the budget request provides for a $32.2
    million increase to pay for the fiscal year 1999 pay raise for three-
    quarters of a year and annualize the fiscal year 1998 pay raise. This
    includes $24.2 million requested for the 3.1 percent increase in the
    fiscal year 1999 pay raise and $8.0 million requested for the
    annualization of the fiscal year 1998 2.8 percent pay raise.
        Customs is also requesting an increase of $7.8 million for benefits
    to pay the regular increases in the cost of retirement and health
    benefits, permanent changes of station, and worker's compensation.
        Finally, Customs is requesting $10.2 million that is needed to fund
    other expected non-pay increases in the cost of Customs operations.
    Customs is requesting $6.5 million for additional General Services
    Administration (GSA) rent charges for new border inspection facilities,
    and $3.8 million for additional GSA physical security costs at Customs
    facilities related to efforts to reduce the threat of violence at
    Federal properties. GSA has provided an agency-by-agency breakdown of
    these costs.
                      air/marine operation and maintenance
        Question. Is there level staffing of the Air/Marine branches across
    the Southern Tier of the United States?
        Answer. Customs attempts to deploy staff in such a way to best
    address the smuggling threat. Response flexibility may be limited by
    the high cost of relocating enforcement personnel. Within that context,
    the following statistics are relevant.
      --Currently, the Air Interdiction Division has 718 personnel onboard.
      --Depending on the level of need, air crews from all the Aviation
            Branches are deployed from the Southern Tier to foreign
            assignments in the transit and source zones.
      --In February 1998, the Table of Organization (TO) for the Air
            Interdiction Division was changed to address the high-threat
            areas along the Southern Tier.
      --The Air Interdiction Division is currently recruiting and hiring
            new personnel to fill existing vacancies in response to the
            current threat.
        For the Marine Enforcement Program, the following statistics are
    relevant.
      --Currently, there are 70 Marine Enforcement Officer positions in the
            Customs Marine Enforcement Program, which are augmented by 80
            Special Agents. The Special Agents are not all assigned to
            marine enforcement on a full-time basis.
      --Beginning in 1995, there was a marked increase in the amount of
            drugs seized along the Southern tier by the marine enforcement
            personnel.
      --Through Operation Gateway, staffing for the Marine Enforcement
            Program in Puerto Rico increased by 23 positions.
      --Customs is in the process of recruiting and hiring personnel to
            fill the funded vacancies in the Marine Enforcement Program
            along the Southern Tier.
        Question. How does Customs determine the location of assets and
    staffing along the Southern tier of the United States?
        Answer. Customs determines its staffing and asset distribution
    based on several factors including workload (both in terms of amount
    and type of workload (e.g., passenger, cars, trucks, rail, etc.)),
    smuggling threat, intelligence, and investigative workload.
        These factors are used to determine the distribution of Customs
    available resources to a given port, the job skills those individuals
    need, and the equipment and information required. Asset distribution is
    driven by the level of staffing and the nature of the specific threat
    encountered at a given location.
               status of acquisition of customs p-3 aew aircraft
        Question. What is the current status of the retrofitting of the P-3
    AEW aircraft and the anticipated delivery date to Customs?
        Answer. Customs completed negotiations with the prime contractor,
    Lockheed Martin Aeronautical Systems (LMAS), in September 1997, and the
    contract was signed in late October. The Customs Service expects
    delivery of the first P-3 AEW aircraft in August 1999 and the second in
    March 2000.
                   modernization of customs p-3 aew aircraft
        Question. Is there a need to modernize the first four P-3 AEW
    aircraft so that their systems are standardized with those P-3 AEW
    anticipated for delivery over the next two years?
        Answer. The Customs Aviation Program has been reviewing the
    modernization of its existing P-3 AEW fleet for some time. Currently,
    all four P-3 AEW's are configured with the APS-138 radar. This system
    was originally used in the Navy's E-2C Advanced Radar Processing System
    (ARPS) aircraft. The Navy is updating all E-2C's to an APS-145 Group II
    configuration. The APS-138 is no longer in production and the Navy's
    intermediate level support for this system will be withdrawn by the
    year 2000. Since Customs P-3 fleet represents a relatively small part
    of the overall P-3 population, spare parts (to the extent available
    after 2000) will likely become more costly as economies of scale are
    lost to the manufacturers. This situation is likely to create delays in
    the availability of the aircraft for counterdrug missions.
        Customs is waiting to take delivery of two additional P-3 AEW's
    over the next 2 years. Both of these aircraft will be configured with
    the newer APS-145 radar. The cost to retrofit the four existing P-3
    AEW's depends on the configuration, but it is estimated at
    approximately $40-50 million in total.
        Question. What would the cost be to standardize the equipment of
    the first four P-3's in the Customs' inventory, and what would it
    entail to modernize these aircraft?
        Answer. The procurement cost of the new APS-145 radar is
    approximately $10 million. Current Customs P-3 AEW aircraft are
    configured with a compatible antenna and dome. Integration of the APS-
    145 radar would depend on the computer and display that is chosen. An
    E-2C suite with the new mission computer and display package would cost
    approximately $15 million installed. We estimate that the APS-145
    systems can be built up from the current APS-138 systems on the four
    existing P-3 AEW's for $40-50 million in total.
        The upgrading of Customs current P-3 AEW's to the newer AEW
    configuration would require the following:
      --The replacement of numerous circuit boxes in the radar suite.
      --Installation of a variable speed hydraulic motor and rotary
            coupler.
      --Installation of a new mission computer, monitors and associated
            ducting hardware.
      --Installation of a second satellite communication (SATCOM) radio.
        Question. Would standardization require the aircraft to be out of
    service for any length of time?
        Answer. It is estimated that modernizing the current P-3 AEW's from
    the current APS-138 to the APS-145 configuration in the newer P-3 AEW's
    will take approximately 3 to 4 months for each aircraft during which
    time they will be out of service.
        Question. What benefits and cost savings would Customs have as a
    result of modernizing the four aircraft?
        Answer. The current Customs P-3 AEW's use the APS-138 radar system.
    The U.S. Navy is in the process of modifying their E-2C aircraft to the
    APS-145 radar system. This program will limit the supportability for
    the APS-138 system by the year 2000 because many parts to the APS-138
    may not be available after that date, creating delays in the
    availability of the aircraft for counterdrug missions.
        It is difficult to estimate the cost savings of modernizing the P-3
    AEW fleet. However, it is believed that the savings would be
    significant because support for maintenance and supply to one radar
    system would be much less expensive than for two different systems.
        Lastly, the APS-145 radar system offers improved over land search
    capabilities. Also, the system is capable of processing a significantly
    larger number of targets without overloading.
                       resources dedicated to inspection
        Question. What percentage of resources and manpower does Customs
    devote to inbound inspection and outbound inspection, respectively?
        Answer. The Customs Service has 7,814 employees devoted to
    inspections, of which 353, or 5 percent, are dedicated to outbound.
                     government results and performance act
        Question. Does each account and program activity of Customs have
    performance measures associated with it?
        Answer. Both of our major budget accounts (S&E and O&M) have
    performance measures associated with them. They account for over 99
    percent of our appropriations. The other small accounts involve
    functions which are already captured in the S&E performance measures.
        Question. Does your plan include performance measures for which
    reliable data are not likely to be available by March 2000?
        Answer. We do not anticipate any difficulties at this time, as long
    as our recently developed narcotics and money laundering outcome
    enforcement measures are acceptable to all external stakeholders (e.g.,
    authorizing and appropriating committees, GAO, OMB, and the public) and
    the methodology for providing the data is acceptable. Initial feedback
    has been positive, but more consultation and development is needed.
        Question. Do you have the technological capability of measuring and
    reporting program performance throughout the year on a regular basis,
    so that the agency can be properly managed to achieve the desired
    results?
        Answer. The Customs Service has the technological capability to
    provide all of its measurement data on a regular basis, except for its
    enforcement outcome measures, e.g., the narcotics and money laundering
    outcome measures. Customs is actively working to develop methodologies
    to capture data for these measures (drug smuggling organization
    transportation costs and the cost for criminal organizations to launder
    money) and will provide these figures when this development is
    complete. The normal enforcement output data associated with narcotics,
    money laundering, and other areas, e.g. seizures, arrests, indictments,
    etc. will be available on a regular basis.
        Question. Through the development of the fiscal year 1999
    performance plan, what overlapping functions or program duplications
    were identified?
        Answer. The Customs Service during its reorganization review
    aligned its organization along core process and mission support process
    lines. In addition, it created two enforcement strategies--narcotics
    and money laundering. The strategies were subsequently combined with
    several smaller ones under an Enforcement Systems umbrella. This
    process/system approach ensures that roles and responsibilities are
    defined to avoid duplication and overlap.
        Question. Did those duplicative programs receive funding in the
    fiscal year 1999 request?
        Answer. There are no duplicative programs in our fiscal year 1999
    funding request.
                                     ______

                              U.S. Secret Service
                           2000 presidential campaign
        I note that in fiscal year 1999 the Service will begin to gear up
    for the 2000 elections. Requested is $7.7 million for this preparation
    year, but I am told that this is the tip of the iceberg.
        Question. Why is preparation for presidential candidate protection
    so expensive.
        Answer. Every four years the Secret Service provides protection for
    major presidential and vice-presidential candidates, nominees and their
    spouses. Although there is no candidate/nominee protection the year
    before the campaign begins, there are significant costs associated with
    preparing for the campaign.
        In the year before the campaign, training on campaign procedures
    must be provided to Service and other Treasury Law Enforcement Bureaus'
    agents and, due to procurement lead times, equipment for use during the
    campaign must be leased/purchased.
        Question. Why can't equipment purchased for the 1996 campaign be
    used again in 2000?
        Answer. New equipment is purchased for each presidential campaign.
    Storage of equipment between campaigns is not practical because it
    would require storage space and become outdated. Therefore, upon the
    conclusion of a campaign, residual useful equipment and supplies are
    used to replace old outdated equipment at field offices and protective
    divisions throughout the country.
        Question. Why can't the Secret Service agents use the radios they
    have now?
        Answer. When possible, Secret Service agents do use their issued
    radios when on candidate/nominee protection assignments. However,
    Uniformed Division personnel and other support personnel are not issued
    radios. When on campaign assignments, these personnel must be
    temporarily issued this equipment. The Service does not have enough
    radios in inventory for use by all of the personnel involved in
    candidate/nominee protection. Once the campaign is over, the campaign
    radios will become part of the Service's radio inventory and used to
    replace old obsolete equipment.
        Question. Why can't the officers from the other Treasury bureaus
    use their own radios?
        Answer. When possible, agents from other Treasury bureaus will use
    their issued radios when on candidate/nominee assignments. However, not
    all of these agents are allowed to bring their issued radio with them
    on candidate/nominee assignments due to their bureau's own operational
    needs. Also, some of the other bureaus' radios are not frequency
    compatible, and cannot be retro fitted for communications within the
    Secret Service radio infrastructure.
       international cooperative administrative support services (icass)
                                    funding
        A transfer of $602,000 from the fiscal year 1998 Department of
    State budget has been provided to the Secret Service to use in support
    of International Cooperative Administrative Support Services (ICASS).
    That function has been absorbed in the salaries and expenses budget.
        Question. What is the fiscal year 1999 request for that purpose?
        Answer. The base level of funding in the fiscal year 1999 budget
    for use in support of International Cooperative Administrative Support
    Services, including $602,000 that will remain as part of the base
    funding, is $1.250 million.
                       the closing of pennsylvania avenue
        On February 11, 1998 an editorial appeared in The Hill, one of the
    two newspapers which specifically cover Capitol Hill and read by
    members and staff alike. That editorial called for the reopening of
    Pennsylvania Avenue, in part because presidents should live ``. . .
    close to the people who give them their strength.'' Although the
    decision to close that major thoroughfare was made, in part, by the
    previous Director, we understand that Director Merletti concurs with
    this decision and would be opposed to reopening this street.
        Question. How do you respond to critics of this decision?
        Answer. The re-opening of Pennsylvania Avenue has continued to be
    an issue since its closure on May 20, 1995. As in the past, the Service
    will cooperate with any inquiry and continue to seek alternative
    approaches to mitigate any issue viewed as a detrimental effect of the
    closure.
        The Secret Service remains opposed to reopening Pennsylvania Avenue
    to vehicular traffic. The risk of an attack directed at the White House
    Complex has not lessened, but rather seems greater with the level and
    nature of terrorist activity worldwide.
        The closure of Pennsylvania Avenue to vehicular traffic eliminates
    the opportunity for an individual or terrorist group to interject an
    explosive laden vehicle into the secured perimeters of the White House.
    Secret Service security decisions for keeping the avenue closed and
    protecting the White House are based on empirical data concerning White
    House vulnerabilities to such an attack. These decisions are reinforced
    by the unique and unparalleled symbolic value to terrorists for
    targeting and successfully carrying out an attack on the White House.
    That reality must be recognized, particularly in view of the continuing
    acts of terrorism and related activities in the United States and
    abroad.
                         cloning of cellular telephones
        Question. In light of the recent passage of House legislation
    regarding the cloning of cellular telephones and other electronic
    crimes, what initiatives, if any, is the Secret Service considering to
    combat these emerging criminal activities?
        Answer. When the recently passed Wireless Protection Act was being
    drafted, the Secret Service recommended the removal of ``intent to
    defraud'' from the language in 18 U.S.C. 1029 only as it pertains to
    the possession and use of the hardware and software configured to alter
    telecommunications instruments. This will enable the enforcement of
    section 1029 to stop the manufacture and distribution of this fraud
    equipment, for which there is no legitimate purpose.
        The Secret Service has aggressively investigated fraudulent
    activity on U.S. telecommunications systems since the passing of the
    Omnibus Crime Control Act of 1984. In 1994, the addition of
    telecommunication-specific language to 18 U.S.C. 1029 enhanced the
    ability of the Secret Service and federal prosecutors to address the
    type of criminal activity associated with telecommunication crimes.
        In anticipation of final passage of legislation that would remove
    the ``intent to defraud'' element from Title 18 U.S.C. 1029 as it
    pertains to the possession of cloning equipment, a nationwide operation
    has been formulated in cooperation with the FCC and the Department of
    Justice Computer Crime Section to locate, identify and potentially
    arrest individuals and companies that continue to market such items.
                      protective travel funding shortfall
        Question. Based upon the protective travel shortfalls in your
    budget, what specific recommendations are the Secret Service and the
    Treasury Department considering to address this problem for the long
    term?
        Answer. The Department and the Secret Service are reviewing this
    situation carefully to first determine exactly what is causing the
    Service's need for increased protective travel funding, and second to
    identify ways to address it.
                           armored limousine program
        Question. The Committee has been supportive of the Secret Service's
    armored limousine program since its inception. With the significant
    investments made to date, is the fiscal year 1999 request adequate to
    complete this project?
        Answer. No, funding received to date and anticipated through fiscal
    year 1999 for this project will not be sufficient to complete this
    program.
                         missing and exploited children
        Question. The Service did not request funding for the Missing and
    Exploited Children initiative. Can you explain why there was no
    request?
        Answer. The Secret Service has received funding for this initiative
    since fiscal year 1995. For fiscal year 1999 however, budgetary
    constraints required highest priority be given to the Service's base
    mission program.
        Question. Would you please provide the Committee with some details
    on the geographic locations where assistance has been provided by the
    Secret Service to state and local jurisdictions, as well as some
    details describing the success of this program to date?
        Answer. The following is a geographic list of polygraph
    examinations conducted during the last two fiscal years in support of
    the Missing and Exploited Children initiative: Arizona (6), California
    (8), Delaware (1), Illinois (3), Maine (1), Michigan (5), Missouri (5),
    New Hampshire (2), Texas (7), and Vermont (1).
        A sampling of some of our polygraph successes include:
        Houston, Texas.--In June 1997, the Houston Police Department
    requested Secret Service polygraph assistance in a child abuse
    investigation. The previous April a nine-month-old child was admitted
    to a local hospital with serious injuries of a suspicious origin. The
    stepmother of the child was suspected of causing the injuries but
    denied any involvement when interviewed by local police officials. On
    August 13, 1997, the stepmother submitted to a polygraph examination at
    the Service's Houston Field Office. The results of the polygraph
    indicated that the woman was deceptive to the relevant questions. She
    subsequently confessed to slamming the child repeatedly against the
    floor in an attempt to keep the child quiet, causing all of the child's
    injuries. Houston Police immediately arrested her.
        Oceanside, California.--In February 1996, the Oceanside, CA Police
    Department requested Secret Service polygraph assistance in the
    investigation of sexual assault on four juvenile female runaways
    residing at a State licensed juvenile detention center in San Diego.
    The girls, ages twelve to sixteen years, alleged that they were coerced
    to engage in various sexual acts by one of the Center's counselors, a
    twenty-eight year old male.
        The counselor denied the allegations to Oceanside Police and
    counter-alleged that the girls were making false accusations because of
    his strict demeanor at the Center. He was administered a Secret Service
    polygraph examination, which indicated deception on the relevant
    questions concerning sexual abuse. During the ensuing interrogation,
    the counselor confessed to engaging in various degrees of sexual
    assault, including sodomy and rape, against the complaining victims. He
    was removed from the Casa de Amparo Juvenile Center pending criminal
    prosecution.
        Phoenix, Arizona.--In January 1996, local authorities near Phoenix
    requested that the Secret Service conduct a polygraph examination as
    part of an investigation into the suspected sexual assault of an eight-
    year-old girl by her stepfather. The suspect denied the allegation and
    agreed to submit to a polygraph examination in the Service's Phoenix
    Field Office to verify his denial. The examination disclosed the
    suspect to be deceptive to the relevant questions. During the ensuing
    interrogation, he confessed to sexually molesting his stepdaughter as
    well as another seven-year-old girl over a several year period. He was
    arrested.
        Sacaton, Arizona.--On November 1995, local authorities in Sacaton,
    Arizona requested Secret Service polygraph assistance as part of an
    investigation of an alleged sexual assault of a 14-year-old girl by her
    natural father. The girl alleged that her father had touched her
    private parts in a sexual manner. The father and mother are estranged,
    but he had custody of three children. The man denied ever touching his
    daughter in a sexual manner. He stated that he believed his daughter
    fabricated the allegation as an excuse to move to her mother's home.
    The polygraph examination revealed no signs of deception and the
    criminal investigation was subsequently terminated.
        A sampling of the Service's Forensic Services Division's efforts in
    audio/video tape enhancements and voiceprint analysis includes:
        In February 1996, it received a request from the Port Orange Police
    Department in Jacksonville, Florida to conduct audio enhancement of a
    taped confession of a suspect admitting to molesting his 10-year-old
    granddaughter.
        In July 1996, it received a request from the Chicago Police
    Department to conduct a voice comparison of several suspected child
    abductors and an unknown caller who claimed to be a Las Vegas Police
    Officer in possession of the missing victim.
        In December 1996, it received a request from the Omaha, Nebraska
    Police Department to conduct audio and video enhancement of a tape of a
    female soliciting a male to sexually assault her children in order to
    educate them about sexuality.
        In June 1997, it received a request from the National Center for
    Missing and Exploited Children to conduct a video enhancement to
    determine if a male captured in a video molesting a young girl was
    wearing a mask or if special lighting was used to obscure his face.
                         treasury communications system
        I understand that the Secret Service's communications system will
    be shut down this Spring due to the current contractor's inability to
    provide continued service.
        Question. Is there adequate funding in the fiscal year 1998 budget
    to start the transition to the Treasury Communications System (TCS)?
        Answer. No. The funding in the fiscal year 1998 budget will be
    adequate to cover the Service's financial obligations for participating
    in the Treasury Communications System. The Service and the Department
    of the Treasury are attempting to identify a means of covering the
    shortfall using fiscal year 1998 funds. The Service's transition to TCS
    began in fiscal year 1997 and will be completed in fiscal year 1998.
        Question. Is the fiscal year 1999 budget submission adequate to
    complete the transition?
        Answer. The funding for TCS in fiscal year 1999 is adequate to
    cover the Secret Service's financial requirements for this program. As
    you know, $3.7 million for this program will be derived from super
    surplus balances in the Treasury Forfeiture Fund as indicated in the
    fiscal year 1999 budget submission.
                 government performance and results act of 1993
        Agencies were required by the Government Performance and Results
    Act of 1993 to submit their performance plans with the fiscal year 1999
    budget request. The performance of agencies during fiscal year 1999 in
    meeting their strategic plans will play a large role in the budget
    decisions made in fiscal year 2000.
        Question. Does each account and program activity at the Secret
    Service have performance measures associated with it?
        Answer. The Secret Service has taken the position that each core
    program should have a set of performance measures. The core programs
    include physical protection, uniformed security, protective
    intelligence, and criminal investigations. Taken together, program
    measures for these core programs cover more than 90 percent of the
    Secret Service's positions and operating budget.
        Question. Does your plan include performance measures for which
    reliable data are not likely to be available until March 2000?
        Answer. The current performance plan and performance report for the
    Secret Service includes only well established performance measures that
    have proven to be consistent, valid, and reliable. The Service has
    resisted efforts to include untested measures. However, we are
    continuously examining ways to refine our performance plan, performance
    goals, and performance measures. In particular, we are in the process
    of developing additional, more outcome oriented measures to estimate
    the impact of Secret Service law enforcement efforts for inclusion in
    the fiscal year 1998 performance report. Currently, a project is
    underway which examines offenders arrested by the Secret Service for
    financial crime violations. Baseline statistics are being collected to
    determine the extent of their financial crime prior to their arrest.
    Given this data, a follow up activity is planned to develop and
    validate a statistical model to estimate the average annual losses for
    different types of financial crimes, and the losses prevented due to
    Secret Service intervention.
        Question. Do you have the technological capability of measuring and
    reporting program performance throughout the year on a regular basis,
    so that the agency can be properly managed to achieve the desired
    results?
        Answer. The Secret Service is in a good position for measuring and
    reporting performance measures throughout the organization. The
    Service's performance measurement system has evolved over a long period
    of time using a multi-dimensional data base model. This is important
    because the information from the performance management system can be
    structured as needed to satisfy information needs at different levels
    of the organization. Operational, functional, and strategic decisions
    are supported by altering the dimensions of the data base in ways that
    tailor the information to specific decisions.
        Further, the primary consideration for determining the value of
    performance measures was whether they had utility for internal
    organizational decision making. The impact of this approach is that the
    measures used to satisfy the Government Performance and Results Act
    reporting requirement are also used for internal management purposes
    such as individual performance evaluations, assessment of office
    productivity, allocation of resources, determination of career
    development needs, and evaluation of program effectiveness.
        At present, a new online component to the performance management
    system is being developed and implemented to bring the contents of the
    multi-dimensional data base directly to the decisionmakers workstation,
    rather than on paper. This component allows the decisionmaker to easily
    select the specific information needed, both in table and graphic form,
    and apply basic analytical tools.
        Question. Throughout the development of the fiscal year 1999
    performance plan, what overlapping functions or program duplications
    were identified?
        Answer. A review of the Secret Service's core processes found that
    there were no overlapping functions or program duplications. The Secret
    Service is organized along functional lines, with specific
    responsibilities delineated by program.
        Question. Did those duplicative programs receive funding in the
    fiscal year 1999 budget?
        Answer. There are no overlapping core programs within the Secret
    Service. Therefore, funding duplicative programs is not an issue.
        Question. What do you believe will be the most difficult
    performance goal for the Secret Service to reach in fiscal year 1999.
        Answer. Due to an internal realignment of resources the Service's
    most difficult challenge will be to achieve performance goals for
    criminal investigations. With increased emphasis being placed on
    current and new protection responsibilities, the financial crime
    performance goals for fiscal year 1998 and fiscal year 1999 probably
    will be the most difficult to achieve.
        Question. Have you redirected resources to that particular goal?
        Answer. Increased demands to provide support to protective details
    have resulted in resources being redirected from the investigative
    mission, and this could result in a difficulty in reaching
    investigative performance goals. This redirection of resources, while
    necessary, may limit the Service's effectiveness and its ability to
    address the burgeoning areas of computer-generated counterfeiting and
    other financial crimes.
                                     ______

                    Federal Law Enforcement Training Center
                              rural drug training
        Question. I fully supported funding for the rural drug training
    program last year, and I am glad to note that this program will
    continue under your budget proposal. Rural police officers face so much
    more drug activity now and they need all the training they can get to
    be able to handle it. For the record, can you explain a bit more about
    this program?
        Answer. In an era where State and local law enforcement is
    suffering from diminishing resources and additional responsibilities,
    the FLETC is focusing its limited resources on reaching the largest
    number of customers in the most cost-effective manner. Two years ago,
    following an extensive research study, the FLETC determined that 91
    percent of the State and local law enforcement agencies in this country
    have fewer than 50 officers. To meet the needs of these small town and
    rural agencies which comprise the vast majority of the customers, the
    FLETC created the Small Town and Rural (STAR) training series. The STAR
    series is currently comprised of the following programs: Airborne
    Counterdrug Operations Training, Advanced Airborne Counterdrug
    Operations Training, Community Policing Train-the Trainer, Drug
    Enforcement Train-the-Trainer, First Response Training, Gangs in Indian
    Country, Hate and Bias Crimes Train-the-Trainer, and Rural Crime and
    Drug Enforcement Task Force Train-the-Trainer.
        Each of the STAR programs is directed toward either managers or
    trainer/facilitators who can return to their jurisdictions with all the
    materials necessary to replicate the training and techniques in their
    agencies and surrounding jurisdictions. This approach creates a
    multiplier effect which will expand the effectiveness of criminal
    investigations throughout the United States. This multiplier effect is
    accomplished with a funding investment that is a fraction of the cost
    that would be necessary if each individual benefited by this training
    initiative were to be trained directly. In fact, the second level
    training will permit hundreds of Federal, State, and local law
    enforcement agencies to benefit at little or no cost.
        The FLETC has a two-year schedule to deliver the STAR series
    programs to law enforcement officers. The target audience is small town
    and rural law enforcement officers (including tribal police) who
    typically lack training in these areas. Participants in STAR series
    Train-the-Trainer programs receive serially numbered instructor
    graduation certificates. Those who commit to delivering training to
    small town and rural agencies are then eligible to become FLETC-
    certified STAR instructors.
        This process creates a multiplier effect which provides great
    benefit for a relatively small fiscal commitment. For instance, if
    training were provided during the first year for 30 students in 5
    delivers of each of the 4 STAR series Train-the-Trainer programs, 600
    training facilitators potentially would be prepared to share that
    training in their geographical areas. If each of those facilitators
    subsequently provided training for a class of 30, then 18,000 officers
    throughout the United States would benefit from the funded training.
                                  construction
        Question. You have requested $13 million to construct two new
    facilities in Glynco--a classroom building and a 233-bed dormitory. If
    funded, when would these building be completed?
        Answer. The classroom building should be completed in July 2000 and
    the dormitory in March 2000.
                           charleston training center
        Question. As you know, the Border Patrol is currently training most
    of their new employees at a temporary facility in Charleston, South
    Carolina--although some do still get their training at Glynco, I
    understand. What is the current status of plans to close down the
    Charleston site? Is there a specific closure date?
        Answer. The current plan is to close Charleston as soon as the
    FLETC can accommodate the total Border Patrol training workload, which
    includes both basic and advanced training. While no specific closure
    date has been agreed upon, the FLETC plans to conduct all of the Border
    Patrol basic training requirements at Glynco by mid-fiscal year 2000.
    This target is admittedly very ambitious and presumes that fiscal
    resources are forthcoming and that no delays are experienced with
    construction schedules.
        Question. What happens if the Charleston facility doesn't close.
    Will there still be a need for new construction projects requested in
    your fiscal year 1999 budget?
        Answer. The facilities being constructed are a part of the
    facilities Master Plan, which is designed to assure quality law
    enforcement training in a consolidated environment. Given the current
    training needs and the future anticipated growth, the facilities being
    constructed at Glynco will be fully utilized to meet future demands.
                     international law enforcement academy
        Question. Funding has been requested both in the FLETC budget and
    in the Departmental Offices budget for International Law Enforcement
    Academy (ILEA) operations. Exactly what would these five new FLETC
    staff be doing? Will they be stationed in Georgia or at ILEA South?
        Answer. The new staff will be coordinating logistics and
    administrative support for ILEA South from the United States point of
    central management. They will also provide the same kind of support
    ``in country'' when programs are in session. Secondarily, the same
    staff will provide support for the FLETC's role in ILEA Budapest. It is
    also anticipated that this support will extend to ILEA Bangkok and any
    other ILEA's that come on line. The staff will be stationed in Georgia,
    and travel to ILEA South during sessions.
                       bureau of indian affairs training
        Question. I am told that the Bureau of Indian Affairs expects a
    significant increase in their training needs between now and the year
    2002. They are currently training exclusively at Artesia, New Mexico.
    What steps are you taking to make sure that there are sufficient
    facilities in Artesia to accommodate this increase?
        Answer. The Bureau of Indian Affairs (BIA) has submitted training
    projections which significantly increase the amount of training at
    Artesia during fiscal years 1999 through 2002. In fiscal year 1999, the
    increase will be about 4,000 student-weeks; and in each of fiscal years
    2000, 2001, and 2002, the increase is about 6,000 student-weeks. In
    addition, the advanced training projections will increase about 1,000
    student-weeks each year.
        To accommodate the increased training projections from the BIA and
    other agencies, the FLETC is continuing to construct under Master Plan
    projects which are designed to expand Artesia's capability to address
    the needs of its customers. Currently, a 76-room dormitory is under
    construction, with completion scheduled for early 1999. In addition, a
    Driver Training Range project has been designed and scheduled to begin
    construction during mid-1998, with completion scheduled for mid-1999.
    Other funded projects now in design, with tentative completion dates in
    late 1999 or early 2000, are: Physical Training Building expansion,
    Classroom/Practical Exercise Laboratory Building, Office Building, and
    a Security Building.
        In addition to the above, the FLETC has identified other facilities
    required to conduct the increased training. These additional facilities
    requirements are: 233-room dormitory, two firearms ranges, an
    ammunition bunker, and a firearms training office building.
        It is anticipated that the BIA basic training projections can be
    accommodated with existing, current and planned construction projects.
    The BIA advanced training projections should also be accommodated, but
    will be considered along with the advanced training projections of
    FLETC's other agency customers.
        Question. The justification for your budget request includes
    information on the savings resulting from the consolidation of Federal
    law enforcement training--you state that this cost savings/avoidance is
    estimated to be $160 million annually. However, the Administration is
    requesting the deletion of continuing language contained in the Title
    VI General Provisions, Section 616 in the fiscal year 1998 bill, which
    prohibits Executive Branch agencies from buying, constructing, or
    leasing facilities for Federal law enforcement training without the
    advance approval of Congress. This just doesn't make sense to me. Can
    you explain the rationale behind this request?
        Answer. This provision is not needed as the Executive Branch has
    the authority to control decision-making by agencies affecting the
    construction of training facilities.
                     government performance and results act
        Agencies were required by the Government Performance and Results
    Act of 1993 to submit their performance plans with the fiscal year 1999
    budget request. The performance of agencies during fiscal year 1999 in
    meeting their strategic plans will play a large role in the budget
    decisions made in fiscal year 2000.
        Question. Does each account and program activity at the FLETC have
    performance measures associated with it?
        Answer. Yes. Both the Salaries and Expenses and the Acquisition,
    Construction, Improvements, and Related Expenses accounts contain
    performance measures which link to the applicable goals of the FLETC
    Strategic Plan--fiscal years 1197-2002.
        Question. Does your plan include performance measures for which
    reliable data are not likely to be available until March 2000?
        Answer. We currently have data for each of our performance
    measures, however, some of our measures are being reevaluated and will
    likely be revised.
        Question. Do you have the technological capability of measuring and
    reporting program performance throughout the year on a regular basis,
    so that the agency can be properly managed to achieve the desired
    results?
        Answer. Yes. The majority of the data is captured through automated
    systems.
        Question. Throughout the development of the fiscal year 1999
    performance plan, what overlapping functions or program duplications
    were identified?
        Answer. None were identified, however, we are continuing to analyze
    the performance plan.
        Question. Did those duplicative programs receive funding in the
    fiscal year 1999 budget?
        Answer. Not applicable.
        Question. What do you believe will be the most difficult
    performance goal for the FLETC to reach in fiscal year 1999? Have you
    redirected resources to that particular goal?
        Answer. Providing 100 percent of actual basic training requested
    will be the most difficult goal to achieve. Over the last few years,
    the FLETC has seen an unprecedented increase in its workload. There
    were 23,329 student graduates representing 109,116 student-weeks of
    training in fiscal year 1997. Based on the projections of our
    participating agencies, this workload will grow to more than 140,000
    student-weeks of training in by fiscal year 1998 and fiscal year 1999
    and it is expected to remain at approximately the same level through
    fiscal year 2002.
        Question. In reviewing the fiscal year 1997 plan and actual
    performance, the FLETC exceeded expectations in some areas, such as
    customer satisfaction with service, and did not meet the plan in
    others. Some of the goals, such as the number of student-weeks of
    training, are not totally within the FLETC's control. They fiscal year
    1999 plan has discontinued some of the fiscal year 1997 goals and in
    some cases stated that a new measure is being developed. What lessons
    have you learned and what changes are you planning?
        Answer. It is extremely difficult to measure the FLETC's actual
    impact, i.e., the impact the FLETC training has on officers of each of
    the over 70 participating organizations. In a long standing effort to
    provide the highest quality of service, the FLETC has for several years
    maintained various program evaluation and feedback mechanisms to ensure
    customer requirements are met. Many of these mechanisms have been based
    on responses to agency training needs vs. the budgetary cycle. It has
    been challenging to continue to manage responsiveness to agencies needs
    while developing processes which essentially provided for the
    collection of the same types of data either more or less frequently in
    order to comply with GPRA. The FLETC is currently examining its entire
    performance measurement process to ensure a clear linkage to the
    strategic goals and objectives and to ensure the most appropriate and
    reliable performance data is collected.
                                     ______

                 Financial Crimes Enforcement Network (FinCEN)
                        state and local law enforcement
        Question. During fiscal year 1998 Congress provided funding for the
    ``Secure Outreach'' program which was to provide secure Internet
    capabilities to Treasury's law enforcement bureaus, what's the status
    of this program?
        Answer. FinCEN has long been an advocate of developing a secure
    network to enhance the ability of Treasury law enforcement personnel to
    communicate sensitive case-related intelligence and to access financial
    data base systems key to their investigations. FinCEN has been
    allocated $1,000,000 of Crime Bill funds to develop this Secure
    Outreach Network.
        The program will provide on-line communication and information
    sharing among all the Treasury bureaus. Based on secure Internet
    access, the security of the system will feature state-of-the-art
    capabilities in computer, communication, and encryption technology and
    will be accredited by federal and private experts in the field.
        Phase I: Requirements Analysis, system design and specifications,
    acquisition of network components (circuit, hardware, software),
    development and testing.
        FinCEN has obligated $500,000 of the funds for this phase of the
    project and has hired the SAIC Corporation to assist us. The effort
    began in February 1998 with the process of establishing a Secure
    Outreach working group. The Working Group, comprised of representatives
    from FinCEN and all the Treasury law enforcement agencies, will address
    the initial Network requirements with the contractor and follow-up on
    all stages of development.
        Phase II: System Deployment and Technical Support: This phase
    entails linking approximately 300 Treasury law enforcement officials to
    the Secure Outreach Network, updating the web content regularly, and
    providing system and security administration support. FinCEN has
    obligated $400,000 for this effort. FinCEN plans to allocate an
    additional $100,000 to perform a study on how to make enhanced BSA data
    available to Treasury law enforcement agencies via the Secure Outreach
    Network.
        Question. Could this program be expanded to include state and local
    entities without compromising the Treasury's law enforcement bureaus?
        Answer. It is too early to determine if and how the system could
    benefit state and local entities which in some cases require
    specialized information. However, based on our experience with the
    Secure Outreach Network and the secure web site for foreign financial
    intelligence units (FIU's), FinCEN and the National Association of
    Attorneys General are currently discussing the possibility of
    developing a separate secure web site to support state and local law
    enforcement efforts. As the two systems are further defined, FinCEN
    will be exploring ways in which the two could be linked together.
        Question. During fiscal year 1998, FinCEN provided responses to
    questions for the record indicating that FinCEN was anticipating the
    initiation of a ``week-long course covering in-depth applications in
    financial investigations'' offered to Gateway's State Coordinators,
    what is the status of this program and what are the total resources
    devoted to this effort?
        Answer. Because FinCEN has never received funding in its base for
    the Gateway program, it has been necessary to set priorities in order
    to accommodate as many of its customers as possible. Thus, FinCEN is
    delaying, in part, the development of a special intermediate training
    program designed for experienced Gateway users, and instead is focusing
    on ensuring all of its customers have the basic training required to
    use the system. As a result, no resources have been devoted to this
    effort. The need for this basic training continues to increase for two
    reasons: turnover in positions held by state financial investigators
    and an increase in the number of investigators who are requesting use
    of the system.
        In fiscal year 1997, 166 investigators or analysts from 33 states
    were trained on the Gateway system. However, state officers and
    analysts tend to be rotated from one job assignment to another every
    two to three years, and when new people move into these positions,
    FinCEN is called on to again provide training.
        Second, states have been increasing the number of people within
    their organizations who need to have access to Gateway. When the
    program first began four years ago, FinCEN trained two persons per
    state. Now that the system has proven its usefulness, some states have
    25-30 users.
        Question. The fiscal year 1997 and fiscal year 1998 Senate bills
    included language which expressed the Committee's concern that there
    were not sufficient resources devoted to assisting state and local law
    enforcement to make use of FinCEN's resources. How has FinCEN responded
    to the Committee's desire to see more resources devoted to state and
    local law enforcement?
        Answer. FinCEN has been very successful at leveraging its own
    limited resources by encouraging and facilitating greater state and
    local participation in attacking criminal proceeds. FinCEN staff have
    also made a number of visits to state and local agencies explaining the
    range of financial transaction data available and how it can be used to
    support the financial aspects of criminal investigations.
        In addition, FinCEN staff has provided basic Gateway training
    classes and has worked with the states in keeping them up to date with
    FinCEN capabilities. Since the inception of Gateway in 1993, almost 650
    representatives of state and local law enforcement (including state
    attorney general offices) have been trained on Gateway. In fiscal year
    1997, 166 investigators or analysts from 33 states were trained on the
    Gateway system. As a result, Gateway inquiries in fiscal year 1997 were
    up 20 percent from fiscal year 1996. FinCEN has also been instrumental
    in assisting several states in creating financial investigation units.
                                 current issues
        Question. During the last fiscal year, many new Financial
    Intelligence Units (FIU's) were created. How are those newly created
    FIU's assisting FinCEN in its work?
        Answer. In the past five to ten years, governments have begun to
    realize that addressing the complex issue of money laundering requires
    people with unique and multiple skills--including financial analysts,
    criminal investigators, regulators and computer scientists.
    Increasingly, they have chosen to bring together these critical anti-
    money laundering skills within analytical agencies that have become
    known, over time, as financial intelligence units (FIU's)--counterparts
    to FinCEN. Using information provided by banks and other sources, FIU's
    use innovative analytical methods and tools to process this information
    and increase its value before providing it to law enforcement and other
    appropriate authorities.
        In June 1995, FinCEN, in cooperation with its Belgian counterpart,
    brought together a group of FIU's at the Palais d'Egmont-Arenberg in
    Brussels. These FIU's agreed to meet regularly to find ways to
    cooperate, especially in the areas of information exchange and the
    sharing of expertise, and has now become known as the Egmont Group.
        One of the Egmont Group's key achievements was to develop a
    definition of what exactly constitutes an FIU and then, in June 1997,
    to promulgate this definition in the Egmont Group's Statement of
    Purpose. Having an FIU definition facilitates cooperation among units
    at all levels by providing a common, baseline assumption about the
    functions of the unit--that they are analytical intermediaries working
    to support national anti-money laundering programs--and is potentially
    the first step in creating a worldwide network of such units.
        At the time the Statement of Purpose was adopted in 1997, 28
    agencies participating in the Egmont Group met the FIU definition; just
    two years before, only 14 units would have met the definition.
    Currently, there are some twelve ``candidate'' FIU's that are being
    studied by the Group to see whether they meet the Egmont definition. At
    least half of these units became operational since January 1997. There
    remain another two dozen jurisdictions throughout the world that are in
    various stages of developing or establishing an FIU. With the
    establishment of these units, there came a need to develop
    relationships and find additional ways for the FIU's to interact.
    FinCEN has taken the lead in this effort.
        Since its creation, the Egmont Group has also developed a model
    memorandum of understanding for the exchange of information and has
    laid the groundwork for an FIU training program. Another extremely
    significant accomplishment of the Egmont Group has been the creation of
    a secure Internet web site. The Egmont Secure Web--developed primarily
    by FinCEN--is intended to facilitate international cooperation and
    foster increased international communications and mutual assistance in
    combating financial crime among the FIU's of the Egmont Group.
        It is hoped that the Egmont Secure Web specifically and the growing
    informal network of FIU's known as the Egmont Group generally will play
    an ever more critical role in the support of anti-money laundering
    investigations. Just as FinCEN is able to assist federal, state, and
    local law enforcement from various regions of the United States by
    bringing disparate pieces of information and individual (but related)
    investigations together, so FinCEN can reach out through the Egmont
    Group to other FIU's to obtain information that might prove critical to
    a U.S. federal, state, or local investigation.
        In fact, FinCEN has been able to support a number of federal
    investigations by gathering information from its FIU counterparts. This
    is information that might only be obtained with difficulty or not at
    all through other channels. As a participant in this worldwide
    ``network,'' FinCEN can likewise assist certain foreign jurisdictions
    in providing them the critical anti-money laundering information they
    need to investigate a case.
        Question. There have been articles recently in the papers regarding
    the advent of gambling over the Internet to locations where gambling is
    permitted. How does this new trend of cybergambling affect FinCEN's
    work?
        Answer. Internet gaming, like Internet banking operations, provides
    a unique and new challenge for law enforcement. Many of our traditional
    investigative and regulatory authorities will be tested if this
    industry begins to gain greater acceptance in the marketplace.
        It is clear that FinCEN lacks the ability to require the adoption
    of adequate safeguards on this new industry by reliance on domestic
    laws and programs alone. Most of these businesses are located off-
    shore, beyond our legal and regulatory reach.
        FinCEN has been engaged in a dialogue with this new industry,
    domestic and foreign casino regulators and law enforcement to encourage
    the development of programs to deter and detect money laundering
    transactions occurring over these new systems.
        For example, last July, the Caribbean Financial Action Task Force,
    known as CFATF, and FinCEN co-sponsored a two-day conference involving
    senior government officials from the Caribbean and South America,
    addressing the critical components of anti-money laundering programs
    affecting casinos, including internet casinos. This conference provided
    concrete, pragmatic measures that both the private and public sector
    can take in order to discourage illicit uses of these operations.
        A more specific meeting of the CFATF will be held this May at which
    the threat of Internet gaming will be discussed and at which the CFATF
    is expected to make recommendations for prospective consideration and
    adoption by its members.
        It should be noted that Internet gaming raises a host of law
    enforcement and regulatory issues that are independent of our general
    anti-money laundering concerns. These include consumer protection
    issues, the right of states to prohibit or regulate the manner in which
    their citizens can conduct gambling activities, and the ability of
    state governments to investigate and license gaming operations in their
    state.
        While these areas overlap to some extent with our anti-money
    laundering programs, our chief interest is in ensuring that internet
    gaming operations--like those conducted at traditional casinos--are
    subject to effective anti-money laundering controls such as accurate
    and retrievable audits trails, rules requiring the identification of
    customers, suspicious activity reporting, and the adoption of industry
    programs to ensure compliance with applicable anti-money laundering
    laws and regulations.
                                  base funding
        Question. Is your base fully funded?
        Answer. The base is not fully funded to cover current operating
    levels.
        Question. How many FTE positions remain unfilled?
        Answer. We are projecting 16 unfilled FTE in fiscal year 1998.
        Question. What would it take to fill those positions?
        Answer. It would require an additional $1,120,000.
        Question. Is the amount requested to maintain current levels
    accurate? Please provide a breakout of those funds.
        Answer. The budget includes: Mandatory cost increases, $835,000;
    and adjustment for contractor support to maintain the base, $330,000.
                     government results and performance act
        Question. Does each account and program activity of FinCEN have
    performance measures associated with it?
        Answer. Yes, each program activity has measures.
        Question. Does your plan include performance measures for which
    reliable data are not likely to be available by March 2000?
        Answer. Yes, we anticipate reliable data for all measures.
        Question. Do you have the technological capability of measuring and
    reporting program performance throughout the year on a regular basis,
    so that the agency can be properly managed to achieve the desired
    results?
        Answer. Yes, we have the capability of measuring and reporting
    program performance.
        Question. Through the development of the fiscal year 1999
    performance plan, what overlapping functions or program duplications
    were identified?
        Answer. We did not detect any overlapping functions or program
    duplications.
        Question. Did those duplicative programs receive funding in the
    fiscal year 1999 request?
        Answer. There were no duplicative programs.
                                     ______

                     Questions Submitted by Senator Shelby
                      Under Secretary for Law Enforcement
                           status of various studies
        Question. Late last year, the President ordered the suspension of
    certain semiautomatic firearms and announced that a study would be
    conducted by the Treasury Department to determine whether the
    importation of these weapons were consistent with the sporting purposes
    test established under 18 U.S.C. Sec. 9259(d)(3). What is the current
    status of this study? Will it be completed within the 120-day review
    period undertaken by the Treasury Department?
        Answer. We are very close to completing the review. We expect to
    have the review completed shortly.
        Question. I have significant concerns with the implications of this
    study and, therefore have keen interest in knowing whether the Treasury
    Department has already made any preliminary findings with regard to
    this review. Has the Treasury Department made preliminary findings to
    date?
        Answer. The review is not yet complete. Given that fact, and the
    need to ensure that all possible options are considered, it would be
    inappropriate for me to comment. We look forward to sharing the
    review's findings when it is completed.
        Question. It is my understanding that a draft report on the use of
    taggants in general explosives has been provided to the Main Treasury
    by the Bureau of Alcohol, Tobacco and Firearms (ATF). What is the
    status of this report? When is a final version expected to be
    completed?
        Answer. A draft of this report was submitted by Treasury to the
    Committee on March 4, 1998. ATF will issue another progress report in
    1998, and a final report, as mandated by law, within 30 days after
    conclusion of the study.
        Question. Does this draft report on the use of taggants in general
    explosives include any fertilizer findings made pursuant to Treasury's
    consultation with non-profit fertilizer research centers relating to
    the regulation and use of fertilizer as a pre-explosive material?
        Answer. Based upon the ATF Explosives Study Group's work to date,
    and the report submitted by the International Fertilizer Development
    Center, the Progress Report states that current information suggests
    there is no current way to render ammonium nitrate inert and still have
    it retain its properties as a fertilizer. However, there is ongoing
    research in this area. Additional work also will continue on the ``Be
    Aware for America'' program conducted by the Fertilizer Institute in
    conjunction with ATF.
        Question. A separate study to be conducted by a panel of five
    experts appointed by the National Academy of Sciences was authorized on
    black and smokeless powder. What is the status of this study?
        Answer. The National Academy of Sciences has a study on black and
    smokeless powders underway.
        Question. Have any results of the study been provided to you?
        Answer. During the week of March 2, 1998, National Academy of
    Sciences held public meetings on black and smokeless powders. There are
    no results as of this date.
        Question. When do you expect the study to be completed?
        Answer. The National Academy of Sciences expects that the study on
    black and smokeless powders will be completed in September 1998.
        Question. Would you please provide a copy of that report when it is
    completed?
        Answer. The National Academy of Sciences is writing and producing
    the report. However, when they release the study, ATF would be pleased
    to provide the Committee a copy.
        Question. Is it true that the ATF plans a follow on fertilizer
    study that may be conducted with the International Fertilizer
    Development Center (IFDC) in Muscle Shoals, Alabama?
        Answer. Yes. ATF is in the process of finalizing a second contract
    with IFDC.
        Question. If so, would ATF make any recommendation for including
    plastic taggants in pre-explosive materials until such a follow-on
    fertilizer study or any other pending studies were completed?
        Answer. ATF does not currently expect to propose such
    recommendations for including plastic taggants or any other taggants in
    ammonium nitrate fertilizer until all follow-on pertinent studies are
    completed.
                                     ______

                    Bureau of Alcohol, Tobacco and Firearms
                               atf reorganization
        Question. With regard to the new reorganization in progress at ATF
    that would place 1811's as the ultimate supervisors of field compliance
    staffs, will these criminal enforcement agents be trained to be
    sensitive to the needs of the gun industry, the gun collecting
    community and others who must regularly interact with ATF for
    compliance service needs?
        Answer. ATF management is committed to ensuring that the special
    agents in charge have a full understanding of these relationships and
    associated issues. This would be a continuing area of focus, both
    during our process of preparing for the reorganization and after
    implementation.
        In order to give the special agents in charge (and certain District
    office staff members) an initial exposure to dealing with industry
    members from a regulatory perspective, the District Directors are
    coordinating briefing/training sessions. We have already conducted one
    prototype briefing/training session for the special agents in charge
    and their staffs in the northeastern part of the country. Four other
    sessions are planned in the next two months to cover the special agents
    in charge and staffs in the remaining parts of the country. Included in
    these sessions are discussions of the regulatory role in dealing with
    firearms industry members.
        In May, we are holding a senior management conference in
    Cincinnati. Included in the agenda for that conference are sessions on
    program issues from a regulatory perspective.
        As an on-the-job training initiative, the special agents in charge
    would be expected to familiarize themselves with the industries through
    visits to various industry members. The Special Agents in Charge would
    also be responsible for maintaining liaison with industry
    representatives and trade associations.
        This reorganization is currently pending departmental and OMB
    approval.
        Question. When will the reorganization become effective, and to
    what extent has it already been implemented?
        Answer. The proposed implementation date for the field
    reorganization is October 1, 1998. As with any major organizational
    action, there will be long term implementation steps, such as
    satisfying the space requirements of all offices. We are awaiting final
    approval from the Department and OMB before commencing implementation.
        Question. Please provide a copy of the ATF's reorganization efforts
    showing a field office by field office breakdown and organizational
    directory.
        Answer. Please see Attachments.
        [The information follows:]

    ------------------------------------------------------------------------
                                                                   Special
      Field divisions         State(s)          Field offices      agents/
                                                                  inspectors
    ------------------------------------------------------------------------
    Atlanta             Georgia              Division..........           10
                                             Atlanta I (F/A               10
                                              trafficking).                8
                                             Atlanta II (Arson)            6
                                             Atlanta III                   9
                                              (Achilles).                  9
                                             Atlanta IV (Gangs)            9
                                             Macon.............           10
                                             Savannah..........           10
                                             Southeast DO......
                                             Atlanta AO........
                                                                ------------
                                                   Total.......           81
                                                                ============
    Baltimore           Delaware             Division..........            6
                        Maryland             Baltimore I                   7
                                              (Arson).                     5
                                             Baltimore II                  6
                                              (HIDTA).                     6
                                             Baltimore III                10
                                              (Achilles).                  6
                                             Baltimore IV                 10
                                              (HIDTA).
                                             Hyattsville.......
                                             Wilmington........
                                             Baltimore AO......
                                                                ------------
                                                   Total.......           56
                                                                ============
    Boston              Connecticut          Division..........           11
                        Maine                Boston I (Arson)..            8
                        Massachusetts        Boston II                     9
                        North New York        (Achilles).                  9
                        New Hampshire        Boston IV.........            6
                        Rhode Island         Burlington........            9
                        Vermont              New Haven/Hartford            7
                                             Portland/Concord..            3
                                             Providence........            5
                                             Worcester/                   10
                                              Springfield.                 6
                                             Buffalo...........            5
                                             Albany............           10
                                             Syracuse..........           13
                                             Hartford AO.......            1
                                             Boston AO.........            2
                                             Bath POD..........            7
                                             Albany POD........            2
                                             Buffalo AO........
                                             Syracuse POD......
                                                                ------------
                                                   Total.......          123
                                                                ============
    Charlotte           North Carolina       Division..........            8
                        South Carolina       Charlotte I.......            8
                                             Charlotte II......           11
                                             Charleston                    9
                                              (Achilles).                  7
                                             Columbia..........           10
                                             Fayetteville/                 8
                                              Wilmington.                  9
                                             Greensboro........            8
                                             Raleigh...........            9
                                             Greenville........            4
                                             Charlotte AO......            1
                                             Greensboro POD....            3
                                             Fayetteville POD..
                                             Columbia POD......
                                                                ------------
                                                   Total.......           95
                                                                ============
    Chicago             Illinois             Division..........           13
                                             Chicago I (OCDETF)           12
                                             Chicago II (F/A               9
                                              trafficking).               11
                                             Chicago III.......           11
                                             Chicago IV (Arson)           11
                                             Oakbrook I........           10
                                             Oakbrook II.......            9
                                             Oakbrook III                  7
                                              (Explosives).                8
                                             Springfield.......           12
                                             Fairview Heights..            5
                                             Midwest DO........           10
                                             Fairview Heights              2
                                              POD.
                                             Oakbrook POD......
                                             Peoria POD........
                                                                ------------
                                                   Total.......          130
                                                                ============
    Columbus            Ohio                 Division..........  ...........
                        Indiana              Cleveland I.......           10
                                             Cleveland II......           10
                                             Cincinnati........            9
                                             Columbus..........            8
                                             Toledo............            6
                                             Youngstown........            6
                                             Fort Wayne........            5
                                             Indianapolis......           10
                                             Merrillville......           11
                                             Cincinnati AO.....           11
                                             Cleveland AO......            8
                                             Columbus POD......            2
                                             Indianapolis POD..            3
                                             South Bend POD....            2
                                                                ------------
                                                   Total.......          101
                                                                ============
    Dallas              North Texas          Division..........           10
                        Oklahoma             Dallas II (Arson).            6
                                             Dallas III (F/A              11
                                              trafficking).                9
                                             Dallas IV                     8
                                              (Achilles).                  7
                                             Fort Worth........           10
                                             Lubbock...........            9
                                             Oklahoma City.....            7
                                             Tulsa.............            8
                                             Tyler.............           21
                                             El Paso...........            1
                                             Southwest DO......            2
                                             El Paso POD.......            3
                                             Lubbock POD.......
                                             Oklahoma City POD.
                                                                ------------
                                                   Total.......          112
                                                                ============
    Detroit             Michigan             Division..........           11
                                             Detroit I.........           14
                                             Detroit II (Arson)           11
                                             Detroit IV........           12
                                             Detroit V                    12
                                              (Achilles).                 11
                                             Flint.............           14
                                             Grand Rapids......           11
                                             Detroit AO........            1
                                             Flint POD.........            1
                                             Grand Rapids POD..            2
                                             Kalamazoo POD.....
                                                                ------------
                                                   Total.......           99
                                                                ============
    Houston             South Texas          Division..........            8
                                             Houston I.........            9
                                             Houston II                    9
                                              (Achilles).                  4
                                             Houston III                   4
                                              (Arson).                     8
                                             Houston IV                   12
                                              (OCDETF).                    6
                                             Houston V.........            6
                                             Austin............            7
                                             Beaumont..........           11
                                             Corpus Christi....           11
                                             McAllen...........            1
                                             San Antonio.......            5
                                             Houston AO........
                                             Beaumont POD......
                                             San Antonio AO....
                                                                ------------
                                                   Total.......          101
                                                                ============
    Kansas City         Iowa                 Division..........           11
                        Kansas               Kansas City II....            9
                        Missouri             Kansas City III               7
                        Nebraska              (Arson).                     9
                                             Omaha.............            8
                                             Des Moines........           10
                                             Wichita/Kansas                8
                                              City I.                      7
                                             Springfield/Cape              8
                                              Girardeau.                   9
                                             St. Louis I.......           10
                                             St. Louis II......            2
                                             Kansas City AO....            3
                                             St. Louis AO......
                                             Des Moines POD....
                                             Omaha POD.........
                                                                ------------
                                                   Total.......          101
                                                                ============
    Los Angeles         South California     Division..........            9
                                             Los Angeles I                12
                                              (Metro).                    13
                                             Los Angeles II                8
                                              (Achilles).                 10
                                             Los Angeles III               8
                                              (Arson).                    12
                                             San Diego I.......            9
                                             San Diego II......           11
                                             Santa Ana.........           13
                                             Van Nuys..........            2
                                             Riverside.........            7
                                             Los Angeles AO....            2
                                             San Diego POD.....
                                             Santa Ana AO......
                                             Van Nuys POD......
                                                                ------------
                                                   Total.......          116
                                                                ============
    Louisville          Kentucky             Division..........           13
                        West Virginia        Louisville........            9
                                             Bowling Green.....            5
                                             Charleston/                   9
                                              Wheeling, WV.                7
                                             Lexington/Ashland.            2
                                             Bardstown POD.....            5
                                             Frankfort AO......            9
                                             Louisville AO.....            1
                                             Owensboro POD.....            3
                                             Charleston POD....            1
                                             Falling Waters POD
                                                                ------------
                                                   Total.......           64
                                                                ============
    Miami               South Florida        Division..........           10
                        Puerto Rico          Miami I...........            8
                                             Miami II..........           10
                                             Miami IV                      9
                                              (Achilles).                  9
                                             Miami V...........            8
                                             Fort Lauderdale...            8
                                             West Palm Beach...            9
                                             Puerto Rico.......            9
                                             Miami AO..........            8
                                             Puerto Rico
                                              Operations (RE).
                                                                ------------
                                                   Total.......           88
                                                                ============
    Nashville           Alabama              Division..........           12
                        Tennessee            Birmingham/                  13
                                              Huntsville.                  7
                                             Mobile............            6
                                             Montgomery........           11
                                             Nashville.........            9
                                             Chattanooga.......           10
                                             Knoxville.........           11
                                             Memphis...........            6
                                             Birmingham AO.....            2
                                             Mobile POD........            6
                                             Nashville AO......            1
                                             Winchester POD....
                                                                ------------
                                                   Total.......           94
                                                                ============
    New Orleans         Arkansas             Division..........            7
                        Louisiana            New Orleans II....           10
                        Mississippi          New Orleans III...           11
                                             Baton Rouge.......            7
                                             Little Rock.......            9
                                             Shreveport........            7
                                             Gulfport..........            5
                                             Jackson/Oxford....            7
                                             Little Rock POD...            5
                                             New Orleans AO....            5
                                             Shreveport POD....            1
                                             Jackson POD.......            1
                                                                ------------
                                                   Total.......           75
                                                                ============
    New York            New York (Metro)     Division..........            8
                        North New Jersey     New York I........           10
                                             New York II.......           11
                                             New York III                 14
                                              (Arson).                    13
                                             New York IV (F/A             10
                                              trafficking).               13
                                             New York V (HIDTA)            7
                                             New Jersey II.....           10
                                             New Jersey (Arson)            5
                                             Fairfield AO......           21
                                             Melville POD......            2
                                             North Atlantic DO.            1
                                             Melville POD......
                                             White Plains POD..
                                                                ------------
                                                   Total.......          125
                                                                ============
    Philadelphia        Pennsylvania         Division..........           10
                        South New Jersey     Philadelphia I (F/            8
                                              A trafficking).              8
                                             Philadelphia II               8
                                              (Arson).                     7
                                             Philadelphia III              6
                                              (Achilles).                  7
                                             Pittsburgh I (F/A             5
                                              trafficking).                7
                                             Pittsburgh II                 3
                                              (Arson).                     3
                                             Camden/Atlantic              12
                                              City.                        8
                                             Trenton...........            4
                                             Harrisburg........
                                             Reading...........
                                             Kingston POD......
                                             Lansdale AO.......
                                             Pittsburgh AO.....
                                             Trenton POD.......
                                                                ------------
                                                   Total.......           96
                                                                ============
    Phoenix             Arizona              Division..........            9
                        Colorado             Phoenix I.........            9
                        New Mexico           Phoenix II                    9
                        Wyoming               (Achilles).                  8
                        Utah                 Tucson I..........            6
                                             Tucson II.........           11
                                             Albuquerque.......            9
                                             Denver I..........            8
                                             Denver II.........            7
                                             Colorado Springs..            5
                                             Cheyenne..........            7
                                             Salt Lake City....            4
                                             Phoenix AO........            2
                                             Tucson POD........            7
                                             Denver AO.........            2
                                             Albuquerque POD...            3
                                             Salt Lake City POD
                                                                ------------
                                                   Total.......          106
                                                                ============
    St. Paul            Minnesota            Division..........            8
                        Montana              St. Paul I........           12
                        North Dakota         Fargo/Sioux Falls.            8
                        South Dakota         Billings/Helena...            7
                        Wisconsin            Milwaukee.........            9
                                             St. Paul AO.......           12
                                             Helena POD........  ...........
                                             Fargo/Sioux Falls.  ...........
                                             Milwaukee AO......            9
                                                                ------------
                                                   Total.......           65
                                                                ============
    San Francisco       North California     Division..........           10
                        Nevada               San Francisco I (F/           8
                                              A).                          9
                                             San Francisco II              9
                                              (Arson).                     9
                                             Fresno/Bakersfield           12
                                             Oakland (Achilles)            7
                                             Sacramento........            4
                                             San Jose..........           10
                                             Reno..............            5
                                             Las Vegas.........            1
                                             Fresno POD........            2
                                             Modesto POD.......            2
                                             Napa POD..........           13
                                             Oakland POD.......           19
                                             Sacramento AO.....            8
                                             Western DO........            5
                                             San Jose AO.......            1
                                             Santa Rosa POD....
                                             Reno POD..........
                                                                ------------
                                                   Total.......          134
                                                                ============
    Seattle             Alaska               Division..........            8
                        Guam                 Seattle...........           13
                        Hawaii               Anchorage.........            5
                        Idaho                Boise.............            5
                        Oregon               Guam..............            2
                        Washington           Honolulu..........            6
                                             Portland I (Arson)           10
                                             Portland II (F/A-             6
                                              Achilles).                   8
                                             Spokane...........            4
                                             Yakima............            1
                                             Anchorage POD.....            1
                                             Boise POD.........           12
                                             Portland AO.......            9
                                             Seattle AO........
                                                                ------------
                                                   Total.......           90
                                                                ============
    Tampa               North Florida        Division..........           10
                                             Jacksonville......            8
                                             Orlando...........           10
                                             Pensacola.........            6
                                             Tallahassee.......            8
                                             Tampa.............           11
                                             Jacksonville POD..            3
                                             Tampa AO..........            8
                                             Winter Haven......            2
                                             Fort Myers........            1
                                                                ------------
                                                   Total.......           67
                                                                ============
    Washington          District of          Division..........            9
                          Columbia           Falls Church I                8
                        Virginia              (Arson).                     9
                                             Falls Church II...            8
                                             Washington I                  7
                                              (HIDTA).                     7
                                             Washington II                 5
                                              (Cease Fire).                8
                                             Washington III               10
                                              (HIDTA).                     7
                                             Bristol...........            3
                                             Norfolk...........            1
                                             Richmond..........            7
                                             Roanoke...........            1
                                             Falls Church POD..  ...........
                                             Norfolk POD.......
                                             Richmond AO.......
                                             Roanoke POD.......
                                             Washington POD....
                                                                ------------
                                                   Total.......           90
    ------------------------------------------------------------------------

                                                                 [GRAPHIC] [TIFF OMITTED] T13FE26.001

                                                                 [GRAPHIC] [TIFF OMITTED] T13FE26.002

        Question. What steps will be taken to communicate this to the
    public and to give the public guidance as to who they can interact with
    at ATF?
        Answer. Considering the industry and their trade associations as
    the major part of the public who interact with ATF, our top
    headquarters and field managers have already attended several industry
    meetings to respond to questions about the restructuring proposal. We
    have reached out to not only the national trade associations, but also
    trade associations in the States, which are comprised of local industry
    members. We will continue this effort.
        This restructuring also would require changes in several
    publications that list our office addresses. Modifications to those
    publications are in our long-term plans. Local field offices would be
    responsible for making any necessary adjustments to local information
    directories.
        Question. Are you considering doing a special guide?
        Answer. There are several possibilities under consideration to
    communicate our organizational changes to the public. These include
    publication of the changes in the Federal Register, and standardized
    brief articles for media and trade association publications.
                                     ______

                              U.S. Customs Service
               retrofitting program for customs p-3 aew aircraft
        Question. In the report that accompanied the fiscal year 1998
    appropriations for the Customs Service, this Committee requested that a
    report be submitted by January 31, 1998 on the status of the P-3
    retrofitting program. What is the status of this report?
        Answer. The Customs Aviation Program report was completed on
    February 6, 1998. The report was sent to the Committee on February 25,
    1998. A copy is attached.
     study on the assets needed to conduct interdiction operations in the
                                  transit zone
        Question. I understand that the U.S. Interdiction Coordinator's
    (USIC) Office is in the final stages of preparing a study on the assets
    needed to conduct interdiction operations in the transit zone and its
    recommendations being formulated for executive review. Do you know when
    the report will be issued and are you aware of the recommendations of
    the Customs Service? Have the draft versions of this study been used to
    formulate the fiscal year 1999 budget request in terms of the assets
    needed for drug interdiction?
        Answer. Customs believes the USIC's report is scheduled for release
    in the next several weeks. The Aviation Program provided a great deal
    of input in the development of the report.
        Customs will consider the study recommendations in its future
    budget requests.
                   modernization of customs p-3 aew aircraft
        Question. I understand that there is a need to modernize the first
    four P-3 AEW aircraft to standardize the systems with the aircraft that
    will be delivered over the next two years. Is the Customs Service
    reviewing this and what are the costs associated with such an effort?
        Answer. The Customs Aviation Program has been reviewing the
    modernization of its existing P-3 AEW fleet for some time. Currently,
    all four P-3 AEW's are configured with the APS-138 radar. This system
    was originally used in the Navy's E-2C Advanced Radar Processing System
    (ARPS) aircraft. The Navy is updating all E-2C's to an APS-145 Group II
    configuration. The APS-138 is no longer in production and the Navy's
    intermediate level support for this system will be withdrawn by the
    year 2000. Since Customs P-3 fleet represents a relatively small part
    of the overall P-3 population, spare parts (to the extent available
    after 2000) will likely become more costly as economies of scale are
    lost to the manufacturers. This situation is likely to create delays in
    the availability of the aircraft for counterdrug missions.
        Customs is waiting to take delivery of two additional P-3 AEW's
    over the next 2 years. Both of these aircraft will be configured with
    the newer APS-145 radar. The cost to retrofit the four existing P-3
    AEW's depends on the configuration, but it is estimated at
    approximately $40-50 million in total.
                              detection technology
        Question. The Administration requested funding for additional
    border patrol agents and for technology that would assist Customs
    inspectors. Is there technology that could be used that would provide
    capabilities that could be used for interdiction activities that would
    assist a multitude of efforts, such as detection and monitoring air,
    land and maritime activities?
        Answer. There is no single technology or multiple-use system that
    we are aware of that could detect and monitor targets for all air,
    land, and maritime activities. However, there are several types of
    satellite-based electronic tagging and tracking systems that could
    monitor suspect air, land, or marine movements once the target plane,
    vehicle or boat has been detected and a tracking device covertly
    installed.
        There are some radar systems currently deployed that either are, or
    can be, capable of detecting and monitoring most air and maritime
    targets of interest to Customs. These include the airborne radars in
    Customs P-3 AEW aircraft and the DOD aerostats that can detect targets
    up to 150 miles away, and the radars in the Customs Citations and other
    Customs, Coast Guard, or military aircraft that can detect targets up
    to several miles away.
        The land-based DOD Relocatable Over-the-Horizon Radar (ROTHR) can
    detect and monitor air targets, and ultimately marine targets, that are
    several hundred miles away.
        Cost benefit analyses for the effectiveness of the P-3, aerostat,
    and ROTHR were conducted in the early development and cost
    justification days of these programs. They concluded that each was
    effective for the multi-agency applications for which they were being
    used (e.g., Customs, Coast Guard, INS, and DEA enforcement activities,
    and DOD early warning missions).
                                     ______

                    Questions Submitted by Senator Faircloth
                        Under Secretary for Enforcement
        Question. Mr. Secretary, Section 809 of the Antiterrorism and
    Effective Death Penalty Act, Public Law 104-32 mandated that the
    Department of the Treasury conduct a study, which would assess the
    threat to law enforcement officers from the misuse of firearms and
    ammunition. What is the status of that report, and what is its expected
    completion date?
        Answer. The report has been drafted and submitted to an appropriate
    review process by ATF. We anticipate the report will be completed in
    the next few weeks.
        Question. ATF was directed by both Houses of Congress in 1998 to
    cooperate with State and local law enforcement to ensure the prompt
    return of recovered firearms to their legal owners. Has ATF complied
    with this request? If so, could you provide the Congress with
    supporting documentation?
        Answer. Yes. ATF has complied with this request by complying with
    existing laws. ATF works with State and local law enforcement by
    identifying the purchaser of record for a firearm that has been used in
    a crime. However, ATF cannot make the determination to contact the
    known firearm owner since that contact could jeopardize an ongoing
    criminal investigation and possibly endanger lives. Since a firearm is
    sometimes the only key to many crimes, the integrity of a criminal
    investigation may be violated if ATF were to adopt any other policy
    than furnishing only the firearms trace requestor with the purchaser of
    record for a firearm.
        Stolen firearms that come into ATF's possession during the course
    of an investigation are returned to the lawful owners at the conclusion
    of the investigation, in compliance with existing laws and as long as
    no insurance claim has been paid.
                      prompt return of recovered firearms
        Question. ATF was directed by both Houses of Congress in 1998 to
    cooperate with State and local law enforcement to ensure the prompt
    return of recovered firearms to their legal owners. Has ATF complied
    with this request. If so, could you provide the Congress with
    supporting documentation?
        Answer. Yes. ATF has complied with this request by complying with
    existing laws. ATF works with State and local law enforcement by
    identifying the purchaser of record for a firearm that has been used in
    a crime. However, ATF cannot make the determination to contact the
    known firearm owner since that contact could jeopardize an ongoing
    criminal investigation and possibly endanger lives. Since a firearm is
    sometimes the only key to many crimes, the integrity of a criminal
    investigation may be violated if ATF were to adopt any other policy
    than furnishing only the firearms trace requestor with the purchaser of
    record for a firearm.
        Stolen firearms that come into ATF's possession during the course
    of an investigation are returned to the lawful owners at the conclusion
    of the investigation, in compliance with existing laws and as long as
    no insurance claim has been paid.
                                     ______

                    Bureau of Alcohol, Tobacco and Firearms
                 average violations per inspection for firearms
        Question. Director Magaw, in ATF's Budget justifications, ATF
    stated in its summary performance report for fiscal year 1997, under
    average violations per inspection for firearms, that .61 violations
    were identified per inspection, as oppose to 1.6 as anticipated. Are
    these results due to better than expected compliance?
        Answer. The performance results for average violations per
    inspection of firearms licensees were as we had anticipated. In fiscal
    year 1997, we completed 6,258 firearms compliance inspections and cited
    3,824 violations. This represents an average occurrence of .61
    violations per inspection. The average number of violations per
    inspection had remained relatively constant over the past three years.
        The 1.6 violations per inspection in the material that was
    referenced, was the result of an error in the percentages calculation
    that was not detected before the performance plans were forwarded. The
    data was taken from fiscal year 1995 results, which were the latest
    available at the time. That year, the Bureau completed 13,141
    inspections and found 8,126 violations for an average of 0.61837
    valuations per inspection, not the higher erroneous percentage.
        Question. Why was better than expected compliance noted as an
    explanation for explosives performance, but not to firearms?
        Answer. The compliance level for Federal firearms licensees has
    remained relatively constant during the past 3 fiscal years.
            community based strategic trace analysis and data bases
        Question. Director Magaw, what is meant by ATF's proposal to
    provide more community based strategic trace analysis to support
    collaborative ATF/local law enforcement activity?
        Answer. In order to uncover illegal firearms traffickers and enable
    cities to reduce violent crimes by decreasing the amount of illegally
    sold firearms to their communities, ATF is attempting to achieve
    comprehensive crime gun tracing among all law enforcement agencies
    nationwide.
        There are two reasons for seeking to achieve comprehensive tracing.
    First, it maximizes the number of leads that can be developed for
    illegal trafficking. Second, it provides cities with information about
    the guns used in crimes, thereby allowing law enforcement for the first
    time to analyze patterns of crime gun characteristics. Examples of
    information include how many crime guns are being recovered from
    juveniles and how many crime guns are originally sold within state
    where they are recovered. For the Youth Crime Gun Interdiction
    Initiative cities, ATF is analyzing the crime gun traces and providing
    reports about the types and sources of crime guns by age group.
    Providing trace information and community crime gun patterns to State
    and local law enforcement allows for targeted and efficient uses of
    limited resources. These reports for local officials are known as
    ``strategic trace analysis,'' to distinguish them from Project LEAD.
    Project LEAD provides investigative trace analysis aimed at individual
    cases rather than strategic enforcement.
        Question. What information will ATF share from the Federal Trace
    System (FTS) data base with the local law enforcement community?
        Answer. ATF is mandated to support local and State law enforcement
    in their fight against violent crime. To accomplish this mission, ATF
    has formed a close working relationship with State and local law
    enforcement. In this regard, ATF has made its FTS data base available
    to State and local law enforcement. This also includes Project LEAD,
    the Bureau's innovative computer software program for analyzing crime
    gun trace data.
        The Youth Crime Gun Interdiction Initiative cities are working
    closely with ATF to develop more rapid, efficient methods of submitting
    trace requests and receiving trace results. The lessons learned from
    these efforts will eventually be applied to law enforcement agencies
    nationwide.
        Question. Are there any data bases being developed by ATF or which
    ATF is helping to develop for use by local law enforcement?
        Answer. ATF is not in the process of developing any new data bases
    for use by ATF or by State and local law enforcement. ATF is in the
    process of further enhancing our Project LEAD software which performs
    analysis of crime gun trace data in the existing firearms tracing
    system data base. Project LEAD is used by ATF and is shared with State
    and local law enforcement who are working with ATF to identify illegal
    sources of crime guns. ATF has also developed a set of standardized
    trace analysis reports that support local law enforcement collaboration
    with ATF, by providing a summary picture of the crime guns recovered
    and traced in a particular jurisdiction.
        The existing firearms tracing system/crime gun information data
    base maintained by the National Tracing Center has been audited by the
    U.S. General Accounting Office (GAO) to ensure that ATF is maintaining
    the records in an efficient manner and in accordance with the law, as
    well as ensure that systems being used to track the records are not to
    computerized firearms registrations which would be against Federal law.
    The GAO audit conclusion stated that ATF is effectively managing the
    information and acting within the guidelines proscribed by Federal law.
                                     ______

                              U.S. Customs Service
            enforcement of the softwood lumber agreement with canada
        Question. Last year, Congress directed an additional $2 million to
    Customs for enforcement of the 1996 U.S.-Canada Softwood Lumber
    Agreement, to make the reconciliation of import and export data
    necessary for effective enforcement of the Agreement more prompt and
    accurate. First, I would like to know what has happened to this $2
    million? How was it utilized? Second, I would like to know what is
    needed to ensure that enforcement of the U.S. Canada Softwood Lumber
    Agreement and future reconciliation under the Agreement is prompt and
    fully effective?
        Answer. Customs allocated the $2 million for personnel at Northern
    Border ports, the Office of Field Operations (headquarters), the Office
    of Strategic Trade, and the Office of Regulations and Rulings. The
    remainder of this funding was used to support increases in travel and
    contractual support costs related to the enforcement efforts described
    below.
        Customs is fully committed to enforcing the Agreement. To do so
    Customs has established local criteria (cargo targeting of lumber
    shipments on suspected companies or classification) and conducted
    intensive examinations of lumber mill works followed by detailed
    questions of importers, as appropriate, concerning the classification,
    and the validity of province of first manufacture in an attempt to
    detect circumvention of the Agreement. Customs has referred some
    questionable transactions for review by Canada in accordance with the
    terms of the Agreement.
        Customs has devoted considerable resources in the area of
    reconciliation and conducts quarterly reconciliation of U.S. imports
    with Canadian exports with the Department of Foreign Affairs
    International Trade (DFAIT). Two meetings were held in Ottawa and one
    in Washington, D.C. during which Canadian and U.S. officials committed
    to complete the reconciliation cycle 6 to 12 months after a given
    quarter has taken place. An additional meeting is scheduled for the end
    of March in Chicago. Customs has developed an improved data extraction
    technique and will continue to streamline and automate the many steps
    required to perform an accurate and timely reconciliation. However,
    timely reconciliation is not only dependent on U.S. Customs, but also
    relies on the Canadian's response to their own data reviews.
        Question. I understand that a potential loophole in the U.S. Canada
    Softwood Lumber Agreement has been created by a U.S. Customs decision
    that Canadian lumber which has a hole drilled into it by Canadian
    companies is no longer considered ``lumber'' subject to the Lumber
    Agreement. Canadian firms are openly advertising drill presses as a
    means to use this loophole and avoid the agreement. First, what is
    being done about this? Second, how do you justify your agency's request
    for increased authority to enter into trade agreements with an apparent
    inability to enforce agreements already in place?
        Answer. Customs continues to dedicate significant resources to its
    field ports to inspect and question suspect shipments of drilled lumber
    to determine its actual use, and requests documentation to include
    commercial billing invoices, proof of payment and purchase orders.
        A ruling was issued by the National Commodity Specialist Division
    in New York in February, 1997, which held that for Customs
    classification purposes, stud lumber which was pre-drilled for
    electrical wiring fell under Harmonized Tariff Schedule classification
    subheading 4418. Since this classification subheading is outside the
    scope of the Softwood Lumber agreement with Canada, concern was
    expressed that the agreement was being circumvented. In October, 1997,
    a Federal Register Notice was published soliciting comments regarding
    commercial uses of such studs to assist Customs in determining the
    correct classification. Over 5800 comments were received in response to
    the notice. Customs is working expeditiously to issue a decision in the
    near future.
        Customs has not requested increased authority to enter into trade
    agreements; that is the role of the United States Trade Representative.
    What Customs has requested, is to be included in trade agreement
    negotiations because enforcement of international trade agreements is a
    responsibility of the Customs Service. Customs is currently responsible
    for the enforcement of some 15 international trade agreements and is of
    the view that active involvement when future trade agreements are being
    reached will ensure that provisions negotiated are legally,
    commercially and operationally enforceable.
               retrofitting program for customs p-3 aew aircraft
        Question. In the report that accompanied the fiscal year 1998
    appropriations for the Customs Service, this Committee requested that a
    report be submitted by January 31, 1998 ``on the status of the P-3
    retrofitting program, including an assessment of the current
    operational requirements and the potential impact on interdiction
    effectiveness were the fleet to be expanded by one or two additional P-
    3 AEW aircraft.'' What is Customs response to this request?
        Answer. The Aviation Program completed its report on February 6,
    1998. The report was submitted to the Committee on February 25, 1998. A
    copy is attached.
                   modernization of customs p-3 aew aircraft
        Question. I understand that there is a need to modernize the first
    four P-3 AEW aircraft to standardize the systems with the aircraft that
    will be delivered over the next two years. Once the aircraft are
    standardized in the fleet, operating and maintaining the aircraft will
    be much more cost effective. Is Customs reviewing this, and what are
    the costs associated with such an effort?
        Answer. The Customs Aviation Program has been reviewing the
    modernization of its existing P-3 AEW fleet for some time. Currently,
    all four P-3 AEW's are configured with the APS-138 radar. This system
    was originally used in the Navy's E-2C Advanced Radar Processing System
    (ARPS) aircraft. The Navy is updating all E-2C's to an APS-145 Group II
    configuration. The APS-138 is no longer in production and the Navy's
    intermediate level support for this system will be withdrawn by the
    year 2000. Since Customs P-3 fleet represents a relatively small part
    of the overall P-3 population, spare parts (to the extent available
    after 2000) will likely become more costly as economies of scale are
    lost to the manufacturers. This situation is likely to create delays in
    the availability of the aircraft for counterdrug missions.
        Customs is waiting to take delivery of two additional P-3 AEW's
    over the next 2 years. Both of these aircraft will be configured with
    the newer APS-145 radar. The cost to retrofit the four existing P-3
    AEW's depends on the configuration, but it is estimated at
    approximately $40-50 million in total.
                                     ______

                      Questions Submitted by Senator Kohl
                        Under Secretary for Enforcement
        Question. This past January a Customs agent, Manny Zurita, died
    while providing protective assistance to the President. There is some
    question whether his 2 school age children can continue to attend the
    DOD school since they are no longer dependents of a Federal employee.
    What is the status of this issue?
        Answer. This is an issue that is of great concern to me. We have
    asked the Department of Defense to evaluate current authorities to
    permit the Zurita children to continue their schooling until their
    education is complete. While we have not received a formal response, we
    have been told that authority does not exist to waive the dependency
    requirement. We have learned that for the current school year, the
    Zurita children will be permitted to finish out the term. However, the
    matter of their long-term education is more difficult due to the
    current law. The children are currently ages 9 and 11. The DOD schools
    are the only affordable English-language schools in Puerto Rico for the
    dependents of Federal personnel. Senator Grassley has introduced
    legislation which would permit the Zurita children to attend the DOD
    schools for the remainder of their education. His bill is very
    comprehensive and addresses all of the restrictions currently in place
    which place a burden on Customs families. I am hopeful the legislation
    will pass prior to the end of this school year.
        Question. At the last House Law Enforcement Hearing, the Under
    Secretary said, ``We are never going to arrest our way out of the drug
    problem.'' He went on to say that an important component in reducing
    drug demand is education. Do the funding levels for Treasury law
    enforcement agencies include adequate resources for this type of
    education?
        Answer. While the missions of the Treasury law enforcement bureaus
    do not focus as directly on demand reduction as certain other agencies,
    we do make important contributions. One of our principal efforts is
    ATF's Gang Resistance Education and Training (GREAT) Program, which
    educates youths about the dangers associated with membership in gangs,
    including drug use. The fiscal year 1999 budget includes $10 million to
    support this program. In addition, whether the problem is
    counterfeiting, collection of import and other taxes, bank-related
    financial crimes, or firearms and explosives violations, our bureaus
    seek to educate and inform the industries involved to reduce the number
    and kind of violations. By doing this, we can focus criminal
    investigations on major violations. When we see a new and threatening
    problem, we try to respond with preventive measures. For instance,
    Customs noticed an increase in complaints about Rohypnol abuse in
    Florida and Texas. This led to Customs' enforcement of FDA's law
    barring importation of unapproved drugs. We believe this has stopped a
    problem, affecting mainly a few states, from spreading further. Funding
    for these types of activities is sufficient, but with additional
    funding we could establish more GREAT programs across the country.
        Question. The fiscal year 1999 budget request includes $800
    thousand and eight employees for new enforcement policies and programs
    including Enhancing Southwest Border and Caribbean Policy Development
    and Oversight. The Washington Post recently ran a series on the rapid
    expansion of drug trafficking throughout the Caribbean. That article
    also addressed a decrease in U.S. aid to Caribbean nations.
        Does this economic aid have an impact on drug trade? Is it a better
    expenditure of funds than trying to stem the increasing tide of drug
    trafficking? Is this something the office will be reviewing as part of
    the Caribbean Policy development?
        Answer. The Caribbean region and the Southwest border remain major
    transit points for illegal narcotics entering the U.S. As to both
    areas, therefore, we must ensure full implementation of Treasury
    Enforcement bureaus' counter-narcotics activities; the active support
    of other nations; and the oversight and policy roles played by the
    Office of Enforcement. As to the first element, we have taken strong
    measures in recent years, particularly through Customs' Operations Hard
    Line and Gateway.
        As to the work of other nations, we believe that technical and
    economic aid provided to the Caribbean and other areas leads to better
    counter-drug activity. Direct counter-narcotics training, assistance,
    and funding allows other nations to strengthen their own interdiction
    and investigations in response to drug traffickers and money
    launderers. Treasury bureaus and offices provide vital assistance in
    the Caribbean and other points in all such areas. In addition,
    assistance provided by the U.S. government and individual agencies
    allows for institution building in other nations that makes them less
    vulnerable on a long term basis to narcotics trafficking.
        Finally, as part of its Caribbean and Southwest border policy
    development, the Office of Enforcement places a high priority on
    ensuring full implementation of bureau counter-narcotics efforts and
    participation in the formulation of policies and issues relating to
    cooperation provided by other nations. In fact, we view such oversight
    and policy development roles as essential to the short- and long-term
    success of our counter-drug efforts.
        Question. This funding level also provides funding and personnel
    required to meet the workload demands related to International
    training. The Federal Law Enforcement Training Center is also
    requesting funds for this initiative. Please explain what the status is
    of the international training program and what these and the FLETC
    resources will provide?
        Answer. As crime becomes increasingly international in nature, law
    enforcement's efforts to combat crime must also extend beyond the
    borders of the United States. U.S. law enforcement needs the assistance
    of foreign law enforcement agencies in fighting crime. Therefore, it is
    in our best interest to assure that foreign law enforcement agencies
    receive appropriate training. In recognition of this, the first
    International Law Enforcement Academy (ILEA) was established in
    Budapest approximately two years ago under the direction of the FBI. It
    has proven to be very successful.
        To help combat drug trafficking and other crime problems in the
    region, in August 1997, it was agreed that Treasury would develop an
    ILEA for Latin America, known as ILEA South. FLETC is taking the lead
    for Treasury in providing management oversight, administrative support,
    and guiding program development for ILEA South. Treasury and FLETC
    moved quickly to name a Director, select a staff, and develop a core
    curriculum. The first ILEA South training program was held in Panama
    City, Panama, during November and December 1997. Thirty-two students
    from eight Central American countries attended the program. The program
    was extremely well received and was considered by all those involved to
    be a great success.
        The signing of a permanent agreement with Panama regarding ILEA
    South has been delayed by the need to first conclude the negotiations
    for the Multilateral Counter-narcotics Center (MCC), which is also to
    be located in Panama. We are hopeful that the MCC negotiations will be
    concluded in the near future so that an ILEA agreement can then be
    finalized. In the interim, a second ILEA South course is now in
    progress in Panama.
        As the professional law enforcement training agency within the
    Federal government, FLETC is the proper agency to oversee the
    development of ILEA South. The success of the first training course,
    which included instructors from both the Treasury and the Justice law
    enforcement agencies, is a tribute to FLETC's ability to bring together
    instructors from diverse agencies and develop a cooperative team
    relationship. This team approach reinforces one of the messages we are
    trying to convey to the Latin American countries--the importance of law
    enforcement agencies working together cooperatively.
        To permit FLETC to continue its outstanding ILEA training efforts,
    the fiscal year 1999 budget requests an additional 5 FTE and $1.5
    million. These FTE are necessary because currently FLETC's staffing is
    stretched very thin. FLETC has only been able to develop ILEA South
    because the other Treasury bureaus have detailed employees there to
    provide assistance. Keeping employees on long-term details for this
    purpose is not cost efficient. The FBI devotes significant resources to
    the support of ILEA Budapest. For the ILEA developed by Treasury to be
    equally successful, we must have adequate resources to support it.
        Treasury has also requested 2 FTE's to oversee international
    training efforts. These positions do not duplicate the positions at
    FLETC, but rather are intended to compliment them. By agreement between
    the Departments of State, Justice, and the Treasury, each ILEA is to be
    run by a Director and a Deputy Director. These positions will alternate
    between the Departments of Justice and the Treasury. For example, the
    current Director of ILEA South is from Treasury, and the Deputy
    Director is from Justice. To permit Treasury to staff these Director or
    Deputy Director positions, additional positions are needed. When
    Treasury is selecting a Director or Deputy Director, it will pick the
    best candidate from among the candidates nominated by the various
    Treasury bureaus and assign him/her to the Treasury position. Since the
    Director or Deputy Director will not always be selected from the same
    Treasury bureau, it is necessary to place the FTE's for these positions
    within the Treasury Department.
        Question. The Office of Foreign Assets Control is requesting
    resources to expand anti-narcotic and counter-terrorism activities. A
    portion of the funding will be used to develop and track activities
    related to approximately 300 companies that provide fronts for drug
    trafficking activities. Explain this activity and the long term costs
    of the initiative?
        Answer. In addition to sanctions against the principal figures
    identified in Executive Order No. 12978, the Order blocks property and
    interests in property of foreign persons determined to (a) play a
    significant role in international narcotics trafficking centered in
    Colombia, or (b) materially assist in or provide financial or
    technological support for, or goods or services in support of those
    designated. Furthermore, it blocks all property and interest in
    property subject to U.S. jurisdiction of additional persons, such as
    front companies and individuals, determined to be owned or controlled
    by, or to act for or on behalf of those designated as ``Specially
    Designated Narcotics Traffickers'' or ``SDNT's''.
        As the result of OFAC's collection, investigation, and analysis of
    financial, business, and other information from a wide variety of
    sources, 424 businesses and individuals have now been identified as
    SDNT's. This has had the significant impact of denying the designated
    businesses and individuals access to U.S. financial and commercial
    markets. More specifically, OFAC has determined that one-third of the
    SDNT businesses have gone into liquidation. Because of OFAC
    designations, three Colombian banks have closed about 300 accounts of
    SDNT individuals. One of the largest SDNT commercial entities, with an
    annual income exceeding $136 million, has been reduced to operating on
    a cash basis.
        The funding requested for OFAC anti-narcotics efforts in fiscal
    year 1999 is needed to continue the research and identification of
    additional SDNT entities, prepare evidentiary documentation for
    designation of new SDNT's, closely track activities of current SDNT's
    to transform themselves into new front companies and designate the
    transformed entities, acquire information resources, establish
    electronic data systems, and provide foreign country administrative
    support for OFAC personnel assigned to Bogota, Colombia. The additional
    staff requested would conduct SDNT program operations in Washington,
    D.C. and Bogota, and also include financial and commercial compliance
    personnel to ensure sanctions enforcement and to administer blocking of
    assets. We expect costs for these personnel and activities to continue
    through the duration of the program.
        Question. The Office of Enforcement keeps open the lines of
    communications with other law enforcement agencies, such as the
    agencies housed in the Department of Justice. What efforts are made to
    facilitate increased communication?
        Answer. The Office of Enforcement plays an important role in
    coordinating and facilitating communications between Justice and
    Treasury. It provides one focal point for providing information,
    analysis and policy determinations. Cooperation between the Departments
    of Justice and the Treasury has improved dramatically over the last few
    years. While there is always room for additional improvement, I believe
    that cooperation is currently at an all-time high. This is a result of
    the frequent communication and close coordination between the two
    Departments.
        The Office of Enforcement works with the Department of Justice on a
    daily basis. I speak to and attend meetings with the Attorney General,
    Deputy Attorney General, and heads of the Justice law enforcement
    bureaus regularly. Members of my staff speak to their counterparts at
    Justice on a daily basis.
        Additionally, the Office of Enforcement coordinates closely with
    Justice on all significant law enforcement matters. A variety of
    working groups meet regularly on important issues, such as the
    Southwest border, white collar crime, money laundering, and terrorism.
        Question. Who determines which law enforcement agency will take the
    lead in an investigation? In other words, how is it determined that the
    law enforcement agency with the greatest expertise coordinates the
    enforcement effort?
        Answer. The Federal law enforcement agencies each have unique areas
    of expertise and jurisdiction. When an investigation involves a matter
    that is clearly within the jurisdiction of one agency, that agency will
    take the lead and work with other agencies as needed.
        In those circumstances where there is overlapping jurisdiction,
    memorandums of understanding have been developed which detail the
    responsibilities of the respective agencies. Despite these efforts to
    ensure clear lines of authority, situations do develop where two
    agencies may claim jurisdiction over an investigation. In those
    instances, the Special Agents in Charge of the field office of the
    respective agencies attempt to resolve the question. If this is not
    possible, further discussions between the senior managers of the
    agencies will occur in Washington. The Departments of Justice and the
    Treasury become involved in these discussions, as necessary.
        Question. Do the Treasury law enforcement agencies have adequate
    resources to conduct parallel operations with the Department of
    Justice, such as Customs and INS Border Patrol activities?
        Answer. Treasury law enforcement bureaus have unique areas of
    expertise which complement those of other law enforcement agencies. For
    example, INS and Customs work together on cases and task forces
    involving illegal narcotics and other contraband smuggling. Since INS
    and Border Patrol staffing continues to increase, we anticipate that we
    will be called upon to participate in even more joint investigations.
    The current budget request for Treasury law enforcement for fiscal year
    1999 includes funds for increasing Customs capabilities both through
    human resources and technology so that Customs personnel can more
    efficiently and intelligently carry-out their responsibilities.
    Additional Customs funding and resources would enhance Treasury's
    ability to respond to growing workloads at our nation's ports of entry.
                                     ______

                    Bureau of Alcohol, Tobacco and Firearms
                    youth crime gun interdiction initiative
        Question. ATF is requesting an additional $16 million for the Youth
    Crime Gun Interdiction Initiative. This brings the fiscal year 1999
    request to over $28 million. This extra funding will expand the program
    to an additional 10 cities and will hire additional staff, but how will
    the increased funding reduce youth violence?
        Answer. The additional $16 million for the Youth Crime Gun
    Interdiction Initiative will assist in breaking the chain of illegal
    supply of crime guns to youths and minors. This can be accomplished by
    additional staffing (81 FTE's) to follow up on investigative
    information; comprehensive crime gun tracing by State and local law
    enforcement; rapid high volume crime gun tracing and crime gun market
    analysis by the National Tracing Center; and training of ATF, State,
    and local law enforcement personnel.
        Question. The program, which started as a two-year research
    project, has been operating for over a year. Have there been any
    successes the committee should be aware of?
        Answer. Since the inception of the Youth Crime Gun Interdiction
    Initiative, more than 36,000 firearms have been traced in the 17 pilot
    cities. During fiscal year 1997, a total of 86 criminal investigations
    involving individuals illegally trafficking in firearms to youths/
    juveniles (and adults), as well as armed violent crimes being committed
    by youths/juveniles, have been initiated in 16 of the 17 YCGII sites.
    Many of these are multi defendant investigations, and many involve the
    illegal trafficking of firearms to street gangs comprised of youths and
    juveniles. In these cases, 90 defendants have been recommended for
    prosecution, 61 have been arrested, and 1 has been sentenced. In
    addition, the standardized, community based trace analysis reports
    produced by ATF provide Federal, State, and local law enforcement with
    a new tool for developing local crime reduction strategies.
                                     great
        Question. The Gang Resistance Education and Training Program, or
    GREAT program, ties education to law enforcement and provides training
    in over 50 locations. Please provide an evaluation of its success.
        Answer. The GREAT program currently provides training in over 1,400
    communities throughout the United States. The table below summarizes
    the progress through fiscal year 1997:

    ----------------------------------------------------------------------------------------------------------------
                                                                                 Cities
                                                                   Funded        sending       Police      Students
                    Fiscal year                  Appropriation    agencies    officers for    officers     trained
                                                                (States) \1\  training \2\    trained
    ----------------------------------------------------------------------------------------------------------------
    1992......................................        $800,000          4(1)            74          536  ...........
    1993......................................       2,400,000         12(3)           149          289  ...........
    1994......................................       7,500,000         21(8)           310          536  ...........
    1995......................................      16,000,000        43(18)           244          498  \3\ 500,000
    1996......................................      10,700,000        40(18)           364          601      221,000
    1997......................................      11,000,000        74(22)           471          665      324,291
    ----------------------------------------------------------------------------------------------------------------
    \1\ Represents law enforcement agencies that have received congressional funding each year--not cumulative.
    \2\ Not cumulative.
    \3\ Through fiscal year 1995, law enforcement agencies did not fully report the number of students who
      graduated. A conservative calculated estimate puts the number at 500,000 from fiscal year 1992 to fiscal year
      1995. The current reporting system relies on law enforcement agencies requesting graduation certificates for
      their students.

        At the beginning of the 1994-95 school year, a national evaluation
    of the GREAT Program was launched by the University of Nebraska at
    Omaha. The primary objective of the evaluation was to assess the
    effectiveness of GREAT in terms of attitudinal and behavioral
    consequences. The second objective of the evaluation was to assess the
    instruction of GREAT officers. In fiscal year 1997, preliminary results
    of the evaluation indicated the positive impact that GREAT has on
    children. A preliminary analysis of the cross sectional evaluation of
    students completing the GREAT Program found that students reported
    lower levels of delinquency, impulse behavior, risk-taking behavior and
    approval of fighting as well as HIGHER levels of self-esteem, parental
    monitoring, parental attachment, commitment to positive peers, anti-
    gang attitudes, perceived educational opportunities and positive school
    environment. The preliminary results of the evaluation of the
    instruction of the GREAT officers found that the strongest aspect of
    GREAT training is the talented and dedicated group of individuals that
    comprise the National Training Team. A copy of the cross sectional
    evaluation report is attached.
        [Clerk's note.--The evaluation report does not appear in the
    hearing record but is printed in the November 1997 issue of the
    National Institute of Justice Research in Brief printed by the U.S.
    Department of Justice.]
        The five-year longitudinal study, the third part of the evaluation,
    continues into its second year. The University of Nebraska evaluators
    will provide a status report after they have evaluated the data
    collected after the first year.
        Question. Why are no additional funds being requested to expand
    this program?
        Answer. Due to budgeting constraints, no increased funding is
    requested for the GREAT program. However, other programs like the Youth
    Crime Gun Interdiction Initiative and the Violent Crime Coordinators
    complement and enhance the efforts of the GREAT program indirectly.
        Question. If additional funds were provided, could ATF expand the
    program to provide summer programs?
        Answer. Yes. National studies show that over 80 percent of youth
    violent crime is committed when the juveniles are on summer break or
    after school before their parents return from work.
        Current Cooperative Agreements require communities to present the
    program in three phases: 1) Teach the core programs, 2) provide a
    Summer Component, and 3) provide a Parent Program.
        Most communities who receive GREAT funds have well developed summer
    programs which reinforce the lessons presented to the youths during the
    classroom exercises.
        Additional funds would permit ATF to offer more communities money.
        Question. How would the summer camp program be set up?
        Answer. The communities could be required to demonstrate the
    commitment by the police department, school district, parks &
    recreation department; local businesses; local colleges or
    universities; and/or other community based programs to collaborate in
    providing healthy environments for youths to develop and grow.
                           violent crime coordinator
        Question. ATF is requesting $2 million and 15 FTE for Violent Crime
    Coordinator to ensure a greater success rate in cases presented for
    prosecution under the Justice department's ``Project Triggerlock.''
    Please explain ATF's connection with ``Project Triggerlock.''
        Answer. The Department of Justice's Project Triggerlock primarily
    focuses on prosecuting firearms violations that will fall within the
    jurisdiction of ATF. ATF developed the Achilles Program, which focuses
    upon the aggressive identification of criminals who are vulnerable to
    the sentencing enhancements found under 18 U.S.C. section 924 ( c)and
    (e). The primary objective of the Achilles Program is to incapacitate
    armed drug traffickers, violent street gang members, and armed career
    criminals who terrorize our neighborhoods and account for a
    disproportionate percentage of criminal activity. Another objective of
    the Achilles Program is to increase State and local awareness of the
    two Federally enhanced penalty statutes in order to better coordinate
    law enforcement resources and efforts and to augment existing State or
    local firearms laws or a lack thereof. These Federal cases are
    prosecuted by U.S. attorneys through the Department of Justice's
    Project Triggerlock.
        Question. Please explain what the violent crime coordinators will
    do.
        Answer. The violent crime coordinators (VCC), who are senior
    agents, must successfully accomplish the following tasks to fulfill the
    requirements of the job: establish threshold prosecution levels with
    the U.S. attorney's office to ensure only those cases which the U.S.
    attorney's office will prosecute federally are pursued; evaluate all
    firearms-related cases referred for prosecution by local , State, or
    other Federal agencies and determines which judicial system is best
    suited for that case based on the threshold levels of prosecution
    previously determined; establishes effective liaison and working
    relationships with the various State, local, and other Federal agencies
    in the VCC's jurisdiction; maintain the integrity of the Gun Control
    Act and the National Firearms Act by ensuring that each State or local
    officer, referring a case in Federal court has met all the elements of
    proof; gather and exchanges intelligence derived from observed trends
    and from defendant interviews; ensure firearms from all referred cases
    are traced, thus enhancing the ability of Project LEAD to generate
    information on illegal firearms trafficking; in cities with CEASEFIRE
    Projects capabilities, ensures firearms from all referred cases are
    test fired and that the shell casings and projectiles are subjected to
    Integrated Ballistic identification Systems (IBIS) testing, thus
    enhancing the IBIS data base and increasing the likelihood of ballistic
    matches; and participates in, or coordinates, numerous interviews,
    reports, and trials which require a great deal of investigative and
    courtroom experience. Additionally, the VCC performs the full range of
    criminal investigative duties, e.g., extensive planning and
    coordination of complex investigations involving major conspiracies,
    multiple jurisdictions, multiple defendants, etc. The VCC will interact
    directly with State and local law enforcement officers and other
    Federal agencies to establish a method to pre-identify armed violent
    offenders and determine the most effective avenue for prosecution.
                            national revenue center
        Question. Consolidating the National Revenue Center in Cincinnati
    will cost approximately $2.6 million. That funding will complete the
    consolidations and relocate the employees. What savings are projected
    as a result of consolidating these services?
        Answer. Current estimates show that once it is complete, savings in
    cost of space, communications (voice and data), and personnel will
    eventually be $2.7 million per year. The savings arise from going from
    six locations to one location and from reducing the overall number of
    personnel needed by eliminating duplication of effort at the multiple
    sites.
       joint explosives detection canine detection pilot program with faa
        Question. The fiscal year 1997 House report requested ATF set up a
    joint explosives detection canine pilot program with FAA at National or
    Dulles Airports. ATF has recently signed a memorandum of understanding
    with FAA and the Metropolitan Washington Airport Authority to conduct
    this program. Why has it taken so long to get this program underway?
        Answer. The pilot program is underway. Explosives detection canines
    and handlers were selected during fiscal year 1997. Two ATF-trained and
    certified explosives detection canines were assigned to participate in
    the pilot program in October 1997. A memorandum of understanding was
    signed with FAA in November 1997. FAA and ATF canine teams have been
    training at Dulles airport. Recently, contracts were finalized with two
    independent outside firms to conduct actual canine testing and to
    evaluate the personnel impact of the two different programs.
        Question. How will the pilot program be conducted?
        Answer. A contracting firm was hired by the FAA to study the
    overall impact each program has on its personnel participating in the
    pilot. Another contracting firm was hired by FAA to develop and conduct
    the actual testing of the explosives detection canines in the airport
    environment.
        Question. Other than ATF and FAA, will any other agencies
    participate?
        Answer. The participation of the Metropolitan Washington Airport
    Authority (MWAA) has been a vital part of the pilot program. MWAA is
    supplying canine handlers and the facilities in which to train and test
    the canine teams. The pilot will be utilizing both the Ronald Reagan
    Washington National Airport and Dulles International Airport.
        Question. How long will the pilot last?
        Answer. The pilot program is scheduled to last 1-2 years. The
    actual canine testing portion is divided into 3 phases and is scheduled
    to last 15-18 months. All details prior to the actual canine testing
    are being finalized by ATF and FAA.
        Question. How will the results be reported?
        Answer. The results of the pilot program will be reported in a
    joint report signed by ATF and FAA.
                      canine explosives detection program
        Question. The fiscal year 1998 appropriation provided $3.9 million
    and 17 employees for the Canine Explosives Detection Canine Program.
    The fiscal year 1999 Budget indicates the funding is reduced. What is
    in the ATF base for Canine?
        Answer. ATF will have $3,968,000 and 23 FTE in the fiscal year 1999
    base for the canine explosives detection program. This does not include
    $1,000,000 expected from the Treasury Asset Forfeiture Fund in fiscal
    year 1999.
        Question. Why has the funding level reduced?
        Answer. ATF expects $1,000,000 in funding for the canine program in
    fiscal year 1999 from the Treasury Asset Forfeiture Fund (TAFF). This
    program also competes for funding--as do many programs--with other
    Administration priorities. Therefore, the canine program was reduced
    from $7,942,000 to $4,968,000.
        Question. How will this impact the program?
        Answer. The reduction will obviously mean that ATF will be able to
    train fewer canines for State and local law enforcement than it
    otherwise would have been able to train.
        Question. How many ATF explosives detection dogs are operating in
    the United States?
        Answer. ATF currently has 8 ATF-trained and certified canines
    working throughout the United States with ATF Special Agent/canine
    handlers. ATF has also trained and certified a canine working in
    conjunction with the pilot program. This canine is being handled by a
    local MWAA police officer.
              international enforcement branch and arms diversion
        Question. Is arms diversion allied with counter terrorism?
        Answer. In certain cases, arms diversion and terrorism may be
    allied. ATF has known that decreasing the availability of illicitly
    trafficked firearms to the international illegal market will deter
    their use by terrorist groups, narcotics traffickers, and the criminal
    elements operating in foreign countries.
        Question. Where does the International Enforcement Branch (IEB)
    have field offices?
        Answer. The International Program and Policy Section, which was
    formerly known as the International Enforcement Branch, currently has
    field offices located in Bogota, Columbia; Mexico City, Mexico; and
    Ottawa, Canada.
        Question. What can the IEB do to reduce the flow of weapons across
    the borders?
        Answer. The International Programs and Policy Sections, in
    conjunction with the National tracing Center, is attempting to have all
    U.S.-source firearms that are recovered abroad traced through the
    National Tracing Center. With foreign law enforcement providing the
    description of crime guns recovered in their locale, ATF is able to
    identify non-licensed individuals, as well as any Federal firearms
    licensees, who are illegally supplying arms to foreign markets.
    Information developed is forwarded to ATF field divisions where
    international trafficking investigations are conducted.
        The International Programs and Policy Section, in conjunction with
    ATF's training and Professional Development Directorate, conducts
    illegal firearms trafficking assessments and training for foreign
    countries. The assessments and training serve to identify and address
    problem areas related to firearms in the respective countries.
        Question. If there is international government involvement in the
    firearms diversion, what steps can be taken to limit the activities?
        Answer. One way that the United States can prevent firearms
    diversion is by encouraging other nations to mark firearms at the time
    of manufacture and import, as well as by establishing or maintaining a
    system of import, export, and in-transit licenses or authorizations to
    govern the legal commerce in firearms. These two principles are part of
    the OAS Convention to Combat Illicit Manufacturing of and Trafficking
    in Firearms, Ammunition, Explosives and Related Materials signed last
    year at OAS Headquarters in Washington, which will soon be sent to the
    U.S. Senate for ratification. The U.S., together with its Group of
    Eight partners, will also attempt to seek the adoption of a similar
    instrument in the context of a planned UN Convention on Transitional
    Organized Crime. The U.S. believes that agreements such as the OAS
    Convention will go farther in securing international cooperation to
    prevent legally traded firearms from being diverted into criminal hands
    and, were diversion to occur, secure other nations' cooperation to
    investigate, prosecute, and incarcerate those guilty of this crime.
        Question. What is the involvement of revolutionary groups in arms
    trafficking.
        Answer. Revolutionary groups are a way that those involved in arms
    trafficking obtain weapons of war. Their ability to acquire arms
    legitimately is, for obvious reasons, very limited. So they look toward
    trafficking to obtain this much needed commodity for their revolution.
        Arms trafficking for these groups depends on many factors: the size
    of the group, its location, its finances, its goals, etc. One group may
    be involved in the trafficking of arms such as tanks from the former
    Soviet Union and another may be purchasing firearms one or two at a
    time and then mailing them home to a compatriot to use in the cause.
        In the past, ATF has had many investigations involving groups that
    were trafficking firearms and explosives in support of their cause. The
    types of arms ranged from one or two firearms to hundreds of firearms.
    The explosives ranged from black powder to hundreds of pounds dynamite.
                 data bases related to gun tracing information
        Question. Are there legislative restrictions that complicate or
    reduce ATF's abilities to collect or to create data bases related to
    gun tracing information?
        Answer. ATF has had to be very careful and sensitive to the
    guidelines established under current appropriations' restraints and
    yet, supplies all State, and Federal law enforcement agencies with the
    crime gun tracing in support of their investigations. However, ATF's
    National Tracing Center continues to strive for more efficient
    analytical capabilities without establishing a national firearms
    registry.
                                     ______

                            Internal Revenue Service
                          criminal investigations (ci)
        Question. CI has been involved in some tax gap cases that involved
    National Basketball Association referees and travel budgets. What was
    this all about and how did the IRS identify there was a potential
    problem?
        Answer. The IRS cannot discuss on-going investigations. However,
    within the past year, four NBA referees have pled guilty to filing
    false tax returns charges.
        Question. There are a number of militia groups interested in
    developing a separate government. They are taking opportunities to
    distribute their own financial notes to avoid paying debts to financial
    institutions. These groups, like other tax protesters, try to develop
    fraudulent procedures for claiming tax exemptions. Please explain what
    the IRS can do to ensure that these individuals are paying their fair
    share of taxes.
        Answer. Tax protesters are not a recent phenomena. During the past
    two decades CI has helped convict thousands of illegal tax protesters
    for tax and money laundering violations.
        Currently, CI is devoting approximately 4 percent of its total
    resources to tax protester investigations. At any given time CI has
    approximately 200 tax protesters under active investigation. During
    fiscal year 1997, CI initiated 176 investigations of tax protesters,
    117 indictments were returned and 89 convictions were obtained, with
    many cases awaiting trial. Of those tax protesters sentenced to prison
    (82.3 percent), the average prison sentence was 31 months.
        Some of our most significant successes in the past few years were
    against the leadership of the ``Freeman'' movement. The Freeman and
    Republic of Texas movements are notorious for using the type of bogus
    financial instruments about which you are inquiring. Leroy Schweitzer,
    head of the Freeman, was sentenced to two years in prison for failing
    to file Federal income tax returns. Schweitzer and his followers still
    await trial on a multitude of charges arising from their efforts to
    create worthless monetary instruments and other criminal activity which
    culminated in the standoff in Justus, Montana.
        Elizabeth M. Broderick, a hairstylist from California, attended a
    seminar organized by Freeman Leroy Schweitzer where she learned how to
    create worthless monetary instruments and market them to others.
    Broderick became prominent in the Freeman movement by hosting numerous
    seminars in California. These seminars ultimately resulted in the
    creation of over $800 million in phony warrants. Many citizens were
    defrauded through the use of these warrants. Unsuspecting individuals
    who believed they could discharge their debts using these instruments
    were financially ruined. Broderick realized over $1.2 million from
    these schemes. She was charged with 28 felony violations, including
    money laundering. At trial, the self-styled ``Queen of Liens'' was
    convicted on 25 counts and sentenced to more than 16 years in prison.
        In Iowa, seven members of the ``We the People'' organization were
    convicted of 41 counts of mail fraud and conspiracy to commit money
    laundering. These individuals engaged in a plan to promote a scheme
    which offered millions in ``damages'' from a Colorado court case
    against the Federal Government if a $300 filing fee was paid to the
    defendants. Scott E. Hillenbrand, the group's leader, was convicted and
    sentenced to 188 months in prison. Other members of his group received
    sentences ranging from 37 to 87 months.
        These are just a few examples of the cases in which CI has been
    involved. Tax protest investigations are a high investigative priority
    because illegal tax protest activity adversely affects not only
    voluntary compliance with the tax laws but the lives of many citizens
    as well.
        Question. The Tax Gap, or the difference between the amount of tax
    owed and the amount paid, is estimated to be approximately $130
    billion. To have the greatest deterrent on non-tax compliance the CI
    identifies and investigates cases that will generate the most
    publicity. How does IRS determine which cases to take on?
        Answer. IRS Tax Gap criminal investigations consist of tax
    investigations involving legal industries.
        CI is focusing enforcement activities on tax gap investigations
    that reduce the tax gap and increase voluntary compliance. During
    fiscal year 1997, 1,252 individuals were sentenced on tax gap charges
    and 74 percent of those sentenced were sent to prison.
        For IRS Criminal Investigation, the tax gap encompasses our ``Fraud
    Program.'' The Fraud program covers a broad range of illegal activity,
    primarily involving legitimate industries. All statutes under Criminal
    Investigation's jurisdiction may be used in these investigations. This
    includes not only Title 26 of the Internal Revenue Code but also
    violations of the Bank Secrecy Act and the Money Laundering Control
    Act. During the last several years, the national priorities relating to
    the Fraud Program have been investigations concerning Bankruptcy Fraud,
    Healthcare Fraud, Unscrupulous Return Preparers and Illegal Tax
    Protesters. Additionally, we invested substantial resources in the
    investigation of Excise Tax Fraud, Financial Institution Fraud, Gaming
    Fraud, Public Corruption, Telemarketing Fraud, Questionable Refund
    Fraud and General Tax Fraud.
        In addition, CI has identified significant areas of noncompliance
    which have been brought about by changing economic, political and
    social conditions. These ``emerging issues'' consist of Foreign and
    Domestic Trusts, Pension Fraud and Entitlement and Subsidy Fraud (Non
    Healthcare).
        The CI field offices consider the above priorities and emerging
    issues in expending investigative resources and balance the
    investigative attention given to each area. Further, the overall
    deterrent impact which can be made in an industry, geographic area and
    occupation caused by an investigation and subsequent prosecution are
    also considered. Also, the sentencing guidelines are considered in the
    selection process because in these times of scarce resources, the
    single most important factor is the deterrent effect that can be
    achieved by a prosecution. Absent unusual circumstances, the
    investigation will not be opened unless the actions of the target are
    serious enough to warrant incarceration upon conviction.
        The concept of voluntary compliance is dependent upon changing the
    behavior of those who would evade taxes through fraud and deceit. This
    can only be achieved through seeking out, prosecuting and informing the
    public about those who are benefiting the most from fraud schemes;
    those who are innovators in perpetrating fraud; and those who by their
    behavior lure others to evade taxes.
        Question. Does the agency look at cases that will provide the
    greatest ``bang for the buck'' in terms of bringing in revenue?
        Answer. CI does not pursue an investigation solely because that
    individual case may result in the collection of substantial additional
    tax dollars. Instead, CI recommends prosecution of those who violate
    the tax laws to demonstrate the IRS commitment to ensuring that all
    taxpayers pay their fair share of taxes: It is a matter of public trust
    for those who are honest, and it is a matter of a warning for those who
    attempt to evade their taxes or commit a currency crime. To accomplish
    this, we institute investigations and recommend prosecution across a
    broad geographic, economic and occupational spectrum. The resultant
    publicity, therefore, serves the dual purpose of ensuring public
    confidence and deterring fraud. However, absent unusual circumstances,
    a case will not be opened unless the actions of the target are serious
    enough, (for example involve enough omitted income) to warrant
    incarceration under the sentencing guidelines upon conviction.
        Question. Please explain how the Questionable Refund Program
    operates. Do the analysts review random returns or are the returns
    flagged by another procedure?
        Answer. The Questionable Refund Program (QRP) is a nationwide
    multifunctional program established by IRS in January 1977. The purpose
    of this program is to detect and identify fraudulent returns, stop the
    payment of the false refunds and refer QRP Schemes to District Office
    Criminal Investigation (CI). Returns with questionable civil issues are
    referred to other Service Center functions.
        The program's major detection operations occur in the ten Service
    Centers. Questionable Refund Detection Teams (QRDT's) conduct
    preliminary pre-refund reviews of millions of questionable returns
    identified by manual and computerized screening techniques. False
    return schemes meeting specific criteria are referred to field offices
    for possible criminal investigation. The false returns not meeting
    criminal referral criteria are retained by the applicable QRDT. Duties
    performed by QRDT personnel include, but are not limited to, scanning
    returns, verification of income claimed on suspicious returns, placing
    Master File CI controls on false returns, monitoring all QRP/CI
    controlled Master File accounts, developing the full scope of
    identified QRP schemes, referring QRP Schemes to District Office CI,
    utilizing the Treasury Enforcement Communications System (TECS) for
    transmitting scheme information to other QRDT's, providing QRP support
    for district office CI personnel, handling QRP court ordered
    restitution cases, and responding to taxpayer refund inquiries
    pertaining to QRP controlled MF accounts, etc.
        The QRDT's do not review returns on a random basis. The main source
    of returns selected for the QRP involves elaborate computer programs
    that apply weighted criteria against every refund return (individual
    returns, e.g., 1040, 1040A, 1040EZ, 1040PC, TeleFile, on line returns,
    etc.) that is processed. The criteria are developed and refined yearly
    based upon the profile of fraudulent returns previously discovered and
    compared against a known sample representative of all returns that are
    filed. These computer programs are capable of modification or data
    insertion when schemes are identified, to allow for expansion of the
    total extent of the filings. Other computer runs monitor the addresses
    of returns and identify significant trends of filings.
        Throughout the year, as schemes are developed, the QRDT's utilize
    the resources of numerous other service center functions to assist in
    identifying the totality of the schemes. The QRDT's receive assistance
    from Returns Processing, Information System Management, Electronic
    Filing, Internal Audit personnel, Adjustments, Notice Review, etc. In
    addition, referrals are received from return preparers, informants,
    banks, and the Secret Service.
        The program relies to a great extent on the labor intensive
    scrutiny of paper documents for indications of fraud. The advent of
    Electronic Filing (ELF) and direct deposit refunds have provided ever
    increasing challenges. The amount of refund fraud increased
    dramatically in conjunction with the implementation of ELF and
    increased Earned Income Tax Credit. Accordingly, the need for more
    sophisticated fraud detection methods became critical.
        The Electronic Fraud Detection System (EFDS) is the major fraud
    detection tool for ELF returns. EFDS was developed by Research
    Division, the Los Alamos National Laboratory, Criminal Investigation
    Branch and the Electronic Filing Branch at the Cincinnati Service
    Center (CSC). EFDS gained support and priority due to both internal and
    external concern over the tax system's vulnerabilities to fraud.
        During the 1994 Filing Season, EFDS was prototyped at the CSC
    Criminal Investigation Branch. In the 1995 Filing Season, limited
    functionalities (Prescan & Query) were rolled out to the other ELF
    Center QRDT's. For the 1996 Filing Season, additional workload
    management features were included and the system was further rolled out
    to the NON-ELF Center QRDT's.
        We continually pursue EFDS improvements as well as various other
    avenues in order to thwart the attempts of fraudsters and to protect
    the revenue.
        Question. Does the Program utilize the Revenue Protection Strategy?
        Answer. Yes. The Revenue Protection Strategy was built on a four-
    pronged approach to the problem of fraudulent or questionable claims:
      --Research.--Conduct statistically valid and other data analysis of
            abuse areas to identify the nature of the problem and develop
            appropriate responses.
      --Prevention.--Design up-front validations of return information to
            prevent fraudulent or questionable claims from entering the
            filing system.
      --Detection.--Develop improved detection systems to identify
            multiple-return fraud schemes and patterns of abuse among
            groups of taxpayers.
      --Enforcement.--Where appropriate, pursue criminal investigation and
            prosecution of fraudulent refund claims. In addition, select
            appropriate returns for pre-refund examination of claims to
            ensure only valid claims are paid.
        Since inception and implementation, the main focus of the QRP has
    been to protect the revenue. Due to its very nature, QRP has been, and
    continues to be, on the cutting edge of detecting all types of tax
    abuse. QRP has been responsible for the identification of substantial
    tax related issues existent in other programs within the Service,
    resulting in hundreds of millions of dollars in savings, e.g., Illegal
    Tax Protesters, Abusive Tax Shelters, Earned Income Tax Credit abuse.
        The Service believes that the Revenue Protection Strategy can
    reduce the Service's vulnerability to fraud and abuse and prevent the
    issuance of substantial dollars in false or inflated claims. Thus, the
    service needs to continue to focus our efforts to identify questionable
    claims for refundable credits such as the Earned Income Tax Credit.
        Question. Criminal Investigation prioritizes its efforts in
    currency reporting and money laundering to ensure its resources are
    used for those cases that require the financial expertise provided by
    your staff. Please explain how you prioritize your cases.
        Answer. Due to its limited resources and specialized expertise, CI
    has prioritized its efforts in currency reporting and money laundering
    enforcement, concentrating on those investigations whose size, scope,
    and complexity require the financial investigative expertise of its
    special agents. Selection and prioritization of targets for
    investigation are made in accordance with minimum standards set by the
    Assistant Commissioner (CI), and in furtherance of the mission of CI.
    National Office review and management oversight ensure compliance with
    these concepts.
        Question. What percentage of cases does Criminal Investigation turn
    down?
        Answer. The percentage of cases turned down by CI cannot be
    determined because cases which are not pursued are not tracked.
                                     ______

                              U.S. Customs Service
                         drug smuggling in the midwest
        Question. Customs is requesting an additional $50 million in fiscal
    year 1999 to acquire non-intrusive inspection technology for land and
    sea ports. And, we are aware of the continuing problem of drugs coming
    across our border, particularly the Southwest Border and Miami. But,
    there are drugs coming into the international airports across the
    country. What is being done in the Midwest to combat increased drug
    activities? For example: What efforts or resources are Customs
    employing at the Chicago International airport to stem the increase of
    heroin that is flowing into Milwaukee?
        Answer. Most major airports have Customs Passenger Analysis Units
    (PAU's) assigned, which employ the latest in information and
    information technology, to select high-risk passengers for examination,
    in advance of their arrival. The PAU uses Advance Passenger Information
    (API), which is an electronic passenger manifest sent to Customs by air
    carriers in advance of the flight's arrival, to conduct extensive name
    checking against several data bases of known and suspect violator
    information. In addition, PAU's use non-suspect information to identify
    passengers who, although they have no previous records, may be
    traveling for the purposes of violating the law. Through performance
    measurement, Customs has determined that PAU's are about 55 times more
    effective than simple random inspections.
        Customs also employs highly trained roving inspectors, whose sole
    purpose is to identify narcotics smugglers. This elite force has proven
    to be an effective tool to combat drug trafficking, and is used as a
    model for many foreign customs agencies.
        Customs Chicago O'Hare airport PAU and rover inspectional units are
    a highly trained and motivated interdiction force employing the latest
    in information and information technology, along with training in
    observational behavioral analysis, in an effort to identify the few
    narcotics smugglers from among the 3.2 million air passengers arriving
    each year. In addition, nine canine enforcement officer teams are
    employed at Chicago O'Hare, and are used to locate narcotics in cargo,
    baggage, and among passengers.
        Chicago O'Hare also employs a new concept in Customs tactical
    targeting, known as the ICAT, or Information Collection and Analysis
    Team. The ICAT employs Customs inspectional, intelligence, and
    investigative resources, in a single cohesive unit. The ICAT provides
    inspectors with tactical targets from arriving passengers.
        Chicago is also home to the Combined Agency Border Interdiction
    Network or CABINET. This unit, formed in the 1980's, includes resources
    from among Customs, six other Federal agencies, and foreign customs
    agencies. Its sole purpose is to use available information on aliens to
    target for drug smugglers, with a specialty of West African heroin
    smugglers. As a result of its close proximity, a special relationship
    exists with inspectors at Chicago O'Hare airport.
                        automatic license plate readers
        Question. Funding was provided in fiscal year 1998 for automatic
    license plate readers. Is this initiative now being funded in the base?
    How many license plate readers were acquired with the fiscal year 1998
    funding? Where are these readers being used?
        Answer. Funding was provided in fiscal year 1998 for license plate
    readers as part of the first phase of the Land Border Automation
    initiative, which also contained funding for the replacement of
    Interagency Border Inspection System primary terminals and Automated
    Permit Port/Remote Video Inspection technology. Congress' fiscal year
    1998 enactment of $9.5 million for this initiative is recurred in the
    Crime Bill base for fiscal year 1999.
        The Customs Service, in cooperation with the Immigration and
    Naturalization Service, has placed license plate readers in Southern
    California and Blaine, Washington. The priority for installation of
    license plate reader equipment for the Federal Inspectional Service
    agencies is the southern border. Customs expects that by the end of
    fiscal year 1998, installation will be underway at Nogales, AZ; El
    Paso, Laredo, and Brownsville, TX. Customs will continue the nationwide
    deployment of automatic license plate readers, Automated Permit Port/
    Remote Video Inspection technology, and the replacement of Interagency
    Border Inspection System primary terminals with the funds requested in
    fiscal year 1999.
                              detection technology
        Question. The Customs Service has a strong presence on the U.S.
    Mexican border. The Administration has requested additional funding for
    border patrol agents and for technology that would assist Customs
    inspectors. Is there technology available that would serve multiple
    efforts such as detection, monitoring air, land, and maritime
    activities? If such technology exists has a cost benefit analysis of
    its effectiveness been conducted?
        Answer. There is no single technology or multiple-use system that
    we are aware of that could detect and monitor targets for all air,
    land, and maritime activities. However, there are several types of
    satellite-based electronic tagging and tracking systems that could
    monitor suspect air, land, or marine movements once the target plane,
    vehicle or boat has been detected and a tracking device covertly
    installed.
        There are some radar systems currently deployed that either are, or
    can be, capable of detecting and monitoring most air and maritime
    targets of interest to Customs. These include the airborne radars in
    Customs P-3 AEW aircraft and the DOD aerostats that can detect targets
    up to 150 miles away, and the radars in the Customs Citations and other
    Customs, Coast Guard, or military aircraft that can detect targets up
    to several miles away.
        The land-based DOD Relocatable Over-the-Horizon Radar (ROTHR) can
    detect and monitor air targets, and ultimately marine targets, that are
    several hundred miles away.
        Cost benefit analyses for the effectiveness of the P-3, aerostat,
    and ROTHR were conducted in the early development and cost
    justification days of these programs. They concluded that each was
    effective for the multi-agency applications for which they were being
    used; i.e., Customs, Coast Guard, INS, and DEA enforcement activities,
    and DOD early warning missions.
                                     ______

                              U.S. Secret Service
                     security of secret service protectees
        Last year in response to a question for the record concerning ``* *
    * the level of security the Service would feel comfortable with * *
    *'', the Secret Service responded ``* * * the Service is comfortable
    with the level of security that we are currently providing to our
    protectees''. The Service went on to say that ``* * * the level of
    threats to the president have remained constant over the past four
    years.'' However, the fiscal year 1999 budget requests an additional 25
    employees and $5 million for assignment to the Presidential, Vice
    Presidential, and Former President protection details.
        Question. Why are additional personnel requested?
        Answer. The Service is comfortable with the level of security that
    is currently being provided to protectees. However, in order to provide
    this level of security, Service personnel assigned to protective
    details are currently working inappropriate levels of overtime,
    approximately 19 percent more than agents assigned to the Service's
    five largest field offices. Also, due to operational needs, the
    protective details do not have the staffing necessary to ensure that
    regular training is achieved. The additional staffing will ease this
    situation and enhance the operational effectiveness of the protective
    details.
        Question. What has changed since the Service responded to these
    questions last spring?
        Answer. Nothing has changed. The Service is comfortable with the
    level of security that is currently being provided to protectees. The
    issue is the level of overtime that is being worked by detail
    personnel, and our inability to schedule regular training for these
    employees.
        Question. Will this request fund anything other than personnel?
        Answer. This request will fund personnel and their concomitant
    equipment and training only.
                      protective travel funding shortfall
        The fiscal year 1999 budget requests less funding for travel and
    related costs than the Service received in fiscal year 1997. The fiscal
    year 1997 travel allocation may not have been sufficient to cover the
    actual cost accrued.
        Question. Is the fiscal year 1999 request sufficient to meet the
    projected travel needs in that year?
        Answer. The Service is currently in the process of re-evaluating
    funding requested for travel expenses.
        The Service is reviewing some of its assumptions regarding the
    annual level of protective travel costs. The actual costs of travel,
    including hotel and per diem costs, have increased beyond what had been
    anticipated. Also, both the level of protectee travel and the nature of
    that travel, especially for the President and foreign heads of state
    and government visiting this country, have changed. The President's
    level of foreign travel is beyond what was anticipated, and the number
    of foreign dignitary visits to this country has increased
    significantly. Finally, the Service has also made changes to the way
    protection is provided to its protectees when travelling, especially
    the President. Greater use is being made of technologically
    sophisticated equipment. New threats continue to be identified that
    necessitate the development and deployment of new counter-measures.
    Deploying these new counter-measures requires increasing the number of
    specially trained personnel that must travel with the President. All of
    these factors are being weighed as we re-evaluate both fiscal year 1998
    and fiscal year 1999 travel needs.
        Question. Are there some projections on the level of travel a
    second term President conducts toward the end of the term?
        Answer. The Service does not make a zero-based projection of its
    annual travel expenses each year. Development of the annual travel
    budget is not founded on differing yearly assumptions regarding the
    upcoming travel schedules of the President and other protectees. The
    information regarding protectee travel plans is simply not available
    for use in making annual projections when preparing the fiscal year
    budget. Rather, the travel budget simply reflects the assumption that,
    except for major extraordinary events, e.g., an economic summit held in
    this country, a visit by the Pope, or a presidential campaign, travel
    activity and travel costs, adjusted for anticipated inflation, will
    remain constant. There are no assumptions made, nor costs projections
    rendered, relative to the second term, or for that matter, any period
    of time for the incumbent President.
        Question. What systems are in place to ensure that travel costs can
    be accommodated by the allocation requested?
        Answer. There is nothing the Service can do to absolutely ensure
    that its travel allocation is adequate. Approximately eighty percent of
    its travel budget is spent on fulfilling its mandated protective
    responsibility, and is therefore effectively controlled not by the
    Secret Service, but by those individuals that we protect. However,
    having said this, the Service can ensure that it carefully monitors its
    travel budget, and knows where spending stands vis-a-vis this budget at
    any given time. Having current travel costs information, along with
    knowing the future travel plans of protectees as soon as possible, will
    allow the Service to make budget adjustments and, depending on the
    magnitude of any unexpected increase in travel costs, propose to the
    Congress a reprogramming of funds from elsewhere in the budget to cover
    any shortfall.
        The Service has made some changes in its operating procedures to
    ensure that it has the best and most timely information possible
    regarding its travel expenditures. It has re-emphasized the importance
    of obtaining trip and itinerary information from the protectee details
    as soon as possible. New cost accounting procedures to provide domestic
    and foreign travel costs in a more timely and detailed manner have been
    established. Finally, the Service has a working group that continues to
    analyze travel data and costs-tracking issues.
                         missing and exploited children
        In recent years the subcommittee has provided funding so that the
    Secret Service could expand some of their unique forensic resources as
    they apply to Child Exploitation Cases. Since many State and local law
    enforcement agencies are experiencing limited budgetary resources,
    initiatives such as this one could prove invaluable in investigations
    into child victimization cases.
        Question. Please provide the committee your brief assessment of the
    Service's involvement into child victimization cases.
        Answer. During the last two fiscal years, the Service's forensic
    support for the Center for Missing and Exploited Children (CMEC) has
    included polygraph examinations, handwriting examinations, voiceprint
    comparisons, audio and video enhancements, age progressions/
    regressions, and fingerprint research and identification. Of the 39
    polygraph examinations involving missing and exploited children,
    twenty-five (25) subjects were found to be deceptive. Of these, twenty-
    two confessed to the allegations of sexual/child abuse. A suspect in
    one of these examinations, which was conducted in Houston, TX, admitted
    that she critically injured her one year-old son by intentionally
    running over the child's head with the wheels of her automobile.
    Another suspect in Schereville, Illinois admitted helping his
    girlfriend drown her eight-year-old stepdaughter in the family's
    bathtub.
        Three of the more noteworthy handwriting examinations conducted by
    the Service involved child assaults and homicides. In one, a
    handwriting examination was conducted for the Chicago Police Department
    with handwritten notations left on the abdominal area of an
    unidentified, unconscious young girl who had been beaten and raped. The
    markings were made with a marking pen and were compared against the
    handwriting specimens of a number of suspects. This comparison resulted
    in implicating an individual. The suspect was confronted with this and
    other evidence and admitted to the assault. The case was highly
    publicized in the Chicago area and was dubbed the Girl X case. The
    second investigation involved a handwriting examination conducted for
    the U.S. Attorneys Office, in Washington, D.C. in the matter of the
    homicide of a 12 year-old boy. The Service examined letters that were
    purportedly gang letters written by gang members referencing the
    slaying of this youth. An incarcerated suspect was identified as having
    written some of the letters to other gang members. The third involved
    handwriting and ink analysis examinations, as well as audio
    enhancement, for the Boulder, CO Police Department investigating the
    JonBenet Ramsey homicide.
        We have also obtained all of the known handwriting specimens from
    the pedophile files managed by the CMEC and entered them into the
    Forensic Information System for Handwriting (FISH), the Service's
    unique automated handwriting recognition computer application.
    Interestingly, the first identification that FISH made for the CMEC was
    the author of an anonymous threat directed at the Center itself.
        Our network of connectivity with most of the state and local
    Automated Fingerprint Identification Systems (AFIS) has allowed us to
    process requests received from local police seeking missing children,
    kidnappers, and serial rapists. We also received a request from the
    U.S. Customs Service to develop latent fingerprints on pornographic
    materials recovered in the search of the residence of a Florida State
    Patrol Officer. This officer had been identified as a suspect in a case
    involving improper advances directed at a seventeen year-old male
    victim. The officer's prints were subsequently developed on the
    submitted materials. Our pending acquisition of a state-of-the-art
    vacuum metal deposition device will permit us to provide an outstanding
    means of developing latent fingerprints on non-porous surfaces, many of
    which are common in homicide investigations. Use of a first generation
    device, which is now inoperable, allowed us to develop fingerprints of
    murder suspects on plastic garbage bags recovered in two homicide
    investigations.
        The U.S. Secret Service has deliberately focused its research
    efforts to improve the process of developing children's latent
    fingerprints. These efforts began when scientists from the Oak Ridge
    National Laboratory (ORNL) asked chemists from the Service's Forensic
    Services Division to act as scientific/forensic advisors for their
    project involving the analysis of children's fingerprint residues. ORNL
    had been requested to assist a local police department with a child
    abduction case. When investigators were unable to find any of the
    abducted child's prints in the suspect's car (despite witnesses placing
    the child in the suspect's car), ORNL performed instrumental analysis
    methods to see if there were chemical differences between adult and
    child prints. Preliminary results from their limited initial study
    indicated that there were differences.
        The U.S. Secret Service, after obtaining funding through the
    Technical Support Working Group (TSWG), contracted with the Pacific
    Northwest National Laboratory (PNNL) in Richland, Washington to follow
    up and expand beyond the data obtained at ORNL. PNNL's work, which just
    recently began, will focus not only on a rigorous analysis of latent
    print residues, but will also address how these residues change with
    time (up to 6-9 months), an aspect not investigated by ORNL. Samples
    will be obtained from both male and female subjects of varying ages and
    analyzed using some of the most advanced and sensitive analytical
    instrumentation available. Particular emphasis will be focused on the
    results obtained from the analyses performed on children and adolescent
    print residues. It is hoped that once a comprehensive understanding of
    both the organic and inorganic components of children's prints (and how
    these compounds are modified with time) is obtained, that further
    research efforts could be focused on creating new processes for
    visualizing the more stable compounds identified in this study. Using
    the currently existing processes, it is difficult to recover children's
    prints from crime scenes after a day or so. Therefore, it is hoped that
    the results from this research will assist law enforcement agencies
    worldwide in investigating and prosecuting cases involving missing and
    exploited children.
        The Service also utilized its Triggerfish technology, which tracks
    cellular phone communications, to locate a known child abductor and two
    kidnapped children in Miami, Florida.
        The Service now has three graphic artists who can support the CMEC
    with requests for age progression and regression, as well as two
    audiovisual forensic scientists who can enhance audio and video tapes
    and conduct voiceprint analysis. In January 1998, the Forensic Services
    Division also produced a public service announcement videotape
    featuring the Director of the National Center for Missing and Exploited
    Children.
        Since initiating the Children's Identification System (KIDS), which
    provides parents with a printed document that contains the thumbprints
    and a photograph of their child, the Service has processed more than
    seven thousand children at different sights across the country. The
    Service utilizes Livescan fingerprint equipment and digital cameras to
    produce the documents. Frequently, KIDS support is provided at events
    hosted for local and state law enforcement personnel where the Service
    publicizes the availability of the forensic support described above to
    the investigators actually tasked with suppressing these heinous
    crimes.
        Question. Please explain why funding was not requested in fiscal
    year 1999.
        Answer. The Secret Service has received funding for this initiative
    since fiscal year 1995. For fiscal year 1999 however, budgetary
    constraints required that limited funds be targeted to the Service's
    core mission responsibilities.
                                financial crimes
        At last year's hearing there was a discussion on 4-1-9 or
    ``Advanced Fee Fraud'' cases. At that time over 350 businesses and
    individuals in Wisconsin had been sent solicitation letters.
        Question. Please provide an explanation of the types of fraud you
    have detected.
        Answer. Advance fee frauds emanating from Nigeria are targeting
    citizens throughout the world, and have resulted in financial losses in
    the hundreds of millions of dollars. The U.S. Secret Service initiated
    a pilot program dubbed ``Operation 4-1-9'' designed to assess the
    financial losses to U.S. citizens, and to combat advance fee fraud
    through bi-lateral and multi-lateral operations with our foreign law
    enforcement counterparts.
        Financial losses reported to the Secret Service by American
    citizens have exceeded $100 million dollars. Experience has shown that
    many victims are often reluctant to report their losses due to fear or
    embarrassment, and it is likely that the actual financial losses far
    exceed the reported figures.
        Investigations have also shown that the proceeds of these advance
    fee frauds are being diverted into other types of criminal activities,
    including the trafficking of narcotics.
        The Secret Service has developed a data base consisting of over
    80,000 advance fee fraud letters. Using this data base the Service has
    identified the locations of suspected fraudsters in Lagos, Nigeria.
    Agents of the Secret Service, acting in an advisory capacity, have
    accompanied Nigerian law enforcement authorities in the execution of a
    number of search warrants, resulting in the arrests of advance fee
    fraudsters in Lagos.
        Secret Service agents have accompanied a number of U.S. victims of
    advance fee fraud to London where, in conjunction with the London
    Metropolitan Police, they have participated in a number of ``lure
    operations'' resulting in the capture of Nigerian criminals.
        Investigative information, in the form of telephone/facsimile
    numbers and bank accounts known to be associated with the receipt of
    the illicit proceeds of advance fee frauds, has been passed through our
    overseas offices to law enforcement authorities in Canada, France,
    Germany, Hong Kong, Malaysia, Monaco, the United Kingdom, and other
    countries.
        Advance Fee Fraud (AFF) letters and faxes are confidence schemes
    and appear as various proposals from ``officials'' of Nigerian
    Government ministries or existing companies, or involving Nigerian
    Government contracts. The letters and faxes contain official-looking
    stationery with appropriate government seals, stamps, and signatures.
    Names and addresses of potential victims are obtained through various
    trade journals, business directories, magazine and newspaper
    advertisements, chambers of commerce, and the Internet. These criminals
    do not target a single company, but rather send out mailings en masse.
        All AFF proposals share a common thread. The proposals are
    unsolicited, emphasize the urgency and confidentiality of the deal, and
    require the victim to pay various government and legal fees and taxes
    before receiving what turns out to be nonexistent money.
        Part of the criminal's ruse is to have the victim travel to Nigeria
    (either directly or via a bordering country) to meet with a Nigerian
    Government ``official(s)'' to complete the transaction. Once in
    Nigeria, these criminals will attempt to solicit more money from the
    victim, either by continuing the elaborate ruse, or, if that fails,
    physical intimidation.
        Advance Fee Fraud confidence schemes usually fall into the
    following categories: Transfer of Funds from Over-Invoiced Contracts;
    Contract Fraud (C.O.D. of Goods and Services); Conversion of Hard
    Currency (Black Money); Sale of Crude Oil at Below Market Prices;
    Purchase of Real Estate; and Disbursement of Money from Wills
    (Benefactor of a Will).
    Transfer of Money From Over-Invoiced Contracts
        About 90 percent of AFF are over-invoiced contract scams. The scam
    involves an offer to transfer large sums of money into an overseas bank
    account owned by a foreign company. The money comes from over-invoiced
    contracts from a Nigerian company or one of the Nigerian Government
    ministries (that is, Central Bank of Nigeria, Nigerian National
    Petroleum Corporation). The author of the letter claims to be a
    government or bank official who is willing to pay the victim a generous
    commission of up to 30 percent for assisting in the transfer of the
    funds. Initially, the victim is asked to provide company letterhead and
    bank information to initiate the transfer of funds. The victim soon
    finds out that he or she is required to pay various ``transaction
    fees'' before the money can be released. The victim can be strung along
    for months or years paying various fees and taxes before realizing that
    the money does not exist.
    Conversion of Hard Currency (Black Money)
        The letter or fax entices the victim with a ``chance of a
    lifetime'' offer. Once the victim agrees to allow the criminals to
    obtain a visa for him or her and meet them in Nigeria, (or a neutral
    country) the following scenario occurs:
        The victim will be shown a suitcase allegedly full of U.S. currency
    in $100 bill denominations that was temporarily defaced with a black
    waxy material (Vaseline and iodine) to mask their origin. The criminals
    tell the victim that there is $40 million dollars in the suitcase.
    However, in order to remove the material and restore the notes, the
    victim must purchase a special solution (commercial cleaning fluid).
    The cost of this ``special'' solution ranges from $50,000 to $200,000.
    The victim will receive 40 percent of the $40 million as his or her
    ``commission.''
        The criminals will wash one of the bills with the special solution
    restoring the U.S. currency to its original form. In an effort to
    alleviate any doubts the victim may have, the victim will be asked to
    pick out another $100 bill at random to be cleaned. Before the criminal
    cleans the bill, the victim is momentarily distracted by one of the
    criminal's accomplices. During that split second, the criminal using
    slight of hand, will pull out a real $100 bill from his sleeve and
    clean it in front of the victim. The ``treated'' notes are given to the
    victim to take to a bank for verification.
        In some instances, as a sign of good faith, the victim will be able
    to keep the suitcase for a short time, until the victim gets the money
    to buy the solution. To prevent the victim from opening the suitcase,
    the victim is told that exposure to the air will cause the black
    substance to ruin the money. Ammonia is placed inside the suitcase in
    the event the victim opens the suitcase giving the impression that the
    money is disintegrating.
        The criminals walk away with the victim's money, and the victim
    ends up with a suitcase full of blank paper.
    Sale of Crude Oil at Below Market Prices
        The victim is offered special crude oil allocations at lower than
    the market rate. As in other AFF business proposals, the victim is
    required to pay special registration and licensing fees to acquire
    crude oil at below market price, only to find that the ``sellers'' have
    disappeared once the fees have been paid.
    Purchase of Real Estate
        This fraud involves an offer to purchase real estate using the
    services of a real estate broker or a ``well established'' business
    executive. Once a home is located, the broker or person acting on
    behalf of the home buyer is required to pay certain fees to complete
    the transaction in return for receiving a normal commission.
    Disbursement of Money from Wills
        In this variant of the money transfer fraud, charities, religious
    groups, universities, and nonprofit organizations receive a letter or
    fax from a mysterious benefactor interested in the group's cause and
    wishing to make a sizable contribution. Before the contribution can be
    released, the recipient must first pay an inheritance tax or various
    government fees and taxes. The victim also may be requested to travel
    to Nigeria and/or a bordering country to collect the ``gift.''
        Question. How is the Secret Service dealing with these scam
    artists?
        Answer. The Secret Service has undertaken a three pronged approach:
    (1) education, (2) interdiction, and (3) investigation, to combat this
    growing problem. The Secret Service is the lead agency in twelve task
    forces throughout the United States whose focus is the investigation of
    financial crimes committed by Nigerian criminals. Membership in the
    task forces includes representatives from the Department of State-
    Diplomatic Security Service, the Drug Enforcement Administration, the
    Federal Bureau of Investigation, the Immigration and Naturalization
    Service, the U.S. Customs Service, the U.S. Postal Inspection Service,
    and numerous local and state law enforcement agencies.
        The President's International Crime Control Strategy, and other
    initiatives such as Presidential Decision Directive (PDD) 42 recognize
    the global threat posed by organized criminal groups. The Secret
    Service has established liaison with both the Department of Justice,
    Office of International Affairs, and the Department of State regarding
    prosecutorial guidelines, extradition, and coordination of
    international advance fee fraud activity. Secret Service agents
    occasionally perform temporary duty assignments in Lagos to assist the
    Nigerian Special Frauds Unit in the investigation of these crimes. The
    Secret Service is involved in bi-lateral and multi-lateral initiatives
    with law enforcement agencies throughout the world, to include the
    Metropolitan Police in London, the Bundeskriminalamt in Germany, and
    the Royal Canadian Mounted Police in Toronto, Canada. The Secret
    Service is the lead agency in the G-8's U.S. Delegation to the Law
    Enforcement Project Sub-Group for the Project Based Initiative on West
    African Fraud.
        American citizens are losing their life savings, and more, to these
    fraudulent schemes. At least two Americans have lost their lives after
    traveling to Lagos in pursuit of an advance fee scheme. The Secret
    Service is working with the Department of State, Department of
    Commerce, Department of Justice, Better Business Bureaus, and others as
    part of a comprehensive public awareness campaign which has
    successfully prevented large numbers of American citizens from falling
    victim to these crimes. The Secret Service has given countless national
    print, radio and television interviews on the subject.
        The Secret Service has added a section on advance fee fraud to its
    home page on the Internet. Public response to this web page, via
    telephone, mail, and e-mail has revealed more than $100,000,000 in
    losses incurred by victims of this type of fraud. Several other
    visitors to this site have reported being solicited for funds for
    apparent advance fee schemes. Gaining information via this web site has
    prevented some of these individuals from becoming victims of this
    crime, while others have been able to avoid additional losses.
    Investigative leads obtained from victims throughout the world have
    identified Nigerian criminals, and in some instances, non-Nigerian
    accomplices, resulting in the arrest of these criminals, and the
    seizure of millions of dollars in illicit proceeds.
                     detection of counterfeit u.s. currency
        Question. What is the status of the Secret Service overseas
    program?
        Answer. Since 1994, the Service has requested an additional 33
    overseas positions.
        Question. How many positions does the Secret Service currently have
    overseas?
        Answer. The Secret Service currently has a total of 36 agent
    positions and 14 support positions, assigned to its 13 overseas
    offices.
        Question. How does this relate to the number of positions
    requested?
        Answer. Of those requested positions, 25 positions have been
    approved. Positions which have not received Chief of Mission approval
    include three positions in Moscow; three positions in Mexico City; and
    one position each in Bogota and Manila.
        Question. Have you worked with the State Department to create
    offices where needed?
        Answer. Although the Service currently is not pursuing the Manila
    position, it continues to work closely with the State Department and
    appropriate Chiefs of Mission in obtaining approval for the other
    requested positions.
        According to the summary performance report the Service anticipated
    better results in the number of counterfeit notes seized and closing of
    credit card and financial institution fraud cases. Now it appears the
    Service has reduced its targets for fiscal year 1998/1999.
        Question. Why are the performance targets reduced?
        Answer. The change to financial crime performance goals for fiscal
    year 1998 and fiscal year 1999 was due primarily to an internal
    realignment of priorities and resources. Specifically, a greater
    emphasis is being placed on current and new protection
    responsibilities. The effect of this change will likely be that the
    overall quantity of cases closed and arrests will drop slightly.
        Although the number of credit card/access device fraud cases closed
    was somewhat lower than anticipated, most of the other investigative
    program performance goals were either met or exceeded during fiscal
    year 1997. Both measures of case quantity and quality improved during
    fiscal year 1997. The total number of financial crime cases closed, the
    percentage of high priority cases, and the percentage of cases
    resulting in prosecution at the Federal level all increased. In
    addition, a record number of arrests for financial crime violations and
    corresponding indictments were reported during fiscal year 1997.
        Question. What problems did you experience in 1997 that resulted in
    not meeting the projected goals?
        Answer. A change in the means by which counterfeit currency is
    produced goes a long way toward explaining why performance goals were
    seemingly not met. The level of counterfeit notes passed to the public
    tends to change from year to year. However, the amount of counterfeit
    currency seized is more volatile and often fluctuates. These
    fluctuations depend on the number and aggressiveness of counterfeiting
    plant operations, the type of counterfeiting processes used to produce
    the counterfeit notes, and whether the operation is located
    domestically (or in a cooperative foreign country), or in a country
    with an uncooperative government.
        Recently, there has been a shift in the technology used to produce
    counterfeit currency. The current pattern moves away from using the
    older offset printing techniques to using the new high quality laser
    and ink jet printers. This shift means that counterfeiters no longer
    need to produce large stocks of counterfeits during a single production
    run for distribution at a later time. With the new laser and ink jet
    technology it is as efficient to produce only that which is being
    passed or sold at that time as it is to produce a large volume. As a
    result, there are smaller inventories of counterfeit notes on hand to
    be seized when these operations are suppressed.
        Question. Were fewer counterfeit notes passed?
        Answer. As noted above, the amount of counterfeit U.S. currency
    passed varies slightly from year to year. In fiscal year 1997, a total
    of $34.7 million in counterfeit U.S. currency was passed worldwide.
    This figure represents a 3 percent drop from the previous fiscal year.
        Question. How do you know the number of notes that were passed?
        Answer. Counterfeit notes passed come to the attention of the
    Secret Service in two ways. First, a citizen, merchant or local bank
    may discover what they believe is a counterfeit note and report it
    directly to the local Secret Service office. An expert in counterfeit
    detection will determine if the note is genuine or counterfeit. If
    counterfeit, it will remain in the possession of the Secret Service, be
    inventoried for possible use as evidence, and reported for statistical
    purposes. Counterfeit notes of better quality may remain in circulation
    until they reach a Federal Reserve Bank. Notes detected at the Federal
    Reserve are turned over to the local Secret Service office. These notes
    are also inventoried and reported for statistical purposes. In theory,
    and empirically demonstrated, virtually all counterfeit notes placed in
    circulation will ultimately be detected and reported to the Secret
    Service.
                  federal law enforcement wireless users group
        Continued funding is requested for the Federal Law Enforcement
    Wireless Users Group (FLEWUG). FLEWUG was established to provide radio
    inter-operability.
        Question. Is there currently a Treasury-wide effort that requires
    all the law enforcement agencies to acquire radio and communications
    systems that are inter-operable. Could alternative efforts be developed
    that would provide for inter-operability outside of FLEWUG?
        Answer. It has always been the goal of the FLEWUG not to reinvent
    or duplicate efforts by other federal, state, or local agencies in
    achieving interoperability. Rather, the FLEWUG views its role as a
    facilitator and repository of the various techniques that public safety
    agencies are currently utilizing to link radio systems with different
    technologies and different radio frequencies to achieve
    interoperability. More importantly, the FLEWUG brings a national level
    focus to the problems faced by the public safety community as a whole,
    and this visibility encourages the development of more efficient
    solutions to this problem. The FLEWUG seeks both hardware and software
    solutions in developing interconnectivity between the numerous land
    mobile radio systems currently in use, and those being planned. This
    means focusing on land mobile radio systems that are both vendor
    specific and vendor neutral, using both analog and digital technology.
    Additionally, the FLEWUG is positioned to take a more global view of
    the situation and has undertaken a number of feasibility studies that
    underscore the magnitude of the problem. To a great extent the FLEWUG
    envisions the Public Safety Wireless Network (PSWN) as being the
    network of networks in linking independently developed federal, state,
    and local networks together. The FLEWUG plans to follow its feasibility
    studies with a number of proofs of concept tests that will demonstrate
    cost effective technology solutions.
        Question. Are efforts being made to work with state and locals to
    achieve inter-operability over time?
        Answer. This Federal effort has a very aggressive program working
    with its state and local counterparts. A complete, bottom-to-top
    analysis of federal, state, and local public safety use of land mobile
    radio systems in the San Diego Imperial Counties of Southern California
    and a multi-state, multi-county study with the metropolitan Washington
    DC area Council of Governments is currently being conducted. These
    analyses will provide the first complete picture of regional
    communications systems and will form the foundation for proof of
    concept testing for achieving seamless inter and intra governmental
    wireless communications systems. In these two studies alone, the FLEWUG
    has contacted over 400 public safety officials. Three symposiums that
    focus on the key issues facing the public safety community in
    developing shared radio systems have been sponsored by the FLEWUG. The
    symposiums were conducted in Charlotte, North Carolina; Harrisburg,
    Pennsylvania; and Sacramento, California. Attendance at symposiums
    continues to increase as word of these symposiums has spread through
    the public safety community. Over 200 people attended the most recent
    symposium in Sacrament, California.
        Question. How does radio spectrum impact on these efforts?
        Answer. The FLEWUG continues to support the findings of the Public
    Safety Wireless Advisory Committee (PSWAC) report that identified the
    public safety need for a total of 97.5 MHz of spectrum over the next 15
    years. Additionally, the PSWAC report recommended the allocation of 2.5
    MHz of spectrum for interoperability from new or existing allocations.
    The FLEWUG is working with the Federal Communications Commission (FCC)
    and the National Telecommunications and Information Administration
    (NTIA) to identify spectrum for interoperability purposes in all radio
    bands used by the public safety community. At the same time the FLEWUG
    is also looking at possible regulatory impediments to sharing radio
    spectrum between federal, state, and local agencies, and ways to
    improve public safety radio spectrum management between the FCC and
    NTIA.
                                     ______

                    Federal Law Enforcement Training Center
                            state and local training
        Question. What Law Enforcement training do you provide state and
    local enforcement officials, and how do you determine who will receive
    this training?
        Answer. The FLETC offers more than 50 training programs in advanced
    topical areas for personnel from State and local law enforcement
    agencies. These programs develop specialized law enforcement skills
    through training not readily available from other sources. Since 1983,
    the FLETC has delivered training to over 40,000 State and local law
    enforcement officers throughout the United States.
        FLETC Directive 30-01.P ``Policy Governing the Sponsorship and
    Selection of State and Local Students for Center Advanced, In service,
    Refresher, and Specialized, (CAIRS) and State and Local Training
    Programs'' has been in place since June 1984. Generally, this directive
    indicates that training slots will be distributed on the basis of date
    and time receipt on a first-come, first-served basis. When the number
    of applications for a particular program exceeds the number of training
    slots available, the applications are divided according to geographic
    region and allocations are made by region on a first-come, first-served
    basis. For instructor training programs, additional criteria are
    applied: those agencies requiring FLETC certification will receive
    first priority based on date and time of application receipt, and
    agencies with broader training impact (students to be trained) will
    receive second priority based on time and date of application receipt.
    In all cases, however, students must meet the eligibility requirements
    of the specific program to which they are applying. These requirements
    vary by program.
        In an era where State and local law enforcement is suffering from
    diminishing resources and additional responsibilities, the FLETC is
    focusing its limited resources on reaching the largest number of
    customers in the most cost-effective manner. Two years ago, following
    an extensive research study, the FLETC determined that 91 percent of
    the State and local law enforcement agencies in this country have fewer
    than 50 officers. To meet the needs of these small town and rural
    agencies which comprise the vast majority of our customers, the FLETC
    created the Small Town and Rural (STAR) training series. The Star
    series is currently comprised of the following programs: Airborne
    Counterdrug Operations Training, Advanced Airborne Counterdrug
    Operations Training, Community Policing Train-the-Trainer, Drug
    Enforcement Train-the-Trainer, First Response Training, Gangs in Indian
    Country, Hate and Bias Crimes Train-the-Trainer, and Rural; Crime and
    Drug Enforcement Task Force Train-the-Trainer.
        Each of the STAR programs is directed toward either managers or
    trainer/facilitators who can return to their jurisdictions with all the
    materials necessary to replicate the training and techniques in their
    agencies and surrounding jurisdictions. This approach creates a
    multiplier effect which will expand the effectiveness of criminal
    investigations throughout the United States. This multiplier effect is
    accomplished with a funding investment that is a fraction of the cost
    that would be necessary if each individual benefited by this training
    initiative were to be trained directly. In fact, the second level
    training will permit hundreds of Federal, State, and local law
    enforcement agencies to benefit at little or no cost.
        The FLETC has a two-year schedule to deliver the STAR series
    programs to law enforcement officers. The target audience is small town
    and rural law enforcement officers (including tribal police) who
    typically lack training in these areas. Participants in STAR series
    train-the-trainer programs receive serially numbered instructor
    graduation certificates. Those who commit to delivering training to
    small town and rural agencies are then eligible to become FLETC-
    certified STAR instructors.
        This process creates a multiplier effect which provides great
    benefit for a relatively small fiscal commitment. For instance, if
    training were provided during the first year for 30 students in
    deliveries of each of the 4 STAR series train-the-trainer programs, 600
    training facilitators potentially would be prepared to share that
    training in their geographical areas. If each of those facilitators
    subsequently provided training for a class of 30, then 18,000 officers
    throughout the United States would benefit from the funded training.
        Question. The local law enforcement agencies are responsible for
    covering the costs associated with traveling to and from the FLETC to
    acquire the training. Is the FLETC aware of any grants or other Federal
    programs that local law enforcement agencies could utilize to increase
    their access to these programs?
        Answer. Not only are State and local law enforcement officers
    responsible for covering the costs associated with traveling to and
    from the FLETC, they also must fund their per-diem and lodging during
    training. Additionally, those programs without funding from other
    sources to cover tuition costs, must also pay for their tuition costs.
    The FLETC actively pursues funding from a variety of sources to help
    offset the cost of training for State and local officers. However,
    other than those listed below, the FLETC is not aware of any other
    Federal programs that provide funds to attend this training.
        Through Crime Bill initiatives, $1 million has been designated to
    offset tuition cost for Rural Drug training, which has become part of
    the STAR training series. In addition, the FLETC partnered with the
    Department of Justice, Office of Community Oriented Policing Services,
    to deliver the STAR community Policing Train-the-Trainer Program. Over
    25 training programs will be delivered during the next two years at
    export training sites across the country. The training is tuition-free.
    Participants must fund their own travel, meals, and lodging. The
    Environmental Protection Agency (EPA) funds all the cost of the
    training, including tuition, travel to and from the FLETC, and per-diem
    and lodging during training for State and local enforcement and
    regulatory personnel.
        To reduce travel costs for officers, the FLETC delivers training at
    multiple sites through export and telecast training to regional small
    town and rural areas.
        In addition to the training conducted on-site and one the FLETC's
    residential facilities in Georgia, New Mexico, and the temporary
    facility in South Carolina, the FLETC also utilizes State and local
    training facilities that could be used to accommodate increases in
    training. Using these available sites can make it more convenient and
    cost efficient for customers to acquire required training.
        Question. Could using these facilities give the FLETC greater
    ability to accommodate increases in training? Don't these facilities
    provide greater opportunities for State and local law enforcement
    agencies to participate? Is the FLETC pursuing greater flexibility in
    developing these remote locations?
        Answer. Arrangements have been made with a number of academies, law
    enforcement agencies, and colleges with criminal justice programs to
    enable them to serve as sites for repeated training deliveries for
    State and local law enforcement. The delivery of this training
    primarily as export makes it more accessible and cost-effective for
    State and local law enforcement, since it reduces their travel costs.
        Recent research conducted by the FLETC documents that these small
    town and rural agencies do not have the financial resources to send
    officers great distances to training, nor are they able to spare
    officers for long periods of time. However, because they form the vast
    majority of police agencies in this country, these agencies'
    contributions to combating drugs and hate and bias crimes is essential
    to the Federal government's ability to deal with these crises. From the
    information presented above, it can be concluded that there is a
    definite need for low cost or no cost training to be provided to small
    town and rural area law enforcement--training that meets their
    documented needs and training that is delivered to the crossroads of
    America, right to the doorsteps of these officers. The FLETC has
    responded to his need by developing pertinent training and designing an
    appropriate delivery system.
                                     ______

                 Financial Crimes Enforcement Network (FinCEN)
        The Gateway System provides state and local law enforcement
    agencies direct, on-line access to Currency Transaction Reports and
    Suspicious Activity Reports filed under the Bank Secrecy Act.
        Question. What can Wisconsin expect to get out of having access to
    these data bases? Can the State and local organizations have access to
    these data bases without receiving the training?
        Answer. Through the Gateway system, state and local law enforcement
    agencies, including those in Wisconsin, have direct, on-line access to
    reports filed under the Bank Secrecy Act, the largest currency
    transaction reporting system in the world. BSA reports contain
    information such as large cash transactions, casino transactions,
    international movements of currency, and foreign bank accounts.
    Investigators utilizing the Gateway system also have access to the
    Suspicious Activity Reporting System which contains reports filed by
    banks on transactions that appear to represent attempts to launder
    funds or violate the banking laws. This information often provides
    invaluable assistance for investigators because it is not readily
    available from any other source. It has proven very useful to state and
    local agencies in financial crime investigations as well as other kinds
    of cases.
        Using FinCEN-designed software, the Gateway system saves
    investigative time and money because subscribing agencies can conduct
    their own research and not rely on the resources of an intermediary
    agency to obtain BSA records. All states and the District of Columbia
    are now on-line with the system. Analysts at the Wisconsin Department
    of Justice have been trained on the Gateway program, and use the system
    in support of case work. In fiscal year 1997, Wisconsin performed 229
    Gateway queries.
        During the research and analysis process, Gateway electronically
    captures the information gathered on incoming inquiries and
    automatically compares this information to subsequent and prior queries
    from Gateway customers. FinCEN is then able to electronically match
    these new subjects against its other data bases to identify potential
    parallel investigations. This technique enables FinCEN to assist state
    and local agencies in coordinating their investigations among
    themselves, and with federal agencies, through the sharing and
    exchanging of case data. (In other words, FinCEN has the ability to
    ``alert'' one agency that another has an interest in their subject.)
        As part of its outreach effort and as resources permit, FinCEN has
    been enhancing its support to the states through on-site training for
    Gateway users. Such briefings include a discussion of how other states
    are successfully using the BSA data; how the data can be used to
    support various financial aspects of cases; and unique ways to attack
    criminal proceeds. Wisconsin also could benefit from this expanded BSA
    training, including use of the alert system as described above. FinCEN
    provided such demonstrations to the Wisconsin Gateway users in 1995;
    additional training is planned in fiscal year 1998.
        Relative to training, state and local enforcement authorities are
    not permitted access to the data without the benefit of training.
    Training is imperative to successful use of the system and
    understanding its capabilities. Equally important to understanding the
    complexities of the system is the need to ensure that each user
    understands the security procedures in place to protect against the
    misuse of the system, as well as the legal agreements and disclosure
    rules that must be made clear to each participant prior to using the
    system.
        Question. Could this training be placed on line for automatic
    access? Or is there anyway that the training for this equipment could
    be standardized, such as through FLETC?
        Answer. FinCEN has been exploring various options in the
    development of training alternatives including ``training modules.''
    However, none have yet been finalized. The training alternatives under
    discussion include sites such as the Federal Law Enforcement Training
    Center and the FBI training facility in Quantico, VA.
        However, it is important to note that components of FinCEN's
    training program involve security procedures, key stroke instruction,
    the recognition of the value of the information, its application to
    investigations, legal agreements and the disclosure procedures. One-on-
    one training, as opposed to on-line training, allows each training
    component to be tailored to the individual participants.
        We are all aware of FinCEN's international responsibilities and the
    need to make the world of international finance aware of FinCEN's
    existence.
        Question. What activities and resources, other then those dedicated
    to the Gateway Training Initiative, are being requested to assist State
    and Local financial crime enforcement activities?
        Answer. The $300,000 request for additional funding for the
    improvement of the analysis capabilities of Suspicious Activity Reports
    (SAR's) through data mining would be extremely beneficial to state and
    local enforcement. SAR's provide enforcement authorities at all levels
    with valuable intelligence information which could be used to assist
    on-going investigations and aid in the development of new
    investigations. The results of this improved ability to analyze these
    highly effective reports would be passed along to our state and local
    partners.
        Federal officials estimate the money launderers in New York City
    funnel more than $1.5 billion to Colombia and $500 million to the
    Dominican Republic.
        Question. Stopping those transactions at home would be an area to
    focus on, wouldn't it? What could be done to stop the transactions
    before the money got to Colombia or the Dominican Republic?
        Answer. As the committee knows, Treasury has employed a Geographic
    Targeting Order (``GTO'') to target the flow of laundered funds through
    money transmitters in the New York metropolitan area to Colombia and
    the Dominican Republic. A GTO is a device that enables the Treasury to
    impose additional reporting and recordkeeping requirements where
    necessary to carry out the purposes, and prevent evasions, of the BSA.
        Money launderers use legal channels for illegal purposes; that is
    true when they use the banking system, and it's true when they use the
    money remittance system operated by non-banks. Our strategies have been
    to make it more difficult for illegal transactions to take place within
    these channels. To keep illegal users of the system away, Treasury has
    employed a combination of special regulatory rules; vigorous
    surveillance and auditing in the wake of those rules; and swift
    prosecutions when criminal activity is revealed as part of these
    strategies.
        In August 1996, a GTO (the ``Colombian GTO'') was put in place in
    the New York metropolitan area with respect to cash-purchased
    remittances to Colombia. As a result of the Colombian GTO and the
    criminal enforcement of its terms, the flow of laundered funds through
    the targeted transmitters in the New York metropolitan area dropped
    dramatically; in fact, several of those transmitters have stopped
    remitting funds to Colombia altogether.
        In addition, during the operation, currency seizures increased
    dramatically. For example: during the first six months of the GTO, $50
    million was seized from various sources along the eastern seaboard.
    This figure is approximately four times higher than it has been in
    prior years. The dramatic increase in currency seizures attributable to
    the GTO, as well as information from various undercover operations,
    indicates that the GTO has forced money launderers to resort to bulk
    currency smuggling to move their money.
        The Colombian GTO was renewed several times before finally expiring
    in October 1997.
        In September 1997, additional GTO's (the ``Dominican GTO's'') were
    put in place both in the New York metropolitan area and Puerto Rico,
    with respect to cash-purchased remittances to the Dominican Republic.
    As of this date, the Dominican GTO's are still in effect. One of the
    largest transmitters in this market--Remesas America Oriental
    (``RAO'')--has pled guilty to felony money laundering and structuring
    charges, and has had its license revoked by the New York State Banking
    Department.
        A longer-term regulatory approach to protecting the industry from
    money launderers is now being finalized. Under three BSA rules proposed
    last May, all money services businesses would be required to register
    with the Treasury; money remitters and sellers of traveler's checks and
    money orders would be required to report suspicious activity; and money
    transmitters nationwide would be subject to reporting and recordkeeping
    requirements similar to those imposed by the Colombian and Dominican
    GTO's.
        Question. What is the status of FinCEN's Non-bank Financial
    Institutions Regulations? Is any funding being requested in fiscal year
    1999 to insure these regulations can be implemented?
        Answer. Based on the Colombian GTO and other initiatives, it became
    clear that a nationwide approach, which went beyond currency reporting,
    was needed for money services businesses (MSB's). FinCEN's study of the
    industry, undertaken by Coopers and Lybrand, helped to further profile
    and define this group of diverse businesses.
        Proposed rules were announced in May 1997 to respond to
    vulnerabilities in the MSB industry as well as to implement the
    requirement of the Money Laundering Suppression Act of 1994 that the
    Treasury register this group of businesses.
        The first proposed rule would require that MSB's--which include
    money transmitters or remitters, money order issuers and sellers,
    travelers check issuers and sellers, retail currency exchangers and
    check cashers--register with the Department of the Treasury. A second
    proposal would extend suspicious activity requirements to money
    transmitters and issuers, sellers and redeemers of traveler's checks or
    money orders. The third proposal would require money transmitters to
    report currency transactions of $750 or more that involve the
    transmission of funds to any person outside the United States.
        FinCEN held five public meetings last summer to elicit comments on
    the proposed rules. The written comment period ended on September 30.
    FinCEN has reviewed the comments and is finalizing the proposed rules
    based on industry concerns, where appropriate.
        Treasury has indicated it will allocate $2.5 million from Treasury
    Super Surplus balances in the Treasury Forfeiture Fund to FinCEN for
    MSB implementation fiscal year 1999. This amount would be used for
    guidance, interpretive advice, oversight, coordination and data
    analysis.
        Question. Has the IRS requested the funding necessary for the
    information systems and data processing required to get this initiative
    started? What was the substance of the comments you received during the
    public comment period?
        Answer. The IRS has indicated that they are requesting $14 million,
    which includes funding for information systems and data processing;
    examination resources; and notice and outreach to diverse retail and
    financial communities.
        The MSB Rules have attracted significant attention and controversy,
    and generated enormous effort, both by FinCEN and representatives of
    the affected industries. Eighty-two comments on the Rules are under
    review; approximately 30 of the comments are detailed ones, some
    running to more than 50 pages of text. We are still in the process of
    analyzing the comments and will provide the Committee under separate
    cover a summary of the comments we have received from the industry.
        Question. What type of security activity would be identified as
    suspicious activity. Is a review of that activity already subject to
    Security and Exchange Commission review?
        Answer. Securities broker dealers are already subject to currency
    transaction reporting requirements--and all other reporting and
    recordkeeping requirements--under the BSA.
        In addition, FinCEN has developed in close cooperation with the SEC
    and the industry, a proposed regulation that will require securities
    broker dealers to report suspicious activity to FinCEN. The suspicious
    activity required to be reported will include money laundering, for
    which there is no existing system of reporting.
        A draft rule should be published this spring.
        Question. What steps can FinCEN take that the SEC would not be
    authorized to take?
        Answer. While FinCEN is not in a position to delineate the SEC's
    full range of authority, FinCEN has been explicitly provided very
    specific and important statutory authority to prevent, detect and deter
    money laundering. Moreover, FinCEN has an infrastructure in place to
    provide for the processing and dissemination, with appropriate
    safeguards, of reports of suspicious transactions.
        Question. Please explain what Card Clubs are and how they are used
    to provide for money laundering activities? What regulations has FinCEN
    issued that impact card clubs?
        Answer. In order to close a gap identified by federal and state law
    enforcement, FinCEN has brought card clubs, which are responsible for
    nearly $9 billion of yearly wagering activity, under anti-money
    laundering requirements.
        The regulation, which was issued in its final form on January 13 of
    this year, goes into effect on August 1, 1998 and affects those card
    clubs with more than $1 million in gross annual gaming revenue.
        Most frequently found in California, card clubs typically offer
    facilities for gaming by customers who bet against one another, rather
    than against the establishment.
        Card clubs are at least as vulnerable to use by money launderers as
    other gaming establishments, both because of their size and because
    those institutions often lack the controls found at casinos.
        Under the final rule, card clubs--including those operated on
    tribal lands--would be treated in the same manner as casinos (i.e.,
    subject not only to currency transaction reporting rules but to the
    full set of provisions to which casinos in the United States are
    subject--a comprehensive recordkeeping system and a compliance program
    containing anti-money laundering safeguards.)
                                     ______

                    Questions Submitted by Senator Mikulski
                    Bureau of Alcohol, Tobacco and Firearms
                           baltimore office staffing
        Question. Two years ago, I was given an assurance by the Deputy
    Director that the Baltimore Office of the ATF would not suffer any loss
    of manpower as a result of ATF's reorganization and consolidation. I
    have recently discovered that contrary to the commitment I was given by
    the Deputy Director, there has been a loss of manpower in the Baltimore
    Office. Why has this commitment not been fulfilled?
        Answer. Staffing reductions in the Baltimore field office are due
    to attrition. There have been several key retirements throughout the
    agency. For the first time in many years, ATF is in a hiring mode in
    order to backfill vacancies and keep pace with anticipated retirements.
    In the past 3-4 years, ATF has seen a 14 percent reduction in its
    overall special agent population.
        In fiscal year 1997, ATF launched an extensive recruitment program
    that generated more than 6,000 applications. The first selections began
    in fiscal year 1997, and will continue into fiscal year 1998.
        Question. When will the manpower in the Baltimore Office be
    restored to its previous levels?
        Answer. We expect to be in a hiring mode for the next several years
    to fill these and other critical positions within ATF.
                            petitions for rulemaking
        Question. After ATF receives a petition for rule making, could you
    outline the procedure ATF follows in obtaining comments, formal or
    otherwise, and how the petition would be considered by ATF until this
    process is completed? How long does this process usually take?
        Answer. After ATF receives a petition, an ATF Specialist is
    assigned to analyze, research and evaluate it for completeness and for
    compatibility with the law. Once this process is complete, we prepare a
    Notice of Proposed Rulemaking for publication in the Federal Register
    in order to afford the public and those concerned with the industry an
    opportunity to comment. Prior to publication, rulemaking documents are
    thoroughly reviewed and vetted by various ATF and Treasury offices.
    Petitions are treated as internal matters up until the point of
    publication. Depending on the complexity of the issue or issues
    involved, the entire process could take up to a year or even more
    before publication of a rulemaking document.
        Question. How many petitions does ATF receive each year?
        Answer. Each year, ATF receives approximately 20 formal petitions
    to change the regulations. Requests for interpretations of, rulings on,
    and variances from the regulations are much more numerous. In addition,
    most regulatory changes that occur do not arise from petitions.
    Regulatory reform efforts, law and policy changes, and improvements
    developed and proposed by ATF are the reasons for many of the changes
    implemented.
        Question. What types of petitions are received?
        Answer. Petitions to ATF request amendments or revisions to
    alcohol, tobacco, firearms or explosives regulations. A large majority
    deal with alcohol matters, as these regulations are more detailed and
    complex, involving both tax and regulatory issues.
        Question. What percentage are approved/denied?
        Answer. The approval rate is approximately 75 percent.
                                     ______

               Questions Submitted by Senators Gorton and Murray
                              U.S. Customs Service
                          intellectual property rights
        Question. The Customs Service first issued proposed regulations
    liberalizing the release of information on seized and detained goods to
    intellectual property rights owners in 1993. Now, five years later,
    final regulations have still not been issued, and Customs still
    operates under outdated, ineffective regulations. The existing
    regulations cripple the ability of IP rights holders to pursue private
    remedies. Do you agree this is an acute problem? What is keeping
    Customs from promptly issuing final, comprehensive regulations
    liberalizing the release of such information?
        Answer. New Customs regulations to provide intellectual property
    rights (IPR) owners sample merchandise and disclose information
    regarding the identity of persons involved with importing infringing
    goods, will be published on March 11, 1998, and will become effective
    30 days later. The change will assist Customs in making infringement
    determinations and enable IPR owners to more expeditiously proceed to
    enforce their property rights by means of appropriate judicial
    remedies.
        Question. We understand that disclosure policy differs port-to-
    port. Don't we need a uniform, nationwide policy?
        Answer. Customs has reconciled any field inconsistencies in
    disclosure which have come to Headquarters' attention. We do need a
    uniform nationwide policy on disclosing information and samples in
    intellectual property rights cases, and the new regulations should
    ensure assistance in this effort. The IPR disclosure regulations will
    be effective the second week of April. In order to ensure uniform
    application of the new disclosure regulations, Customs internal IPR
    committee will discuss monitoring at its March 1998 meeting. The IPR
    committee consists of representatives from all concerned Customs
    offices.
        Question. Piracy of intellectual property rights of Americans is
    estimated to cost our economy and trade balance billions of dollars
    annually. In our view, private industry and the federal government must
    work together to attack this problem. Promulgating final regulations
    providing for greater release of information is a critical first step.
    What else can Customs do to aid IP rights holders?
        Answer. During the last five years, Customs has seized over $230
    million worth of merchandise involving IPR violations. Besides
    implementation of the new disclosure regulations, Customs constantly
    conducts ``in house'' IPR training programs, provides speakers to
    industry groups such as the International Anticounterfeiting Coalition
    (IACC) and the International Trademark Association (INTA), and
    cooperates with IPR holders through border enforcement
    ``interventions'' such as those recently done for Underwriters
    Laboratories and the golf club industry.

                              Subcommittee Recess

        Senator Campbell. I thank this subcommittee. As I
    mentioned, the record will stay open for about 2 weeks. I thank
    you for appearing.
        With that, this subcommittee is recessed.
        [Whereupon, at 3:24 p.m., Thursday, February 26, the
    subcommittee was recessed, to reconvene at 1:32 p.m., Thursday,
    March 5.]

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 1999

                                  ----------

                            THURSDAY, MARCH 5, 1998

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 1:32 p.m., in room SD-124, Dirksen
    Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)
    presiding.
        Present: Senators Campbell, Shelby, Faircloth, Stevens, and
    Kohl.

                           DEPARTMENT OF THE TREASURY

                            Internal Revenue Service

    STATEMENT OF CHARLES O. ROSSOTTI, COMMISSIONER
    ACCOMPANIED BY:
            ARTHUR GROSS, CHIEF INFORMATION OFFICER
            JOHN DALRYMPLE, DEPUTY CHIEF OPERATIONS OFFICER

                                Opening Remarks

        Senator Campbell. The Treasury and General Government
    Subcommittee hearing will be in order. Senator Kohl has said he
    may or may not be able to attend today. He has a conflict, and
    we will probably have a few drifting in and out.
        I want to welcome you today, Mr. Rossotti, and I understand
    that Mr. Arthur Gross is going to be with you?
        Mr. Rossotti. Yes.
        Senator Campbell. I welcome everyone to this second hearing
    of the Treasury and General Government Appropriations
    Subcommittee.
        This afternoon we will be discussing the fiscal year 1999
    budget request of the Internal Revenue Service. I do not need
    to tell you, as you know, just being new to the job, that the
    IRS is probably not, in the eyes of many constituents, the most
    favored agency in the U.S. Government, and your mail runs as
    mine does so you are aware of that.
        But clearly, as a result of some of the testimony in recent
    months, particularly on the House side, I think we have been
    given an opportunity to really do some major reforms that will
    be looked at with a little better judgment by the constituents
    and taxpayers of this country. That bill did pass the House and
    is currently under consideration in the Senate Finance
    Committee, as you know.
        As a matter of fact, Senate Majority Leader Lott has
    indicated that it will be his intention to bring that bill
    before the full Senate by the end of the month.
        This is a critical period for the IRS and I certainly
    compliment you on taking on a very, very tough job in facing a
    myriad of problems that you have to deal with. But it is a good
    step forward to resolving some of the conflicts.
        Conversion of all of the agency's computers is certainly
    going to be recognized and the year 2000 must be some of the
    highest priorities that you face. Certainly it is not going to
    be cheap, and we have to do it relatively soon.
        The IRS collected $1.5 trillion in taxes in fiscal year
    1997 and expects to collect that much plus probably another
    $750 million in fiscal year 1998. Tax collections is a
    necessary function, sometimes called a necessary evil, too, but
    it is something we are all faced with. It is also, I think, a
    recognized fact that over 80 percent of American taxpayers are
    voluntary taxpayers, not trying to get away with something.
    They are doing their duty, and civic duty as good citizens. The
    IRS certainly needs to work with them and not against them.
        Taxpayers of this country are demanding that the IRS
    provide reliable customer assistance instead of functioning as
    an adversary. The Federal agencies I think, and IRS included,
    can learn a great deal from the private sector, in which many
    people who, if they need assistance and they talk to the first
    person, that first person if he does not have the answer will
    try to find it from another person. Unlike some of the
    experiences they have had with the IRS where the first person
    they deal with seems to be a judge and jury in their problems.
        The IRS is requesting a total of almost $7.9 billion for
    operating expenses and an additional $323 million for
    information technology investments in fiscal year 1999. A total
    of over one-half of a billion dollars more than fiscal year
    1998.
        This committee must determine whether the IRS needs that
    level of funding and, if not, what programs can be reduced or
    cut or streamlined so that we do not have that outlay.
        With that, Senator Kohl, I am glad you are here. I just
    made an excuse for you, saying that you might be a little late.
    I would yield to you.

                           Statement of Senator Kohl

        Senator Kohl. Thank you very much, Senator Campbell.
        Much has happened over the past year, since the last time
    we held this hearing. The Internal Revenue Service has
    appointed a new Commissioner with a strong background in
    management and information technology. Congress is considering
    passing sweeping new legislation to restructure the IRS. Plans
    are being developed to realign the IRS along customer service
    lines. And hopefully a request for a proposal to hire a prime
    contractor for the tax modernization effort will be released
    shortly.
        I know we will be discussing all of these changes during
    this hearing, but before we get into those issues I want to
    briefly say a few words about the need to change the culture at
    the IRS.
        Last fall, as we recall, most of us were very upset by the
    abuse of taxpayers that the Senate Finance Committee hearings
    laid before the country. Many of these problems were not caused
    by rogue agents acting without knowledge of their supervisors.
    Instead, many of these abuses resulted from IRS employee
    performance measures that demanded more collections without
    regard to fairness or common decency.
        In other cases, it appears the IRS employees were
    intoxicated with a ``I am from the IRS and I can make your life
    difficult'' attitude.
        We here in Congress have a responsibility to drive these
    problems out of the IRS, and I know the Commissioner shares
    this goal. He has already moved to fix these problems with the
    development of new performance standards and with a new focus
    on customer service throughout the IRS.
        But the question is when will these taxpayers actually see
    changes and how much is it going to cost them to be treated
    fairly.
        Entire Federal agencies are run with the kind of money that
    the IRS is requesting for customer service improvements, over
    $950 million. For this type of investment this committee and
    the country should expect to see an immediate turnaround in
    customer service. Immediate changes and not a series of reports
    of discussions. Instead, what we need are results.
        Finally, calling for increased customer service and
    requiring an elimination of IRS taxpayer abuse does not require
    elimination of the agency. That would be like killing the
    patient in order to cure him. As much as no one wants to admit
    it, we need a national revenue collection agency. None of us
    likes to pay taxes but we all want to maintain a strong
    national defense, educate our children, get help saving for
    retirement, keep our streets safe, secure our borders, protect
    our environment, and much, much more.
        Now these services cost money and so there is no such thing
    as a free lunch. Instead of wasting time on a who hates the IRS
    more debate, I urge all of us in Congress, the IRS, and the
    country to work together to make our tax collection system
    work.
        Again, I am happy that we have this opportunity to talk
    with the new Commissioner and discuss various options for
    improving the Internal Revenue Service.
        Thank you much, Mr. Chairman.
        Senator Campbell. With that, Mr. Rossotti, if you would
    like to go ahead, all of your testimony will be included in the
    record so you can ad lib or abbreviate, whatever you would like
    to do.

                        Statement of Charles O. Rossotti

        Mr. Rossotti. I would like to just summarize some of the
    testimony and the rest will be in the record.
        Thank you very much, Mr. Chairman and Senator Kohl.
        What I really want to discuss today is how we can use the
    fiscal year 1999 budget to begin the transformation to the kind
    of agency that both of you, in your opening statements, said we
    should be. As I would state it, our goal is to make the agency
    provide a far better level of service to the taxpayers and be a
    service agency.
        And I, by the way, believe we can do that while continuing
    to reduce the size of the agency in relation to the American
    economy.
        I think another way to put this is that we need to shift
    the focus of the agency from just its own internal operations
    to become an agency that views its whole job as helping
    taxpayers comply with the tax laws that are on the books.
        To accomplish that, both our service and our compliance
    goals are going to have to change a lot of things at the IRS.
    We are going to have to modernize our business practices, our
    organization, and our technology. This is going to require a
    period of investment over the next several years in both the
    organization and the technology.
        What I see in the fiscal year 1999 budget is the foundation
    for this. I think it is absolutely essential that we begin this
    now, as Senator Kohl said, and some of this will play out
    longer. But it is also important that we deliver some key
    service improvements to the taxpayers in fiscal year 1999. I
    will discuss some of those, as to how we expect to do that
    specifically in the near term.
        But I would like to just take a moment, if I could, to
    summarize some of the long-term goals and changes that I think
    we need to really get the level of service up to what it should
    be for taxpayers. There are really five key elements to this
    concept.

                               Business Practices

        The first one is that we have to rethink all of our
    business practices, from customer education, the way filing is
    done, the way collection is done, the way compliance is done.
    And each of those has great promise to improve by taking
    advantage of things that are known in the private sector, and
    even in the IRS. But the common theme is to turn it around and
    focus on understanding and solving problems from the taxpayer
    point of view.
        One of the keystones of doing that is that we have to
    understand that not all taxpayers have the same kind of
    problems. A college student who can file with a small return
    and a phone call is different from say a senior citizen that
    may have Social Security income, and very different from a
    small business that has a more complex relationship. So one of
    the things we need to do is to tailor our services to the needs
    of each particular group of taxpayers.

                             Organization Structure

        The second major area of change is the organization
    structure. The current organization structure of the IRS which
    has evolved over the last 45 years is really outdated. It is no
    longer capable of allowing the managers in the structure to
    really take the actions they need to to help taxpayers in the
    appropriate way. Nor, I believe, is it really capable of
    providing the right foundation to modernize the technology.
        In the testimony, in chart 4, I have outlined what I
    believe is the logical way for the IRS to be organized in the
    future, which is very similar to the way many private sector
    companies are organized into lines of business, each one of
    them aligned with serving a particular group of taxpayers.
        The four units would each be responsible for serving one
    group of taxpayers. Individual taxpayers that are wage and
    investment income primarily, small businesses in another
    category, large businesses, and then finally your whole tax-
    exempt sector. With this concept each of these units would be
    completely responsible for serving from end to end each of
    these groups of taxpayers.
        I think what is important is that the management teams in
    each of these groups would then be able to become much more
    knowledgeable about the particular problem, say of a small
    business, and be able to take action on those and to be held
    accountable, which is one of the criticisms of the IRS today,
    you cannot hold anybody accountable. Partly that is because of
    the way the place is organized.

                            Measures of Performance

        Another point that is very important, which I think that
    both Senator Campbell and Senator Kohl alluded to in your
    opening statements is the idea of having measures of
    performance that are really appropriate to what we are trying
    to accomplish. The key here is to have measures from the
    customer or the taxpayer's point of view as well as from the
    business results, and also measuring our productivity and our
    employee's point of view.
        The key here is to make sure that we are measuring what we
    want to, which is to provide the right kind of service to
    taxpayers while ensuring the compliance is fair, but not cause
    inappropriate behavior toward taxpayers, or to provide
    incentives that would undermine our service approach. We are
    working on those measures right now.

                                 New Technology

        The final element, of course, is new technology because we
    absolutely need to replace the obsolete base of technology in
    the agency. The recently issued technology blueprint that my
    colleague here, Mr. Gross, was the primary author of and the
    new organization that is being built under the CIO, will
    provide the basis for managing this evolution of technology.
    But in addition, it is extremely important that we make the
    organizational and business changes that I outlined because
    building computer systems to fit old business practices and a
    complex organization will not work.
        So those are the long-term concepts. I think they hold
    great prospect for improvement over a period of time.
        But during this time, we also must make some step-by-step
    improvements and, in addition, we must handle the mandatory
    changes that you outlined are required for the century date
    change, the so-called year 2000 problem.

                         Year 2000 Date Change Problem

        To just outline how we expect to do this in fiscal year
    1999, we have organized it into five major initiatives during
    fiscal year 1999. The first one is completing the century date
    change. This is one of the most critical elements in our budget
    and our most pressing priority.

                       Completing the Century Date Change

        But the beginning of the 1999 filing season, less than 1
    year from now, most of our system changes that are required for
    the century date change must be completed. And then during the
    remainder of 1999, after the filing season, the principal task
    will be final testing and complete certification, which is
    still a very large estimate.
        The entire cost in 1999 in the budget is $234 million and,
    of course, that is absolutely essential in order to avoid what
    would be disastrous consequences if we do not correct this
    problem.

                             Customer Improvements

        The second major priority in the 1999 budget is to make
    near-term improvements for the customer, much as Senator Kohl
    said we must do. We are going to try to do this through a very
    focused problem of near-term changes which include improving
    the clarity of the notices we send out to taxpayers as well as
    the forms and publications, better telephone service so you
    will be able to get through easier, better walk-in service for
    those taxpayers who like to deal face to face, expanded
    electronic filing, improved training of our customer service
    representatives so they will have the right information to give
    to the taxpayers, some strengthened support for small
    businesses, increased staffing for the taxpayer advocate's
    office, which is one of the most important in resolving issues,
    and a new initiative creating what we call our citizen advocacy
    panels which will be an outreach effort with common citizens to
    help them connect better with the IRS.
        It shows in chart 5 in my testimony, the total incremental
    cost of all these initiatives in fiscal year 1999 is $105
    million.

                            Technology Improvements

        The third major program, and what is going to be necessary
    to ensure that customer service remains on the up trend, will
    be some nearer term technology improvements. These are really
    necessary for the size of agency we have just to maintain an
    acceptable level of service.
        The major ones in fiscal year 1999 are the completion of a
    call routing system to route our phone calls, deployment of
    computers to field collectors who currently have no computers
    at all, and replacement of some computers used by field agents
    who depend on them for examinations.
        And finally, the last item is an increase in what is called
    product assurance, which is an essential way of testing
    software before it is put back into the tax system so that
    changes do not result in errors that could result in problems
    for taxpayers. There is a chart in the testimony, chart 6,
    which summarizes these.

                             Technology Investments

        The fourth item, which is shown in chart 7, is that during
    1997, and this current year, we are making careful preparation
    for the longer term technology investments we must make, which
    will involve replacing the really obsolete base of technology
    we have in the agency today.
        The beginning of this was the publication of the
    modernization blueprint, the establishment of a systems life
    cycle which is a methodology to manage our technology, and the
    publication of a draft RFP which we hope to complete soon.
        In fiscal year 1999 we will continue this process by
    strengthening the internal IRS system's management capabilities
    and go ahead with the award of the prime contract. The initial
    task on the prime contract will be focused on completing the
    methodology life cycle that we need in order to manage this
    technology and on implementing the first two subreleases, which
    are just particular projects within the technology
    modernization blueprint. These are aimed at providing better
    telephone service and other communication capabilities which
    are essential capabilities that underlie everything else we do.
        Chart 8 shows these longer-term investments.

                       Modernization of the Organization

        Finally, the fifth one is an item currently listed as $25
    million to support the modernization of the organization. This
    is the transition to the new customer focused organization
    structure. We are currently engaged in a study with the aid of
    a management consulting firm to better define exactly how we
    will implement this new organization and we will come back to
    the committee with more detail on exactly how this $25 million
    would be used to help us transition to this new organization
    when we complete this study this summer.

                                 Budget Outlook

        Finally, just to summarize the budget picture, let me go
    over for just a moment the historical perspective as I
    inherited it. This is pretty well summarized in a couple of
    charts, charts 9 and 10 in my written testimony. I think what
    these simply show is that the IRS budget over the last 3 years,
    when you take out the extra costs of the century date change
    piece, has actually gone down about 7 percent.
        Of course, the workload of the IRS does grow every year
    because the economy grows and collections grow. We have
    increased the number of returns about 8 percent and the dollars
    collected about 24 percent over this period.
        I also have to note that the recent tax act, the Taxpayer
    Relief Act of 1997, added about 800 changes to the Tax Code and
    these are all reflected not only in the computer programs, but
    they ripple through the IRS, requiring new forms, new
    publications, and of course, new training of the employees so
    that they can talk to the taxpayers intelligently about the new
    tax law.
        So these have been some difficult conflicting trends with
    which we are presented as we begin to modernize the agency. I
    do want to stress to the committee, though, that I personally
    am not one who believes that budget dollars are the solution to
    everything at the IRS. That is not what I believe.
        We obviously need the dollars to do the specific things,
    but simply throwing money at them will not solve them. We have
    to do all the changes in an orderly way, that I outlined--
    better business practices, organization structure, roles and
    responsibilities that stress accountability for management, new
    measurement system, as well as new technology.
        If we can use the money effectively as an investment to do
    those things, then I think we can accomplish our goals.
        So I just want to conclude by saying that I believe that
    there is a new day at the IRS. I took the job because I think
    we can transform the agency into a place that actually helps
    taxpayers and is on their side, with the exception of the very
    small number of people that do not willingly comply. Then we
    need our enforcement powers. But most of the taxpayers are
    there to comply. We should be there to help them do it.
        I also believe that we can do this while shrinking the IRS
    as a fraction of the economy. I think it could become a smaller
    percentage of the economy as time goes on by taking advantage
    of some of these improvements. We cannot do that overnight, and
    it will take some investments in order to modernize our
    approach. But with the support of Congress, I believe it can be
    done.
        Thank you very much, Mr. Chairman.

                               Prepared Statement

        Senator Campbell. Thank you, Mr. Rossotti. We have your
    complete statement and it will be made part of the record.
        [The statement follows:]
                   Prepared Statement of Charles O. Rossotti
        Mr. Chairman and Distinguished Members of the Subcommittee: In my
    testimony today, I would like to set forth how the IRS budget for
    fiscal year 1999 can be used to begin the transformation of the IRS
    into an agency that provides a far greater level of service to
    taxpayers than it does today while continuing to reduce its size in
    relation to the U.S. economy.
        Today, the IRS does its basic job of collecting with integrity 95
    percent of the funds of the Federal government, while processing
    returns from 125 million individual taxpayers and 7 million businesses.
    Over the last two years, much study and attention has been given to the
    IRS, by the Treasury Department and the Restructuring Commission, by
    the National Performance Review, by the GAO and Congressional
    committees. From this work a broad consensus has formed that the IRS
    must shift its focus from its own internal operations to become an
    agency that helps taxpayers comply with the tax laws by understanding
    and solving problems from the taxpayer's point of view. The budget
    before you sets the stage for this long-term shift in focus and
    direction at the IRS.
        From the taxpayer's point of view, the IRS provides service in two
    ways.
        First, the IRS serves each taxpayer, one at a time. These
    interactions range from the routine, such as providing forms or
    information about refunds, to more complex interactions such as when
    additional money may be due because of an audit. As shown in Chart 1,
    of the IRS's 100,000 FTE's, approximately 64,000 work directly in
    contact with taxpayers in these kinds of interactions. In fiscal year
    1998, the IRS will answer over 120 million phone calls, provide walk-in
    service to nearly 9 million taxpayers, and will examine nearly 1.3
    million individual returns. These activities have an enormous impact on
    the lives of most Americans.
        Despite recent improvements, the IRS today does not meet the
    public's legitimate expectations of service from the IRS. Our goal must
    be to provide prompt, accurate and professional treatment of taxpayers
    each time they deal with the IRS based on what we know to be their
    specific needs. The measures in this budget are important steps towards
    meeting this goal.
        Second, the IRS provides service to all taxpayers by ensuring that
    compliance is fair. Our tax system depends on each person who is
    voluntarily complying having confidence that his or her competitor or
    neighbor is also complying. While the overall compliance level is
    estimated to be 87 percent, there is significant unevenness of
    compliance and our estimates of compliance are incomplete and out of
    date. A decrease of even one half of 1 percent in compliance would more
    than equal the entire budget of the IRS. Our goal should be to increase
    the fairness as well as the overall level of compliance.
        I believe that the IRS can accomplish these goals for increased
    service with the work force that we have, which is dedicated and
    competent but handicapped by outdated practices, structures and
    technology. In other words, I believe that the IRS can handle the ever
    increasing workload generated by a rapidly growing economy while
    greatly improving service to taxpayers without significantly increasing
    the size of the work force.
        If we can accomplish this ambitious productivity goal, our
    objective will be to continue to shrink the size of the IRS in relation
    to the economy while increasing productivity faster than private sector
    financial institutions.
        In order to accomplish these service and productivity goals, we
    must modernize the IRS business practices, organization and technology.
    This will require sustained investments for a period of years in
    technology and organizational modernization. The fiscal year 1999
    budget we are requesting is absolutely essential to begin this long-
    term transformation. At the same time, it is designed to allow us to
    deliver some key service improvements to taxpayers in some important
    areas during fiscal year 1999.
        Before I discuss the specific elements of our fiscal year 1999
    budget request, let me first outline the long term direction we must
    pursue to modernize the IRS. Then I will describe the strategy for
    accomplishing this long term change while delivering improvements to
    taxpayers step by step.
                              modernizing the irs
        To accomplish the goals we seek for the IRS, we must make
    fundamental changes which will take time but are essential for the IRS
    to meet the public's legitimate expectations for service from its tax
    agency. Let me lay out my concept of how we can modernize the IRS. The
    modernization concept includes a renewed mission with emphasis on
    service and fairness to taxpayers and practical goals and guiding
    principles which define the path forward. It is designed to enable us
    to answer the basic question: how can the IRS shift its focus and
    become the customer oriented agency it must become?
        I should also note that this concept was developed after the
    details of the budget before you were completed. Thus, much of what I
    will discuss here does not have a specific corollary in our fiscal year
    1999 submission. Nonetheless, the budget priorities that I will discuss
    later are perfectly consistent with the concept and five key elements
    discussed below, and represent an essential first step toward a modern
    Internal Revenue Service.
                               five key elements
        We will reach our goals of service to each and to all taxpayers
    through changes in five key areas, each complementing the others. These
    five areas, along with the goals and guiding principles are summarized
    on Chart 2.
    Revamped IRS business practices that will focus on understanding,
            solving and preventing taxpayer problems
        Each of the IRS's business practices, from customer education to
    filing assistance to collection, holds great promise for improvement by
    our gaining a greater understanding of the particular problems that
    taxpayers have and focusing continuously on solving them. In most
    cases, there are very close parallels in the private sector that we can
    draw on.
        For example, our business practices should make filing easier for
    all taxpayers by providing easily accessible high quality assistance to
    those taxpayers who need help in filing and by having more returns
    filed electronically. Just as companies develop very particular
    marketing programs to reach customers with differing needs, we can help
    taxpayers more effectively by tailoring our publications, education,
    communications and assistance programs to taxpayers with particular
    needs. College students who often can file with a simple 1040EZ form
    and a 10 minute phone call have very different needs from senior
    citizens with social security and investment income who may be best
    served through a network of volunteers who specialize in the needs of
    seniors.
        This principle of tailoring our services to the needs of particular
    groups of taxpayers is a cornerstone of how we can dramatically improve
    our service to taxpayers as well as our internal productivity.
        As another example, some of our most difficult interactions with
    taxpayers occur when additional money may be due and collection
    activity is required. Today, 90 percent of the active collection
    activity by the IRS telephone and field collectors is on accounts that
    are more than 6-months old, and most are much older than that. This is
    the reverse of practices in the private sector. The proven keys to
    effective collection are to identify as promptly as possible customers
    who may present risk of non-payment and to work out a payment program
    that addresses the particular payment problem of that customer. This
    helps the customer as well as the collecting agency and minimizes the
    need for enforcement actions.
    Organizational structure built around taxpayer needs
        The IRS organizational structure no longer enables its managers to
    be knowledgeable about and take action on major problems affecting
    taxpayers nor is it capable of modernizing the business practices and
    technology needed to achieve our goals. The principal IRS organization
    today, as shown in Chart 3, is built around 33 districts and 10 service
    centers. Each of these 43 units is charged with the mission of serving
    every kind of taxpayer, large and small, with simple or complex
    problems, in a defined geographical area. If a taxpayer moves, the
    responsibility moves to another geographical area. Further, every
    taxpayer is served by both a service center and a district and
    sometimes more than one. Service centers and districts each perform
    customer service, collection and examination activities for the same
    taxpayer.
        For example, in the collection area, there are three separate kinds
    of organizations, spread over 43 organizational units, that use three
    separate computer systems to support collection. Each of these three
    types of units collects from every kind of taxpayer, from small
    businesses to wealthy individuals.
        There are 8 intermediate levels of staff and line management
    between a front line employee and the Deputy Commissioner, who is the
    only manager besides the Commissioner who has full responsibility for
    service to any particular taxpayer. Although important improvements
    have been made in this structure over the last few years, notably the
    reduction in the number of districts, the fundamental problem remains:
    the structure is far too complex and accountability is weak.
        Fortunately, there are solutions to this organizational problem
    which are widely used in the private sector and may enable us to better
    serve the American taxpayer. The approach I am discussing today is to
    organize around the needs of our customers, the taxpayers. Just as many
    large financial institutions have different divisions that serve retail
    customers, small to medium business customers, and large multinational
    business customers, the taxpayer base falls rather naturally into
    similar groups. This fact simply reflects the structure of the U.S.
    economy.
        Therefore, as shown in Chart 4, one logical way to organize the IRS
    is into four units, each charged with end-to-end responsibility for
    serving a particular group of taxpayers with similar needs. These units
    could replace the four regional offices and a substantial part of the
    national office, allowing the national office to better fulfill its
    responsibilities of oversight and broad policy rather than operations.
    As I noted at the outset, this is a concept--a concept that will
    require outside validation. I am initiating a review of this concept
    because I believe we need to refocus and realign the efforts of the IRS
    toward our customers--the American taxpayers. Of course, during and
    after the review, we may need to revise this proposal, depending on the
    results.
        By organizing in this way, the management teams for each unit could
    learn a great deal about the needs and particular problems that affect
    each group of taxpayers. The tax code is extremely complex but most of
    it does not apply to each group of taxpayers.
        There are 100 million filers, comprising about 140 million
    taxpayers, who have only wage and investment income. For this very
    large group, almost 80 percent of all taxpayers, the primary needs are
    improved assistance in filing or in getting information about an
    account or a refund. Collection problems are relatively limited since
    most of their taxes are paid through withholding by employers.
    Compliance problems are concentrated in the area of dependent
    exemptions, credits, filing status, and deductions, many of which can
    be addressed in part by better education of taxpayers with the
    assistance of volunteer groups and preparers. Improved phone service
    and more walk-in ``retail'' sites where taxpayers can get quick, in-
    person assistance are also important.
        Another very important group of taxpayers is small businesses,
    including sole proprietors and small business corporations. There are
    about 25 million filers in this category. Compared to other individual
    taxpayers, this group has much more frequent and complex filing
    requirements and pays much more directly to the IRS, including tax
    deposits, quarterly employment returns and many other types of income
    tax returns and schedules. Providing good service to this group of
    taxpayers is more difficult than wage and investment filers, and
    compliance and collection problems are also much greater. Small start-
    up businesses in particular need special help. By dedicating a fully
    responsible unit to providing all IRS services for the self employed
    and small business, this unit will be able to work closely with
    industry associations, small business groups and preparers to solve
    problems for the benefit of all.
        Larger businesses, although few in number, pay a substantial share
    of their tax in the form of withholding, employment and excise taxes,
    and corporate income taxes. Complex tax law, regulatory and accounting
    questions, including many issues arising from international activities,
    dominate the work of the IRS in serving this group. A management team
    and unit dedicated to serving these taxpayers will be able to
    understand and solve these problems more effectively than at present.
        Finally, the tax exempt sector, including employee plans, exempt
    organizations and state and local governments, represents a large
    economic sector with unique needs. Although generally paying no income
    tax, this sector pays over $190 billion in employment taxes and
    withholding for employees and manages $5 trillion in tax exempt assets.
    This huge sector will benefit from a dedicated unit that understands
    its special problems.
    Management roles with clear responsibility
        Since each unit will be fully responsible for serving a set of
    taxpayers with like needs, the management teams responsible for each of
    these units will be able to become knowledgeable about the needs and
    problems of their customers, and be held fully accountable for
    achieving specific goals in serving them. Furthermore, having learned
    about problems, managers can cut dramatically the time required to
    communicate with the work force and implement solutions. Because the
    organization would be ``flatter,'' there would be fewer layers of
    management. Front-line employees and first-line managers would have a
    much closer identification and communication channel to people with
    general management responsibility.
        For each unit, a cohesive management team will be established which
    will be able to organize internally in ways that are appropriate to the
    particular needs of the taxpayers they are serving. I believe that
    highly qualified managers, from internal or external sources, will be
    far more attracted to these kinds of management jobs than those in
    today's complex structure.
    Balanced Measures of Performance
        It is essential to have measures of organizational performance that
    balance customer satisfaction, business results, employee satisfaction
    and productivity. It is particularly important that performance
    measures do not directly or indirectly cause inappropriate behavior
    toward taxpayers, and that they provide incentives for service-oriented
    behavior.
        The establishment of management teams with clear responsibility for
    serving large groups of taxpayers with reasonably common
    characteristics and needs will help make it possible for the first time
    to develop realistic and meaningful measures of organizational
    performance in the areas of customer satisfaction and overall
    compliance on a continuing basis. This will help eliminate the problem
    that has plagued the IRS for decades, namely the use of ``enforcement''
    results as a key measure of success.
    New Technology
        One of the limiting factors in our ability to modernize our
    business practices at the IRS today is our computer systems, which are
    extremely deficient in their ability to support our missions and goals.
    But computer systems essentially represent a detailed codification of
    the business practices and organization structure that exist. Building
    new computer systems to support the old business practices and complex
    organization structure will not work.
        The recently issued technology modernization blueprint and the new
    CIO organization provide an outstanding and professional basis for
    managing the evolution of our technology. The revamped business
    practices and rationalized organizational structure I discussed earlier
    will provide a sound basis for completing and implementing the modern
    systems envisioned in the blueprint.
        The management teams in each unit will be able to act as
    knowledgeable and responsible business owners to work with the
    centralized professional information systems organization and outside
    contractors. For the first time, this will establish all the critical
    elements needed to manage a large-scale technology/modernization
    program successfully.
     strategy for modernization and service improvement in fiscal year 1999
        While there is great potential to improve the IRS service and
    productivity, it will require a period of years to achieve the major
    changes outlined above. During this period, we must make improvements
    step by step. In addition, mandatory requirements for change must be
    met, notably the large project required to update computer systems for
    the Century Date Change. To accomplish all this change in an orderly
    fashion, during fiscal year 1999 our budget effort is focused on five
    major initiatives.
        1. Completing the Century Date Change program.--Preparing for the
    Century Date Change is one of the most critical elements of our 1999
    budget. By the beginning of the 1999 filing season, nearly all of the
    systems changes required for the Century Date Change must be completed.
    During the remainder of fiscal year 1999, the principal tasks will be
    the completion of testing and certification, still a large effort that
    will cost $234 million in fiscal year 1999. In addition to the year
    2000 project expenditures, this includes the cost of completing the
    mainframe consolidation and integrated submission and remittance
    processing systems replacement. I cannot stress enough the importance
    of this effort. The funds I am requesting here are vital to ensure that
    we will be able to meet our commitment to providing essential service
    to each and every taxpayer and to avoid the potentially disastrous
    effects of an uncorrected Century Date Change problem.
        2. Making near-term improvement to service for taxpayers.--The
    second critical component of the budget is a set of specific activities
    designed to improve service to taxpayers in the coming year. As we
    proceed with our long-term efforts to modernize the agency, we must
    also take some actions that can be implemented now. During fiscal year
    1999, we will pursue a highly focused initiative to improve service to
    taxpayers through improved clarity of notices, forms and publications,
    better telephone service, more walk-in service, expanded electronic
    filing, improved training of customer service representatives,
    strengthened support for small businesses, increased staffing for the
    taxpayer advocate's office and the creation of Citizen Advocacy panels.
        Chart 5 shows estimated incremental costs of $103 million related
    to these essential near term service improvements for fiscal year 1999.
        3. Investing in essential near term technology.--Because of the
    greatly increased financial demands of the Century Date Change during
    the past two years (fiscal year 1997 and fiscal year 1998), nearly all
    investment in basic hardware and software to support current operations
    was eliminated. In an agency in which two-thirds of the employees deal
    directly with taxpayers based on information in the agency's computer
    systems, this lack of investment results directly in lowered service to
    taxpayers as well as lowered morale of employees who are doing their
    best to serve taxpayers. In order to ensure that customer service
    remains a top priority as we move toward the year 2000, this budget
    includes investments that are necessary to enable us to just maintain
    an acceptable level of service.
        The major near term investments for fiscal year 1999 are completion
    of a call router system, funding for which is included in improved
    service to taxpayers, deployment of computers to field collectors who
    currently have no computers, and replacement of computers used by field
    agents who depend on them for examinations. In addition, increases in
    product assurance are essential for adequate testing of changes to tax
    systems before they are put in production to keep records on millions
    of taxpayers.
        Chart 6 shows fiscal year 1999 near term investments in technology.
        4. Investing in long term technology modernization.--As shown in
    Chart 7, the IRS existing base of technology is extremely old and
    deficient in its ability to support the mission of the agency. We must
    replace it. In fiscal year 1997 and 1998 careful preparation for this
    major and difficult task began through the publication of the
    modernization blueprint, the beginnings of an establishment of an
    internal systems life cycle management process, and publication of a
    draft RFP. We expect to issue a final RFP before April 1, 1998.
        In fiscal year 1999, the process of long term modernization will
    continue with the strengthening of the IRS internal systems management
    capabilities and processes and the award of the Prime contract. The
    initial tasks on the Prime contract will be focused on completing the
    systems management life cycle and on developing the first two
    subreleases of the technology modernization blueprint, which provide
    telephone and other communications capabilities that are basic
    functions essential to support all IRS operations. Let me stress that
    they are independent of a specific organizational structure and are
    fully compatible with the modernization concept I outlined earlier. In
    fact, the two subreleases will also provide a practical way of testing
    and refining the management processes of the IRS and the Prime before
    proceeding to more challenging projects that are more closely tied to
    more detailed modernization business requirements.
        Additional subreleases of the blueprint will be very carefully
    planned and coordinated with modernization of the business processes
    and organization before they are allowed to proceed.
        Chart 8 shows the fiscal year 1999 budget for longer term
    technology modernization, in two parts: IRS capabilities for managing
    and supporting modernization, including funding of the integrated
    support contract, as well as funding for the Information Technology
    Investment account for the Prime contractor.
        5. Organizational Modernization.--The fiscal year 1999 budget
    includes $25 million to support the long term modernization of the
    organization described earlier. These funds will be used to provide for
    a number of activities relating to the modernization concept discussed
    earlier and, though not yet fully specified, will include recruiting,
    relocation and retraining of people as well as preparation of detailed
    plans for reorganization. Greater details on the use of these funds and
    organizational plans will be available when the initial study is
    complete in early summer of 1998.
                             historical perspective
        Before summarizing the fiscal year 1999 budget, let me review what
    has actually happened over the last few years.
        As shown in Charts 9 and 10, over the last three years the IRS
    budget, net of costs for the Century Date Change, has actually declined
    by 7 percent, while dollars collected have gone up by 24 percent,
    returns processed have increased by 8 percent and the Taxpayer Relief
    Act of 1997 has added about 800 changes to the tax code. These
    increases in volume of activity and in changes in the code ripple
    through the IRS, requiring new forms and publications, training of
    employees and updating of technology.
        The net effect of these conflicting trends presents us with new
    challenges as we move to modernize the agency. However, I strongly
    believe that budget dollars alone will not solve the problems facing
    the IRS--these challenges will only be solved through revamping
    business practices, realigning the organizational structure, redefining
    roles and responsibilities for management, creating a balanced
    measurement system, and investing in technology that supports a
    modernized IRS.
        The work force has been reduced through attrition and buyouts
    resulting in a less than optimal deployment. Fast growing economic
    areas of the country--those with the highest demands for IRS employees'
    skills have seen the largest reductions in the work force. In places
    where the demand for IRS employees was weakest, the opposite has been
    true.
        Workers across the board lack adequate professional training to
    keep up with the tax laws and regulations, impairing their ability to
    serve taxpayers. Past reductions in the training budget have not been
    fully restored. This factor shows up markedly in employee surveys and
    is a critical factor we need to address as we strive to ensure proper
    treatment of taxpayers.
        Because nearly all available technology investment funding in
    fiscal year 1997 and fiscal year 1998 was diverted to the Century Date
    Change, there was minimal replacement of basic hardware and software to
    support front line workers, leading to an erosion of an already
    seriously deficient technology base.
                           recap of fiscal year 1999
        In fiscal year 1999, we have prepared a budget that supports the
    beginning of the transformation of the IRS which we have outlined
    above. It allows us to continue current operations while working on the
    five initiatives that form the strategy for near term improvement and
    long term modernization. It also sets the stage for the kinds of
    productivity improvements we will need to provide good customer service
    within the budget constraints under which we must necessarily operate.
        Our total budget request for fiscal year 1999 is $8.196 billion and
    99,829 FTE. This covers funding of the Processing Assistance and
    Management, Tax Law Enforcement, Information Systems and Information
    Technology Investment Appropriations. In addition, we are requesting
    $143 million and 2,184 FTE in funding outside the caps for the EITC.
    The total budget request includes a net increase of $529 million and
    1,232 FTE over the fiscal year 1998 level, as shown in Chart 11.
        Of this increase, $176 million represents part of the cost that
    would be needed simply to maintain the current level of operations,
    taking into account inflation and mandatory pay increases. This $176
    million level is less than the full cost of maintaining current levels.
    We have absorbed as much of the difference as possible without
    diminishing service to the taxpayer.
        The remaining increases from fiscal year 1998 levels are for the
    priorities discussed above (less a $2 million reduction in our
    Information Technology Investment Account):
      --Improved near term customer service ($103 million);
      --Near term and long term technology investments (net of $227
            million); and
      --Organizational modernization ($25 million).
                                   conclusion
        In conclusion, I believe that there is a new day at the IRS. I
    believe we can transform the IRS into an agency that helps taxpayers
    meet the obligations imposed by the tax laws while ensuring that
    compliance is fair. We can do this while increasing productivity and
    shrinking the size of the IRS in relation to the economy. This will
    take time and investments to modernize technology, business practices
    and organization. But, with the support of the Congress, it can be
    done.

                                           CHART 1.--IRS EMPLOYMENT BREAKDOWN
    ----------------------------------------------------------------------------------------------------------------
                                                                                       FTE--
                                                              ------------------------------------------------------
                                                                                                 Percent
                                                               Full time   Seasonal    Total     of full    Percent
                                                                            OTFTP                  time     of total
    ----------------------------------------------------------------------------------------------------------------
                     Direct Taxpayer Contact

    Customer service.........................................     15,722      4,735     20,457       18.3       20.3
    Taxpayer advocate........................................        383          5        388        0.4        0.4
    Walk-in service..........................................        830        331      1,161        1.0        1.2
    Customer education.......................................        217         44        261         .3         .3
    Underreporter............................................      1,357        355      1,712        1.6        1.7
    Exam.....................................................     20,906        376     21,282       24.3       21.1
    Collection...............................................     10,537        117     10,654       12.2       10.6
    Criminal.................................................      3,881        159      4,040        4.5        4.0
    Appeals..................................................      2,042         19      2,061        2.4        2.1
    EP/EO....................................................      1,755         41      1,796        2.0        1.8
                                                              ------------------------------------------------------
          Total customer contact.............................     57,630      6,182     63,812       67.0       63.5
    Submission processing....................................      7,386      7,175     14,561        8.6       14.4
    Information systems......................................      7,165        175      7,340        8.3        7.3
    Forms distribution.......................................        246        362        608         .3         .6
    Inspection...............................................      1,162          6      1,168        1.3        1.2
    International............................................        432         41        473         .5         .5
    Counsel..................................................      2,511         72      2,583        2.9        2.6
    Management and support...................................      9,541        413      9,954       11.1        9.9
                                                              ------------------------------------------------------
          Total..............................................     86,073     14,426    100,499      100.0      100.0
    ----------------------------------------------------------------------------------------------------------------
    Notes:
    1. Included all people in N.O. and R.O. in Management and Support.
    2. Used fiscal year 1998 financial plan, as of January 31.
    3. Management Support Includes: SOI, Research, Mgt. Services, DSS, Finance, HQ, Procurement, Communications,
      CTR, Bldg. Del. and IS-EITC.
    4. Direct taxpayer contact numbers include non-SES managers below District level.

    [GRAPHIC] [TIFF OMITTED] T13MA05.008

    [GRAPHIC] [TIFF OMITTED] T13MA05.009

    [GRAPHIC] [TIFF OMITTED] T13MA05.010

                       Chart 5.--Enhance Customer Service

            Initiatives
    Improve clarity of notices, forms, pubs.................      $5,000,000
    Provide better telephone service........................      50,000,000
    Make it easier to get answers in person.................       6,000,000
    Expand electronic filing................................       3,000,000
    Strengthen support for small business...................       1,000,000
    Shift how performance is measured.......................       1,000,000
    Improve customer service training.......................      23,000,000
    Strengthen Taxpayer Advocate's Office...................      10,000,000
    Create citizen advocacy panels..........................       5,000,000
                        --------------------------------------------------------
                        ____________________________________________________
          Total............................................. \1\ 103,000,000

    \1\ Includes $42 million contained in the Information Systems
    Appropriation.
    ---------------------------------------------------------------------------

                   Chart 6.--Near-Term Technology Investments

                                               Fiscal year 1999 increase \1\
                                                          (IS appropriation)
    Business lines investments:
        Integrated collection system........................     $61,000,000
        Field agent exam computers..........................      33,000,000
        Integrated personnel system.........................      14,000,000
        Other systems.......................................      17,000,000
                        --------------------------------------------------------
                        ____________________________________________________
          Subtotal..........................................     125,000,000
    Other investments:
        Enhance customer service (Includes $19 million for
          call routers).....................................      42,000,000
        Operational systems (Includes $16 million for
          product assurance)................................      33,000,000
        Organizational modernization........................       6,000,000

    \1\ Refer to Chart 11 for further details.

                         CHART 7.--IRS PRINCIPAL SYSTEMS
    ------------------------------------------------------------------------
          Computer systems               Vintage         Technology platform
    ------------------------------------------------------------------------
    Master files (Taxpayer        1965................  IBM--tape files
     records).
    Integrated data retrieval     1978................  UNISYS
     (On-line access/customer
     service).
    Automated collection system   1985................  IBM
     (Telephone collections).
    Field agents' exam computers  1990/1991...........  DOS laptops
    Revenue officers' personal    1/3 paper, 2/3 1996/  UNIX laptops
     computers.                    1997.
    Customer service rep. tax     Paper...............  3-ring binders
     law information.
    ------------------------------------------------------------------------
    Telephone system: Manual call routing; no screening voice response unit;
      limited voice messaging; circuitry bottlenecks due to design flaws;
      minimal systems management capability; and no predictive dialing.

                  CHART 8.--LONGER TERM TECHNOLOGY INVESTMENTS
    ------------------------------------------------------------------------
                                                   Fiscal year 1999 (IS
                                                      appropriation)
                                             -------------------------------
                                                  Budget         Increase
    ------------------------------------------------------------------------
    Modernization Program:
        Program management/architecture and
         engineering........................     $31,000,000  ..............
        Security............................      17,000,000     $17,000,000
        Systems life cycle and performance
         measures...........................      18,000,000      18,000,000
        Phase I blue print implementation...      13,000,000      13,000,000
        Architecture/engineering/
         infrastructure.....................      21,000,000      21,000,000
                                             -------------------------------
          Subtotal..........................     100,000,000      69,000,000
    Investment account: Information
     technology investment..................     323,000,000  ..............
                                             -------------------------------
          Total longer term technology
           investment.......................     423,000,000  \1\ 69,000,000
    ------------------------------------------------------------------------
    \1\ Refer to Chart 11 for further details.

    [GRAPHIC] [TIFF OMITTED] T13MA05.011

                             CHART 10.--IRS BUDGETS
                              [Dollars in millions]
    ------------------------------------------------------------------------
                                         Fiscal year appropriations--
                                 -------------------------------------------
                                     1995       1996       1997       1998
    ------------------------------------------------------------------------
    Processing, assistance and
     management.................     $1,704     $1,724     $2,882     $2,926
    Tax law enforcement.........     $4,390     $4,097     $3,036     $3,144
    Information systems.........     $1,388     $1,527     $1,287     $1,272
                                 -------------------------------------------
          Total operating
           appropriations.......     $7,482     $7,348     $7,205     $7,341
    Less: Y2K costs \1\.........  .........  .........       $175       $384
                                 -------------------------------------------
          Total operating
           appropriations less
           Y2K:
              Nominal dollars...     $7,482     $7,348     $7,030     $6,957
              Constant dollars..     $7,482     $7,195     $6,716     $6,478
                                 ===========================================
    Workload:
        Net revenue collected...    $1.270T    $1.376T    $1.504T    $1.575T
        Primary returns
         processed..............     193.3M     196.2M     202.6M     208.4M
                                 ===========================================
    Information system
     investment.................  .........  .........  .........       $325
                                 ===========================================
          Total IRS
           appropriations.......     $7,482     $7,348     $7,205     $7,666
                                 ===========================================
    Earned income tax credit....  .........  .........  .........       $138
    ------------------------------------------------------------------------
    \1\ Includes mainframe consolidation, DSP/ RPS and product assurance
      related to Y2K.

                               CHART 11.--INTERNAL REVENUE SERVICE FISCAL YEAR 1999 BUDGET
                                                  [Dollars in millions]
    ----------------------------------------------------------------------------------------------------------------
                                                       Processing,
                                                        assistance    Tax law    Information  Information
                                                           and      enforcement    systems     technology    Total
                                                        management                            investments
    ----------------------------------------------------------------------------------------------------------------
    Fiscal year 1998 base............................      $2,926       $3,144       $1,272         $325      $7,667
                                                      ==============================================================
    1. Maintaining current levels (MCL)..............          91          108           44   ...........        242
    Less:
        Nonrecurring costs...........................  ...........  ...........         -14   ...........        -14
        Absorbed w/in base...........................         -28          -17           -8   ...........        -52
                                                      --------------------------------------------------------------
          Net MCL's..................................          63           91       \1\ 23   ...........        176
                                                      ==============================================================
    2. Enhance Customer Service......................          58            3       \2\ 42   ...........        103
                                                      ==============================================================
    3. Information systems:
        Operational systems..........................  ...........  ...........      \3\ 33   ...........         33
        (Balance of increases/decreases not included
         in Nos. 1, 2, 4 and 6)
        Modernization program........................  ...........  ...........          69   ...........         69
        Business line investments....................  ...........  ...........         125   ...........        125
                                                      --------------------------------------------------------------
          Subtotal information systems...............  ...........  ...........         227   ...........        227
                                                      ==============================================================
    4. Organizational modernization..................          16            3            6   ...........         25
                                                      ==============================================================
    5. Decrease in information technology investments  ...........  ...........  ...........          -2          -2
                                                      ==============================================================
    6. TIMIS (payroll) transfer......................          29   ...........         -29   ...........  .........
                                                      ==============================================================
    7. Realignments..................................          70          -70   ...........  ...........  .........
                                                      ==============================================================
          Subtotal, increases........................         236       \1\ 26      \1\ 269           -2         529
                                                      ==============================================================
    Fiscal year 1999.................................       3,162    \1\ 3,170    \1\ 1,541          323       8,196
    ----------------------------------------------------------------------------------------------------------------
    \1\ Totals do not add due to rounding.
    \2\ Includes $19 million for call routers.
    \3\ Includes $16 million for product assurance.

                              Additional Comments

        Senator Campbell. Mr. Gross, did you have additional
    comments?
        Mr. Gross. No, Mr. Chairman.
        Senator Campbell. I notice that you are going to be leaving
    us on April 1. It will be your last chance to impart some
    wisdom with the U.S. Senate.
        Mr. Gross. I just want to thank the committee. The
    committee has been extraordinarily supportive of all of our
    efforts to properly fund the critically important programs that
    the Commissioner has just outlined.
        Senator Campbell. Before we go to any questions, we have
    had some Senators come in. Senator Faircloth, did you have a
    statement?

                         Statement of Senator Faircloth

        Senator Faircloth. I do, and I will make it brief, Mr.
    Chairman.
        Mr. Chairman, I thank you for holding this hearing. I think
    it is important and I think it gives us an opportunity to
    welcome the new Commissioner, Chairman Charles Rossotti, to
    speak to the committee and tell us what he plans to do.
        Mr. Rossotti is the first businessman to head the IRS since
    World War II. I certainly welcome him and what he plans to do.
    I had a visit with Mr. Rossotti and I was quite impressed with
    his plans and what he wants to do.
        He has taken on maybe one of the worst jobs around. If he
    were looking for a more difficult one, he could have taken the
    District of Columbia or maybe the FAA but I am glad that he has
    taken it.
        As we all know, the very mention of the word Internal
    Revenue Service simply frightens the life out of most people. I
    could not help but laugh, somebody said that--I believe it was
    you, Mr. Rossotti--that the Internal Revenue Service is here to
    help you. That is the oldest joke in the book, that I am from
    the Internal Revenue Service and I am here to help you. That is
    not usually what most people relate to having the IRS call on
    them.
        We had some public hearings and I will not go into that, in
    the time here, but just some of the most atrocious things came
    out of the public hearings, just ludicrous things. One lady
    that the IRS recommended very strongly she go into bankruptcy
    and she is still in business and has gotten rich 10 years
    later, she did not go in bankruptcy.
        One young man, working for Wal-Mart at $6 an hour, got a
    bill for $300,000,028.15 from the Internal Revenue Service. He
    did not pay it.
        But the Internal Revenue Service is in need of reform as
    much as any governmental agency ever did. As we all know, they
    went into an equipment buying spree over a period of 6 or 7
    years, and put somewhere near 3.5 billion taxpayer dollars in
    new equipment that turned out to be a total fiasco. As I
    understand it, and I have not had anybody--if there is anybody
    from Revenue knows better, that it is pretty much a total loss
    down the drain, and got to go back to ground zero and start
    again.
        Now that type of thing would never happen in the private
    sector. If it did, the company would be broke. But it would not
    just have gone on, repeated mistakes and things done wrong.
        So I am here to say that, to the new Commissioner, he has a
    tremendous job. He comes to it with an excellent background and
    knowing how to run things and knowing how to make them work.
    And not only that, his background centers somewhat strongly on
    the technological or the computer aspect of it.
        Mr. Commissioner, we welcome you and we look forward to
    having more hearings. I wish you well and we intend to observe
    your changes and improvements. Thank you.
        Senator Campbell. Senator Shelby.

                          Statement of Senator Shelby

        Senator Shelby. Mr. Chairman, I will try to be brief, I was
    a little late getting here.
        First of all, I want to congratulate you, on you
    undertaking this task and it is a task, and I wish you well. I
    want to pledge to you, I am going to do what I can to help you
    succeed.
        But I do not think it is any mystery what my view is of the
    IRS. I chaired this subcommittee for several years and I made
    it very clear that I believe the agency is too big and bloated
    and it has too much power over the lives of our citizens.
        I want to commend you for what I believe, from you, that
    you are a well-intentioned man and you have good intentions to
    try to fix the problem. But at the end of the day, I believe
    what you can do to address the problems is limited. The
    complexity of the Tax Code is creating the environment that we
    have at the IRS.
        I am an advocate of a total overhaul of our tax system, a
    flat tax. I know that is something that Congress will have to
    speak to.
        In the meantime, I wish you well in your endeavors. Thank
    you.
        Senator Campbell. Senator Stevens.

                          Statement of Senator Stevens

        Senator Stevens. Mr. Chairman, I just dropped by to welcome
    Mr. Rossotti, also. I do think that the problem in IRS is one
    of attitude, not legality and not the existing laws and not the
    complexity of the code, but attitude. The attitude that has
    built up in recent years with the personnel of IRS is that the
    average taxpayer is guilty before he has even been
    investigated. I think that gets reflected to us every time we
    go home.
        Our people really, as Senator Shelby said, fear the IRS now
    rather than look to them for assistance in honestly paying
    their bills.
        I think you have a big job ahead of you, and I wish you
    well.
        Senator Campbell. We will go ahead and trade off on the
    questions and do two or three rounds, Mr. Rossotti. I will ask
    the first one.

                            Citizens Advocacy Panels

        The IRS recently announced the launching of their citizens
    advocacy office, or panels, I guess they were. I do not think
    you have set up offices, yet. There have been a number of them,
    Milwaukee, Brooklyn, Seattle.
        I wanted to ask you two questions along that line. First of
    all, they apparently are volunteer panels. First all, the
    Brooklyn, Milwaukee, Seattle, I noticed there was none in mid-
    America or the Rocky Mountain area. That is the first question.
        The second question I would like to ask you, what is their
    purpose going to be?
        Mr. Rossotti. First of all, you are right, Senator. We did
    have the idea of starting with four but eventually, as soon as
    we learn enough about them, we will spread them to the other
    parts of the country. The purpose of starting with these
    initial four was just to get some experience before we roll
    them out to the rest of the country.
        Of course, it is a new idea, which is one of the reasons we
    want to be careful about figuring it out.
        The purpose of it is to work with the taxpayer advocates in
    the local offices and to essentially advise the taxpayer
    advocate from the average citizen's point of view about how the
    kind of problems that the average citizen is having complying
    with the tax load can be dealt with. Of course, the taxpayer
    advocate program is where the people who are having trouble
    with the IRS can get some help.
        This has been around for a long time but one of the
    immediate things that we are doing is really trying to
    strengthen this program a great deal. I think it has much more
    potential to help taxpayers than has been realized so far.
        We are increasing the staffing of these taxpayer advocates
    but the citizen advocacy panels will be an additional way. What
    we will do is have a small group of ordinary volunteer citizens
    work with the taxpayer advocate. They will not be able to deal
    with individual taxpayer cases, of course, but the taxpayer
    advocate will report to them on the kinds of problems that
    taxpayers are having in that local area and will seek their
    input and their advice as to how these problems can be
    resolved.
        As we get it rolled out, I think it has the potential of
    identifying from the average citizen's point of view what the
    kind of problems are that people really want us to work on. And
    then, in the annual report that the taxpayer advocate gives to
    Congress, we can provide suggestions for tax law changes if
    necessary.
        Senator Campbell. How many people are going to be on these
    panels?
        Mr. Rossotti. I think that we are going to have fewer than
    10, small enough and with people who would be on for a limited
    period of time so they could rotate.
        Frankly, we are still experimenting. I mean, this is a
    brand new thing and that is why we do not want to start with
    the whole country all at once. But we are going to start----
        Senator Campbell. Then you will reimburse them for the time
    they have to----
        Mr. Rossotti. No; they would be just totally volunteers.
        Senator Campbell. Just voluntary?
        Mr. Rossotti. Just volunteers.
        Senator Campbell. And they would basically be a committee
    that recommends things to IRS?
        Mr. Rossotti. Exactly. And also try to be an outreach, to
    make the taxpayer advocate program more visible.
        One of the things we find is there are a lot of taxpayers
    who have problems that could be solved or helped by the
    taxpayer advocate. But partly due to our inability to make this
    program known well enough, people do not know they have this
    channel. So we are hoping this will be another way of making it
    known.
        Senator Campbell. Thank you.

                             IRS Employee Browsing

        Last year, I am sure you are aware that we did a hearing on
    the issue of IRS employees doing what was called browsing, just
    arbitrarily going through taxpayers' files without any probable
    cause, without any reason to do so. At the time, the IRS
    acknowledged--this was before you came on board--but they did
    acknowledge at the time they had a lot of security measures
    that were lacking in the current system to provide sufficient
    protection for the taxpayer files.
        Could you give the committee an update on what has
    happened, on perhaps not only the employees who were caught
    browsing, but also on the systems you are going to put in place
    to try to prevent that?
        Mr. Rossotti. Yes; actually, this is something about which
    there was considerable action before I got to the agency, and
    the law was changed last August to make it a potential
    misdemeanor and require removal of employees who are caught.
        But internally within the agency, there was quite an
    extensive program that started about a year ago and a lot of it
    has already been implemented. We call it UNAX for unauthorized
    access. The motto is stop UNAX in its tracks. We have gotten
    every employee in the IRS to be required to take a training
    program, and to sign a certification that they have had this
    training program.
        We have also done some technical things to try to identify,
    through our computer systems, cases of unauthorized access. And
    finally, I have assigned to the inspection service, which is
    our internal investigative group, the responsibility for
    investigating all cases and to adjudicate these on a central
    basis.
        From the early returns on this, it looks as though there
    has been a drop of at least one-half, if not more, in the
    number of cases. But there are still cases and we are not going
    to be satisfied until we get them down to zero.
        Senator Campbell. I know that some were recommended for
    some counseling or retraining or so on, but there were a few
    that I very frankly thought should have just been flat fired,
    if they could have been.
        Mr. Rossotti. There were 153 that were fired in fiscal year
    1997, flatout separated.
        Senator Campbell. Good.
        Mr. Rossotti. Of course, there are still due process rules
    that employees have to----
        Senator Campbell. I understand.

                          Problems of Small Businesses

        I came from the private sector where I was a small
    businessman before I was elected to Congress, and I know that
    small businessmen need a great deal of assistance. The forms
    they get and the things that they have to go over are very,
    very complicated, and I am sure you agree with that.
        Perhaps you could tell us, in your new plans, how you are
    going to address some of the problems small businesses have
    that private citizens do not.
        Mr. Rossotti. First of all, let me just say, Senator, I
    totally agree with you. In fact, Senator Faircloth and I were
    talking about this in his office this morning. I think that of
    all the segments of the taxpaying population, the IRS does the
    poorest job in serving small business.
        It is partly, not so much because it does not want to, but
    it is more complex for small business and often the small
    businessperson does not have the full-time accountants and
    other people to help them.
        I think the biggest thing in the long term that we are
    going to do is to basically organize an entire unit to work
    strictly with small business. We can then have all the services
    that small business needs in one place, and have people brought
    in, including people who have worked in small business, to help
    run this agency.
        That is the long-term solution, and that will enable us to
    really understand, case by case, the particular problems of
    different kinds of small businesses and work with them.
        In the meantime, we are doing some things to try to improve
    service, as we are doing in other areas. We are trying to make
    some of the filing easier. For example, one of the things that
    just came out relates to the 941, which is something that all
    small businesses with employees have to file quarterly. We have
    now tested that and people will be able to file through a
    simple telephone call. We are also going to try to work to
    provide better assistance to small businesses throughout the
    districts when they need help.
        But I think the long-term solution is that this is such a
    huge and important sector of the economy that we really need to
    not just have it be a side issue but to be sort of a major
    focus of an entire unit, with the right kind of people focused
    on solving their problems. I think that will ultimately go a
    long way.
        Senator Campbell. May I also recommend that when you set up
    your volunteer advocacy programs, you have somebody on there
    who understands small business or knows what it is to go
    through that.
        Mr. Rossotti. Oh, we most certainly will. We most certainly
    will.
        Senator Campbell. Since we have a number of people here, I
    will go ahead and yield to Senator Kohl. If we could keep our
    questions down to maybe about 5 minutes or so, it will give
    everyone an opportunity.

                              Noncustodial Parents

        Senator Kohl. Thank you. I would like to talk about
    noncustodial parents who claim child tax benefits for just a
    minute, Mr. Rossotti. There are several tax benefits in our
    current Internal Revenue Code that go to taxpayers who have
    dependent children. These include head of household filing
    status, the earned income tax credit, the tax exemption for
    dependent children, the dependent care tax credit, and the new
    $500 per child tax credit.
        In 1996 the Health and Human Services Inspector General
    found that many noncustodial parents were incorrectly claiming
    these benefits, even though by law they can only go to the
    custodial parent. HHS Inspector General estimated that at least
    $200 million and possibly $1.5 billion in tax losses may result
    annually from noncustodial parents incorrectly claiming child-
    related tax benefits.
        The inspector general of HHS recommended that information
    that is or will soon be available on State child support
    registries could easily form the basis of an antifraud
    initiative. HHS will share information on custodial parents
    with IRS for information on who is claiming child-based tax
    benefits resides. An initiative that I sponsored to allow this
    sort of data exchange was passed as part of last year's tax
    bill.
        I understand that there are some problems with the States
    collecting the data HHS needs to make this antifraud program
    work. But I also understand that HHS and IRS are confident that
    those State child support systems will be up and running soon.
        So my question is what steps are you taking to move this
    effort forward? Have you been in consultation with HHS? And in
    your opinion, when will we begin to see results from this
    program?
        Mr. Rossotti. I would like to ask my colleague, Mr.
    Dalrymple, to answer that question for me, if that is OK.
        Mr. Dalrymple. Senator, we have been working closely with
    HHS around this issue, and we actually helped them design the
    way some of the information would be gathered to make sure that
    it is more helpful. And notwithstanding that fact, we do
    understand that they have had some problems gathering the data
    from the States, as you mentioned.
        I do not know that we actually have an exact timeline in
    place yet, but I would be more than happy to provide
    information for the record later, to determine exactly when
    that is going to be. But, as you said, we expect this to be
    extremely beneficial to the Service in combating this potential
    area of fraud or abuse and expect to work quite closely with
    HHS. In fact, part of the initiative that we had on the EITC
    funding that we got last year, was to go directly to HHS, or I
    should say is funneled through us to go to HHS to help build
    that data base.
        Senator Kohl. My office is very interested in trying to see
    to it that we get this program not only underway but up and
    running so that we can save this money. I would appreciate it
    if you will take it as a matter of priority.
        Mr. Dalrymple. It is an absolute priority with us.
        Senator Kohl. I thank you.

                         Tax counseling for the elderly

        The fiscal year 1999 budget requests $3.7 million for the
    Tax Counseling for the Elderly Program. Since this program was
    first authorized in 1978 it has grown to include 53 sponsors
    assisting more than 1.6 million elderly taxpayers.
        I would like to ask you, Mr. Rossotti, to describe what
    kind of assistance is actually provided to the elderly, who
    provides the assistance, how they are compensated, whether or
    not we are reaching all elderly who require the assistance, and
    how much money is needed to ensure that every elderly person
    who requires assistance would receive it? Would you describe
    the program and how it is going?
        Mr. Rossotti. Let me once again ask Mr. Dalrymple to give
    the details, but I just want to say one general point because I
    think this is an important one. I think that one of the
    opportunities we have to provide better service to many
    segments of the population, including especially the elderly
    but others including various small businesses, is by taking
    advantage of partnerships and relationships with various kinds
    of associations and volunteer groups.
        I have met with several of these, including AARP, and they
    are very anxious to work with us, if we can only get out and
    provide some support to them.
        I personally want to tell you that I think this is in
    keeping with what people in the private sector do. You do not
    try to do it all yourself. You go out and try to work with
    others to help you. This is a very, very promising area.
        As far as the specific tax counseling, I will ask Mr.
    Dalrymple to give a few more details.
        Mr. Dalrymple. As you mentioned, we have spent up to $3.7
    million last year and we are going to spend up to that amount
    this year. We also supplemented this with computer equipment
    and some other equipment, in addition, from our offices. We
    helped 1.5 million taxpayers in fiscal year 1997 and expect to
    do somewhat more than that this year.
        There were 53 sponsors for the program. The largest, of
    course, was AARP as Mr. Rossotti just mentioned.
        This really is a very important program for us and one with
    which we have had a very long history. In fact, my mother uses
    TCE and has for a number of years. She lives in Iowa and, in
    fact, I was home a few years ago and asked her if she would
    like me to do her tax return, and actually she somewhat
    politely told me that she only trusts the folks at the TCE
    counseling center, with whom she could make appointments to do
    that for her.
        So I recognize how important this is to folks, because they
    become quite dependent on it. We are going to strive to make
    this much more available.
        We have gone out this year for the first time on our
    Internet site and asked for more sponsors, and we are getting
    quite a response from that. This will be for the 1998 tax year,
    1999 filing season.

                              Century Date Change

        Senator Kohl. Good. One last question, century day change.
    Mr. Commissioner, as you indicated in your statement, century
    day change or year 2000 is one of the most critical elements of
    the fiscal year 1999 budget. We understand that the IRS is also
    requesting funds in fiscal year 1998.
        How is the IRS going to cover the costs of these
    requirements? What happens if the year 2000 is not funded,
    particularly if your requests for the telecommunications
    systems is not funded?
        Mr. Rossotti. Well, I think that whatever happens, we
    simply have to make these changes. I think that we do need the
    funding to make these changes. If we do not get the funding, we
    will have to find something to solve this problem, because we
    cannot allow these systems not to be updated.
        I do think that we are getting a much closer control over
    what we need to do than was the case even 6 months or 1 year
    ago. This is simply the fact that we have been working very
    hard to identify all of the individual components that we have
    to update. This is something that every large business in
    America is going through.
        In the case of the IRS, it is a gigantic task because we
    have, for example, about 90,000 individual application
    programs. We have hundreds of thousands of pieces of hardware
    and software products that we have to identify.
        We are now getting to the point where all of the high-
    priority ones have been identified. We are getting to the still
    essential but slightly less priority ones, and I think we are
    very close to having them all identified.
        I have spent considerable time on this program. It was one
    of the first things that I looked at when I got into office. My
    own assessment of this program is that while there still is
    considerable risk as there would be for anything this huge, I
    do believe that we have identified those risks and we have got
    some actions in place to manage those. And, assuming we can get
    funding and that we can continue on, I do not think we are
    going to have a catastrophic failure here.
        There could be problems, given the magnitude of it, but I
    think we can manage those at this point, assuming we can get
    the funding.
        Senator Kohl. Thank you. Thank you, Mr. Chairman.
        Senator Campbell. Senator Faircloth.
        Senator Faircloth. Thank you, Mr. Chairman.

                       New Information Technology Systems

        Commissioner Rossotti, I do not mean to pursue the--and I
    know you had absolutely no hand in this absolutely--equipment
    mess up from word one. I mean, you were out working up the
    money to pay for it.
        But maybe what is the IRS budget annually?
        Mr. Rossotti. The total IRS budget?
        Senator Faircloth. Yes, sir.
        Mr. Rossotti. This year we are asking for about $7.9
    million plus the investment, the $300 million investment, for
    the information technology.
        Senator Faircloth. For the what?
        Mr. Rossotti. For the new systems, the new information
    technology.
        Senator Faircloth. I am trying to comprehend how the new
    system is roughly $300 million. How could we waste at least 11
    times that much on a system that did not work, was not working?
    It is just mind-boggling how it--and if somebody is there with
    you that could explain how you could do that?
        Mr. Rossotti. Let me try to do the best I can. First of
    all, unfortunately, we are just beginning the replacement
    effort of the new system. Mr. Gross has been working for about
    2 years to outline a plan for it, and we are just ready to
    begin. The money that we are asking, the $300 million,
    unfortunately is not going to be just for 1 year. I mean, we
    are going to be working at this probably for another 10 years,
    I would say, or at least 7 to 10 years. I do not know that it
    would be that amount of money per year, but this is a very,
    very big program.
        The IRS has one of the most enormous information technology
    systems anywhere in the world, so we are not talking about
    something small here.
        As to your question of how did it fail? Of course, I was
    not there but I have studied it a little bit, not in detail. I
    will tell you, I think that in the private sector large
    technology programs do fail, also. The difference is that the
    failures are identified earlier, as you noted, and you do not
    go so far down the road.
        Senator Faircloth. That really was my question.
        Mr. Rossotti. And so I do not know entirely why it was not
    identified earlier. But I think if we look at what are the
    things that need to be done, that we are putting in place here
    to make sure that it does not fail again, there is a whole
    series of them.
        One of them is simply having professional management of the
    information technology function. Unfortunately, Mr. Gross is
    leaving us but he has brought some new people in and he has
    built the beginnings of a real professional organization. He
    has also agreed to continue to consult with us after he leaves,
    fortunately, and I am committed to recruiting a person from the
    private sector who is a professional person to be the overall
    manager.
        Second, we are going to use the best contractors, outside
    contractors. In this day and age you do not try and do these
    things yourself, not only to buy the hardware but to actually
    put it all together and to integrate it. So we are going to do
    that.
        The third thing that is very important is that technology
    does not stand by itself in business. It has to work with the
    people who are using it to design it. That has been a problem,
    as well. Part of my concept here in the future would be to have
    a much closer or clearer sense of ownership of these new
    systems by the people actually in the agency and using it.
        And finally, I have spent 28 years in this business, I am
    just committing myself here to try to oversee this thing, to
    try to make it successful. But it is going to take time and
    there are risks associated with it.
        That is the best answer I can give, not having been here
    during the period when it was done.
        Senator Faircloth. At least we do not plan to repeat the
    mistakes of the last one?
        Mr. Rossotti. Not if I can help it.

                                  Section 6103

        Senator Faircloth. You might not be familiar with this,
    certainly in 4 months you probably have not. But there is one
    section of the Tax Code, section 6103, that was put in and
    intended to protect the taxpayers' privacy, was the purpose of
    it. But now it is being used by the IRS and IRS attorneys to
    shield the inner workings of the IRS from the scrutiny of
    Congress in many ways and many times.
        Do you, or is someone accompanying you, what ideas do they
    have for opening up the IRS for better congressional oversight?
        Mr. Rossotti. Senator, let me just say, that is one section
    of the code I have learned, even though I am not a tax lawyer.
    I learned 6103 even before I was confirmed.
        I believe that there is a lot more disclosure and a lot
    more information that we can give to Congress, as well as the
    public, without violating 6103. In my confirmation hearing
    before the Senate Finance Committee and Senator Roth back in
    October, that was one of the things that I said that I thought
    was going to be my policy, to help improve the agency.
        I do not believe that you can solve problems until you have
    acknowledged honestly that they exist. And so from the very
    first day that I was in office, I sent out a memo and an e-mail
    and a voice mail to every employee saying that open
    communication and honest acknowledgement of problems was going
    to be something that we were going to have to face up to and
    do.
        I do not know that we will succeed in that instantly, but
    in every way that I can I am pursuing that policy.
        I do not really think that 6103 is that much of an obstacle
    to it. All it says is that you cannot release a specific
    taxpayer's information. But if you look, for example, at the
    internal audit reports and the GAO reports that are done, which
    are many, very little of them have reference to individual
    taxpayer information. We are now sending all of our internal
    audit reports over to the committee here, and as far as I am
    concerned we will continue to follow that practice and try to
    respond every way we can.
        I am committed to acknowledging problems and solving them,
    not trying to cover them up.
        Senator Faircloth. Thank you. One other quick question, if
    I may, Mr. Chairman.

                            Internal Ethics Problems

        Could you provide the committee with any statistics or with
    statistics on internal ethics problems within IRS employees? I
    would like a breakdown on how many employees have been
    disciplined over the past 3 years.
        Not names, of course, but how many have been disciplined
    over the last 3 years, and for what offenses and what type of
    punishment was merited.
        Mr. Rossotti. We can do that. I do not have it with me, but
    I would be glad to get back to you on that.
        Senator Faircloth. I am sure you do not, but if somebody
    could get that.
        Mr. Rossotti. We will get you that, Senator.
        Senator Faircloth. Thank you so much.
        [The information follows:]

        For 1996, 1997, and thus far in 1998, employees have been
    disciplined for the following offenses that relate to ethical
    issues: general conduct matters; Taxpayer Bill of Rights II
    violations; and employee tax matters. Punishment ranged from
    admonishment, reprimand, suspension, up to removal.
                                                                   Employees
            Category                                             disciplined
    General conduct matters.......................................     1,895
    Taxpayer Bill of Rights II....................................        64
    Employee tax matters..........................................       501
                        --------------------------------------------------------------
                        ____________________________________________________

          Total...................................................     2,460

                     Disproportionate Audits of Southerners

        Senator Campbell. Senator Shelby.
        Senator Shelby. Thank you, Mr. Chairman.
        I would like to get into a story that surfaced recently
    about the IRS disproportionate audits of southerners, being a
    southerner. I think Senator Coverdell asked the General
    Accounting Office for a study there. I am sure you are familiar
    with it.
        When the General Accounting Office study conducted for
    Senator Coverdell found that 47 percent of taxpayers audited at
    random reside in 1 of the 11 Southern States. These States,
    including my State of Alabama, account for just 29 percent of
    the population.
        How do you explain that? Is this just seeking out people?
    Is that getting into the auditing of the investment tax credit?
    Or what is it? And is not 47 percent a pretty disproportionate
    share of so-called audits?
        Mr. Rossotti. Let me just say, Senator, first of all I am
    still learning myself where these audits are.
        Senator Shelby. Sure, I know you are.
        Mr. Rossotti. And how they are done. I am continuing to
    work to try to find out, because I certainly do not believe
    that it is our job to target anybody unless there is a real
    good reason to do it.
        I do have the study and I have had a little bit of time to
    look at it. It does appear that, in this particular study, the
    real reason was that 84 percent of these particular audits were
    really designed to study the EITC program, which is a program
    which has had, as I understand it, some significant problems
    with money being claimed that was not owed. And there was
    actually encouragement by Congress to study this.
        Senator Shelby. I will be the first one to tell you, we do
    not want anybody to cheat the system, game the system, on
    anything. But on the other hand, when 47 percent of the audits
    come out, that is sort of troublesome.
        So you have got to have a good reason for it, and I know
    you were not there.
        Mr. Rossotti. I think that in this particular case the
    principal reason was not any deliberate targeting but simply
    the fact that it was mostly a study of EITC problems. Eighty-
    four percent of it was the EITC, and it happened that there are
    more EITC recipients in some of the Southern States than there
    are in other places. I think that was the reason why, in this
    particular case, that came out that way.
        But more generally, I just want to try to assure you, I
    have not studied all this yet, but we are going to do the best
    we can to try to make sure that the whole process is absolutely
    fair and that nobody is unfairly targeted. The sole purpose of
    doing audits is to encourage compliance.

                                 Budget Request

        Senator Shelby. It is my understanding in the budget
    request that the IRS is asking for $143 million and 2,184 FTE,
    full-time equivalent, positions for the EITC appropriation. Can
    you explain that in detail? That is a lot of money, $143
    million.
        Mr. Rossotti. Let me just say that this was the money that
    I think was specifically added by the Congress last year, to
    request the IRS to do this. So this was requested by the
    Congress, as I understand it, but Mr. Dalrymple can tell you
    exactly what we are going to do with this money.
        Mr. Dalrymple. This last year we were given $138 million
    and, you are right, in the 1999 budget----
        Senator Shelby. Mr. Dalrymple, could you pull the
    microphone up?
        Mr. Dalrymple. Too far away? Maybe it is not on. OK.
        At any rate, we were given $138 million in this last budget
    year and I think the 1999 budget reflects $143 million, as you
    mentioned.
        That was a direct result of a lot of concerns. They were
    basically twofold. One, that we make sure we reach all of the
    people who need to be reached. And two, that we get as much of
    the overclaim rate out of the system as possible.
        What we have done in 1998, and we will continue in 1999, is
    basically on one hand, to ensure that everyone who should be
    eligible is claiming, we have sent informational letters to the
    top 100 employers, most likely to employ taxpayers who would be
    eligible. We sent notices to over 6 million EITC recipients,
    informing them of the advanced earned income credit, because we
    know that people are much more compliant who use the advanced
    earned income credit. We sent approximately 2.5 million notices
    to taxpayers who did not claim the credit but appear eligible
    for the credit.
        And we also worked with the Social Security Administration
    to send out a document in their reporter which reaches over 6
    million employers, to give them information about this.
        We are also providing toll-free telephone assistance for
    EITC questions 24 hours a day, 7 days a week on a special line.
        On the other side of the ledger, because we want to make
    sure that we have also reduced as much of the overclaim rate as
    possible here, we also expect to protect over $1.2 billion this
    year through our math error operations, which Congress gave us
    authority to use in this area, and through additional
    examinations this year.

                            Earned Income Tax Credit

        Senator Shelby. Mr. Dalrymple, do you know how the earned
    income tax credit works? Do you know the mechanics of it?
        Mr. Dalrymple. I generally know, yes.
        Senator Shelby. How is that? It is not a credit against
    what you earn, it is a check if you do not earn a certain
    amount of money, is it not?
        Mr. Dalrymple. It is a refundable credit, you are right.
        Senator Shelby. For example, if I earn x dollars and I was
    supposed to pay taxes, would I get my taxes back? In other
    words, if I qualified for that, or would I get my taxes back
    plus a subsidy, a welfare check?
        Mr. Dalrymple. You could get more than the taxes.
        Senator Shelby. I would get more back than I ever paid in;
    is that right?
        Mr. Dalrymple. You could, at certain incomes.
        Senator Shelby. So that is a misnomer, is it not, when you
    say it is an earned income tax credit? You are really giving a
    subsidy out, are you not? You are giving a check out for me
    that I did not earn; is that correct?
        Mr. Dalrymple. Senator, you are now asking questions of
    someone who administers the law, versus someone who----
        Senator Shelby. I am just asking you mechanically. Let us
    say I earned $25,000 and I was cut so much taxes, would I get
    that money back if I qualified, plus other money that I never
    earned? Do you see what my question is?
        Mr. Dalrymple. It really depends on your circumstances.
        Senator Shelby. I understand that, but that is not what I
    am asking you. I am asking you that you do not just get your
    tax money back, you get a welfare check back; is that right?
        Mr. Dalrymple. Well, you can get a credit over and above
    your tax.
        Senator Shelby. Now do you get a credit or do you get a
    check?
        Mr. Dalrymple. You get a check.
        Senator Shelby. That is right. A lot of difference, is
    there not?
        Mr. Dalrymple. You get a check back.
        Senator Shelby. So why do they call it a credit?
        Mr. Dalrymple. I really cannot answer that.
        Senator Shelby. Congress did that, did they not?
        That is a big thing. I think a lot of people do not realize
    in America what that is. It is a big handout. I know you did
    not create the program, and neither did I.
        Tax Code complexity, the Tax Code is very complex; is it
    not?
        Mr. Rossotti. Yes, sir.
        Senator Shelby. In addition to being a nightmare for most
    taxpayers, including this one here, the Tax Code's complexity
    obviously poses very substantial problems for your agency with
    regard to administration. Would that be a given?
        Mr. Rossotti. Certainly.

                            Changes in the Tax Code

        Senator Shelby. You have noted, in your prepared testimony,
    that there were about 800 changes made to the Tax Code that
    ``ripple through the IRS, requiring new forms and publications,
    training of employees, and updating of technology.''
        Obviously, this ultimately ends up costing more money for
    compliance and administrative costs; am I right, sir?
        Mr. Rossotti. Yes, sir.
        Senator Shelby. Can you give me a better idea of what is
    triggered when Congress makes significant changes to the Tax
    Code? Or have I already said it?
        Mr. Rossotti. I think you just said it.
        Senator Shelby. I think it was alluded to, the employee
    disciplinary procedures that might not be there, I am not sure.
    In April of last year the subcommittee held hearings regarding
    the issue of IRS employees browsing or snooping at taxpayers'
    files, which most Americans thought were confidential, you
    know, that they were dealing with the IRS and they had a right
    of privacy there, and so forth. And I believe they do. At that
    time, it was expressed that serious concerns about holding
    employees accountable through severe disciplinary actions.

                           Mistreatment of Taxpayers

        A common theme throughout your prepared testimony today is
    the goal of making the IRS perform more like a private
    financial institution. Last fall Senate Finance Committee
    brought to light severe mistreatment of taxpayers by employees
    of the Internal Revenue Service, people that you are their
    superior.
        The private sector has a very simple solution to those kind
    of problems and you know about it, you have been there. It
    fires people. You cannot put up with that kind of stuff.
        Do you know how many people have lost their jobs as a
    result of the misconduct outlined in the Finance hearings last
    fall? And in addition, how has the agency changed its policies
    to expedite the termination of rogue employees, employees at
    the IRS that snoop and disseminate information that is
    confidential for the average American taxpayer?
        Mr. Rossotti. That is a very, very good question, Senator.
        Let me address the issue that has been an issue longer,
    which is the unauthorized access. I think I summarized this in
    answer to a previous question, but with the help of Congress we
    did get a new law, a change in the law in August, which made it
    much easier to discipline employees, made it clear that losing
    your job or even criminal prosecution would be a consequence of
    unauthorized access.
        And we also, as I said, have put in some significant
    programs to make it clear that this is going to happen. We call
    it unauthorized access [UNAX], and every employee has now gone
    through a required training program, has signed a
    certification, and we have added a special central way of
    processing these cases.
        Senator Shelby. Let me ask you this, as a new boss over
    there, I certainly wish you well, and I believe you have a
    great attitude and I hope you will retain it as you delve into
    the problems there.
        Mr. Rossotti. Thank you.
        Senator Shelby. If you find out, and you are the head man,
    that people are snooping into taxpayer's files and
    disseminating this information--I am talking about the average
    American taxpayer--are you going to fire those people, are you
    going to pension them off, or what are you going to do?
    Reassign them? I think that is important.
        Mr. Rossotti. We have got the authority----
        Senator Shelby. No, sir; what are you going to do? You are
    going to set the tone.
        Senator Campbell. If the Senator would yield, he did
    testify earlier that they had fired, what was it, 140?
        Mr. Rossotti. 153 in fiscal year 1997.
        Senator Campbell. 153 you have fired.
        Senator Shelby. That is good.
        Mr. Rossotti. I mean, it does not happen in all cases
    because there are some cases where there are mitigating
    circumstances. Even in private business, I did not just fire
    everybody the first time that somebody did something wrong. So
    you do want to have due process for people, and it is a little
    longer I have found in the Federal Government.
        Senator Shelby. Too long, is it not?
        Mr. Rossotti. Well, it is longer, but I think if you pursue
    it you can still make it happen.
        Senator Shelby. Do you believe that the American taxpayers
    who file their taxes should have the benefit of confidentiality
    with the Internal Revenue Service?
        Mr. Rossotti. Oh, most definitely.
        Senator Shelby. And should that be one of the highest
    orders at the agency?
        Mr. Rossotti. Yes, sir; absolutely. And I think that, in
    this area, most of this was done, I have to say, before I got
    here. There is a very aggressive program to do this, and we
    have better technology to detect when people are doing it, and
    the number of incidents has dropped dramatically.
        It is still too high. We still need to go down to zero, or
    as close to zero, but I think there are some real programs in
    place to make this happen.
        Senator Shelby. Mr. Chairman, I have one last question, if
    you will permit me.

                                Taxpayer Service

        Taxpayer service is very important, and you probably went
    into it earlier and I did not get here at the beginning.
    Taxpayer service, when someone contacts the IRS should they not
    be able to rely upon the advice they get from the IRS? Or if
    they cannot, why give the advice at all? Because a lot of
    people in America are frustrated with the advice they have
    gotten from the IRS, to rely on what they get.
        Would it not be better not to give advice than to give
    erroneous advice that frustrates the process, frustrates the
    people, and destroys the respect they have for your agency?
        Mr. Rossotti. Yes; that is right. It would be better to not
    give advice than give erroneous advice. And this area of
    customer service has been really acknowledged to be quite
    deficient.
        There are significant improvements in this filing season,
    at least in the quantity certainly, of being able to get
    through, and the measurements of quality. I do not think we are
    still at an acceptable level of quality, but we are measuring
    it. We are measuring it better.
        All I can say is we are not going to be satisfied until we
    get--we will never get to 100 percent, I do not believe, but we
    can certainly improve significantly.
        Senator Shelby. Thank you. Thank you, Mr. Chairman.

                           Information Accuracy Rate

        Senator Campbell. If I might add something to Senator
    Shelby's comments and questions, it is my understanding that
    the IRS initiated a toll-free number in order for taxpayers to
    get information on how to comply with a particular tax law and
    how to fill out certain tax forms. In 1997, according to the
    IRS statistics, the accuracy rate for the taxpayer inquiries
    were 96.1 percent, which is great except for the 3.9 percent
    that did not. And they relied on information provided by the
    IRS but then learned later that it was wrong information. When
    the IRS demanded additional taxes and fines, of course it
    created some real problems.
        My question, in addition to Senator Shelby's question, is
    how are they going to be able to rely on information? You may
    never get to 100 percent, but is there an appeals process they
    have to go through when they have gotten bad information?
        Mr. Rossotti. I think that there is a number of solutions
    here. Probably the most important solution is 96 percent is
    certainly better than it was, but that is still 3.5 percent and
    that is not good enough.
        I think in many businesses, one of the things that you have
    found is that you set a goal, you get to a certain point, and
    you find OK, now we can take that 3.5 percent, and if we cut it
    in half that is 1.7 percent, that will be a big improvement.
    That is one of the most important things, to just give the best
    advice in the first place.
        I think one of the things that we have in this 1999 budget
    is some additional money. It is in customer service, but it is
    really for training the employees. One of the reasons, of
    course, that you do not give the right advice is you do not
    train the employees with the right information. In 1999 that is
    going to be particularly important because we have all these
    tax law changes.
        I can tell you the employees are very frustrated when they
    do not have the right training and then they get into a phone
    call with a client, with a taxpayer. I am still calling them
    clients because that was what I used to call them on my
    previous job.
        Senator Campbell. There is a lot of money in the training.
    You also have a request to provide better telephone service for
    over $50 million. I will tell you, I do not know of anything
    more frustrating than calling a Federal agency now and you
    cannot find a live, warm body. What you get is a recording,
    press one for so and so, press two for so and so, you know the
    routine.
        If we are going to add $50 million to this, can we
    anticipate some kind of improvements where people can talk to
    human beings?
        Mr. Rossotti. The point is to be able to have more people
    on the phones, No. 1; and to schedule them when people call.
    One of the biggest things about calling is just simply
    scheduling. In other words, for the average person, there is a
    pattern of calling. People call in the evenings, for example,
    when they are free. They do not necessarily call at 10 o'clock
    in the morning when they are working, so we are extending the
    hours of service.
        Senator Campbell. And Saturdays, as I understand.
        Mr. Rossotti. And Saturdays, we are open Saturdays. Those
    are the kind of things that we need to do.
        We also need better technology to put the calls across the
    Nation in the right place where the people are. So those are
    some of the things that we are trying to do, and we will be
    working on. I think in 1999 we can make some significant
    progress.
        Senator Campbell. Let me go on to a couple of other short
    ones, before I yield to Senator Kohl.

                          Tax Law Enforcement Section

        In fiscal year 1998 there were more employees in the tax
    law enforcement part of the IRS than there are in processing
    and assistance. Given the fact that over 80 percent of the
    taxpayers are voluntarily paying and have no problems at all,
    why do we need so much of the budget in the enforcement
    section?
        Mr. Rossotti. There are a significant number of people in
    the compliance functions. That is correct, Senator. I think
    that the biggest single category of people in that category are
    simply the people doing examinations. A lot of those people are
    doing examinations of corporations as well as individuals.
    There are a lot of corporations that pay a lot of taxes in this
    country.
        The actual examination rate for individual taxpayers is a
    little over 1 percent, and it is really in the nature of a spot
    check, as I would see it, to make sure that the people who are
    fairly paying are not victimized by the small percentage of
    people who do not pay. And it does take quite a few people even
    to do 1 percent examinations of those returns.
        But let me just say that, longer term as we go forward
    here, what we can do is handle more returns but we can maintain
    the level of compliance without adding to the number of people.
    I think, in other words, we can shrink the number of people in
    the IRS in all the functions as a fraction of the economy.
        We cannot do that overnight, because it takes
    reorganization and it takes technology, but I do think over
    time it can shrink.

                       Management of Purchasing Processes

        Senator Campbell. Last question before I yield, we are
    being asked to put an awful lot of money into purchasing new
    high technology equipment. I was interested in how you purchase
    things.
        No. 1, since you have offices all over the country, is
    there going to be some kind of management control so that field
    offices are not purchasing something that simply cannot be
    hooked up or utilized? What is the process by which you intend
    to do some of the purchasing?
        Mr. Rossotti. Yes, sir, Senator. That is one of the big
    changes over what was done in the past. We are centralizing not
    just the purchasing--that is just one part of it--but the
    entire management process for all the information technology in
    the central group here that would be headed by the chief
    information officer.
        That is partially done today and we are moving more in
    fiscal year 1999. As part of the year 2000 we are centralizing
    more. But I think within a few years we will have it almost
    completely centralized in terms of its management.
        The other big change is that most of the development of the
    new systems, including new equipment, will be managed through
    one major prime contract where the single contractor will be
    the integrator and will make sure all this fits together, which
    is the way it is done, for the most part, in the private
    sector.
        Senator Campbell. Senator Kohl.

                               Electronic Filing

        Senator Kohl. Thank you, Senator Campbell. I will just ask
    one question, Mr. Rossotti.
        Would you talk about electronic filing for a bit? What the
    percentage of taxpayers are who file electronically now and how
    you intend to progress on this, what your timetable is, and
    what the American taxpayer can look forward to by way of
    electronic filing?
        Mr. Rossotti. Yes; well, this year we have some pretty good
    news in the early filing season. I think we are up, John what
    is it, about 20----
        Mr. Dalrymple. We are over 24 percent above where we were
    last year across the board.
        Senator Kohl. How many Americans file electronically now?
        Mr. Dalrymple. So far this year, we have had approximately
    17 million people file electronically this year. In all of the
    last filing season we did about 19 million, just a fraction
    over 19 million. So we are running substantially ahead of where
    we were last year, to the tune of about 20 to 24 percent ahead
    of last year.
        Mr. Rossotti. It is still though, to get to your question,
    there are still many more that are filing by paper. I think it
    is about 80 percent or so paper, still. We will have to see how
    it comes out by the end of the year.
        But of course, if we continue to grow, what is happening is
    that the number of returns on paper is gradually going down and
    the number of electronic returns is going up very rapidly. So
    if you extrapolate over the next 4 or 5 years, we will cross
    these lines.
        However, it is not going to happen just by our standing by
    and watching it. There are some very aggressive things that we
    have to do. We really do not have as good of an electronic
    filing program as we need to have. There is still too much
    paper involved even in some of the electronic filing. Even
    though you file electronically there is still, in some cases,
    some paper you have to send in which really does not make a lot
    of sense. That is because of some of the problems with having
    signatures that are authorized.
        We are working very aggressively right now to come up with
    an improved electronic filing system for next year, for fiscal
    year 1999, that would eliminate some of these problems and
    accelerate the trend toward electronic filing.
        Senator Kohl. As we look out the next 3, 4, 5, 6, 7, 10
    years, what is your estimate of what the percentage of
    Americans filing electronically will do?
        Mr. Rossotti. Well, I do not know what the exact percentage
    is, but I think if you just extrapolate the trends that we are
    on and we do some other things, it will not be too long before
    it will be certainly the majority. And ultimately you will
    never get to 100 percent--well, I will not say never, but it
    may take quite a while before you get to 100 percent.
        But certainly the predominant form of filing in the future,
    and it will not be too far into the future, will be electronic.
        Senator Kohl. Thank you, Mr. Chairman.

                                   Year 2000

        Senator Campbell. The year 2000, and I keep hearing that,
    that year is the time when all of the computers, what, do they
    go crazy or something?
        Mr. Rossotti. Yes.
        Senator Campbell. As I understand it, they will not be able
    to recognize between a six-digit bar code and an eight, or
    something. I know that the IRS has worked very hard on that, to
    try to get ahead of the curve, but could you give me just a
    little nontechnical overview about how you are moving forward
    to prevent this doomsday effect that we keep hearing about?
        Mr. Rossotti. Yes; I will. In simple terms, there are two
    things that you have to do. In some of the computer programs
    you have to do what is called renovate them, which is just make
    some changes to them so they can accommodate the century date.
        And the other thing you have to do on some of the products
    that you have bought from the outside, is to get new versions
    of them, new pieces of hardware and software. These are the two
    basic things you have to do.
        The final thing you have to do, after you do that, is test
    it all to make sure it works.
        Basically in terms of the first two, the renovation and
    replacement, our plan is to have most of that done, almost all
    of it done, at the end of this calendar year, 1998, before we
    start next year's filing season. There may be some that would
    hang over, but for the vast majority of it we would have it
    done. And we have an enormous amount of management time going
    in to making that happen.
        What would happen during next year, calendar 1999, is the
    final testing of all this to make sure it works. It is a very
    big program. The whole thing all together, over 3 years, is
    more than a $900 million program, which is really enormous in
    terms of management in any business.
        But fortunately, mostly due to work that Mr. Gross did
    before I ever got here, it is a well-organized program. That is
    not to say there are not risks associated with it, but I think
    we understand where those risks are.
        Senator Campbell. Well, I do not know, frankly, what it is
    going to mean to the average mom and pop out on the farms
    paying their taxes if something does not work, but hopefully it
    will be ironed out by then.

                              Misprinted Bar Codes

        It was recently discovered that an IRS contractor
    misprinted the bar codes on about 1 million address labels. As
    I understand that, unless that is fixed, the completed tax
    returns will actually go back to the taxpayer rather than the
    IRS. They will get their own mail back.
        I would really like to know what steps you are taking to
    try to correct that? Is there something going to be done before
    April 15, so these people will not be in jeopardy of missing
    the deadline?
        Mr. Dalrymple. Yes; in fact, we have already begun mailing
    letters out to the taxpayers, informing them of that, with
    additional bar coded envelopes so that they can mail their
    returns properly. We have identified exactly who they are. The
    vendor who was responsible for that took responsibility for
    mailing out these corrected ones.
        Senator Campbell. When something like that happens, what
    actions do you take against the vendor? Do you just not deal
    with them anymore? Is there some kind of a bonding system or a
    penalty or how do you deal with it?
        Mr. Dalrymple. Each year, of course, when we contract with
    vendors we look at their past performance. We deal with a
    number of vendors in terms of mailing out forms and
    publications.
        Part of the penalty phase would be looking at whether we
    are going to use this particular vendor again. We traditionally
    have one or two problems during the filing season because of
    the volumes involved. The vendors are supposed to have very
    careful quality controls in place.
        In this particular situation it was unacceptable to us
    because from what we thought would have happened with that
    vendor, they would have caught this much earlier because their
    quality control would have been much sooner than having as many
    of these documents go out as did.
        Senator Campbell. Are the vendors responsible for the
    additional cost of correcting the mistake?
        Mr. Dalrymple. Yes; they are.
        Senator Campbell. OK. Do you have any additional comments?

                                  EITC Program

        Mr. Dalrymple. Can I just clarify one thing for the record?
        Senator Campbell. Sure.
        Mr. Dalrymple. When Senator Shelby was asking earlier about
    the EITC taxes, I think it is important to get on the record
    that those also were intended to refund the payroll taxes in
    addition to the income taxes, and I do not think I made that
    perfectly clear in an earlier statement.
        Senator Campbell. He might not hear the tape. You might
    wish to drop him a line and correct that so he will be aware of
    that.
        Mr. Dalrymple. I will. I absolutely will.

                               Prepared Statement

        Senator Campbell. Before we adjourn, with unanimous consent
    to be included for the record a statement by Senator Coverdell,
    who wanted to be here with us, but could not today.
        [The statement follows:]
                    Prepared Statement of Senator Coverdell
        Chairman Campbell, members of the Subcommittee, and guests, I
    appreciate this opportunity to submit testimony as you consider fiscal
    year 1999 funding for the Internal Revenue Service (IRS) in the
    Treasury/Postal Appropriations legislation. Although I would very much
    like to have delivered these remarks in person, I am prevented by an
    unavoidable scheduling conflict.
        As you may be aware, I released earlier this week a General
    Accounting Office (GAO) report regarding the use of random audits by
    the IRS. The finding that the IRS has targeted low-income taxpayers was
    shocking, but not unexpected. In my travels throughout Georgia,
    invariably I have been approached by individuals who found themselves
    within the sights of the IRS, and they were scared to death.
        More and more, I saw a pattern. The Georgians who approached me
    were not wealthy nor were they CEO's of big corporations. They were
    ordinary, law abiding taxpayers who earn a wage or run a small business
    or operate a family farm. Some were struggling just to make ends meet.
    Many were frankly confused as to what they had done WRONG to deserve
    the attention of the IRS. Thanks to the GAO report on IRS random
    Audits, now we know that many of them had done NOTHING to warrant such
    attention.
        Low income taxpayers are defenseless when confronted by the IRS,
    and I suspected that is exactly why they had been targeted. It is
    troubling to know that my suspicions have been confirmed. Now is the
    time to do something about it. It is important to mention again that
    these are audits of taxpayers whose returns indicated NO WRONG DOING.
    Of all the random audits of returns filed by individual taxpayers in
    this Nation from 1994 to 1996, over 90 percent were conducted on
    taxpayers earning LESS than $25,000. This is unconscionable.
        The incredible Finance hearings last Fall brought to the Nation's
    attention the abuses the IRS has inflicted upon taxpayers. I want to
    quote from one witness, Jennifer Long, who is a field agent with the
    IRS. She said, ``As of late, we seem to be auditing only the poor
    people. The current IRS Management does not believe anyone in this
    country can possibly live on less than $20,000 per year, insisting
    anyone below that level must be cheating by understating their true
    income.''
        Moreover, at a recent field hearing of the Senate Committee on
    Small Business, the Director of the Georgia State University Tax Clinic
    testified that when confronted by the IRS, low-income taxpayers end up
    paying more tax than they actually owe. I believe the IRS knows this.
        When its campaign of random audits against the poor was uncovered,
    the IRS made the outrageous claim that it is only responding to a
    congressional mandate to root out fraud in the Earned Income Tax Credit
    (EITC) program. This is just one more instance of the lengths the IRS
    will take to misdirect congressional and public scrutiny from its
    shameful activity. In fact, Congress has passed no mandate, no edict,
    instructing the IRS to target poor taxpayers with random audits.
        After uncovering these very troubling facts, the question remains,
    what should be done to put a stop to this practice? First, I believe we
    must prohibit the practice of random audits. We must remove this brutal
    tool from the hands of the IRS and put a stop to this indiscriminate
    targeting. In addition to legislation I will be introducing soon to
    prohibit random audits, I believe it is critical that restrictions be
    placed upon the appropriations Congress allocates to the IRS.
    Specifically, I refer to the $716 million in funding through 2002
    authorized in the Balanced Budget Act of 1997 to support the EIC
    Compliance Initiative of the IRS.
        Congress provided $138 million in fiscal year 1998 to the IRS and
    trusted it to use that money appropriately. Since that time, we have
    learned of the IRS' outrageous use of random audits as a tool of its
    EIC Compliance Initiative and of its attempt to misdirect the
    responsibility for that action. Clearly, the IRS cannot be given free
    reign in this matter without inviting abuse of low income taxpayers.
        The Subcommittee and Congress has before it the opportunity to
    protect these low income taxpayers who are otherwise defenseless when
    confronted by the IRS. As you consider funding for the IRS' EIC
    Compliance Initiative in fiscal year 1999, authorized at $143 million,
    I urge you to prohibit these funds from supporting the practice of
    random audits.
        Once again, thank you for allowing me to testify today and to
    express my deep concerns.

                              Submitted Questions

        Senator Campbell. I appreciate you being here and I have
    several other questions that I am going to submit. If you would
    answer those in writing, I would certainly appreciate it.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]
                    Questions Submitted by Senator Campbell
        Question. Mr. Rossotti, the Senate Majority Leader has announced
    that he expects to have an IRS reform bill before the Senate this
    month. I am sure you have been in almost constant contact with Senator
    Roth, Chairman of the Senate Finance committee, to discuss this issue.
    Based upon the bill you expect to see emerge from the Finance
    Committee, do you believe that your operating expenses will decrease or
    increase.
        Answer. The IRS reform bill is very consistent with the direction
    of organizational modernization that we have proposed and in fact
    directs some organizational and procedural changes. Some of the
    taxpayer bill of rights provisions will require significant changes to
    computer systems. The Senate Finance Committee is working with us to
    develop effective dates for these provisions that are feasible in light
    of Century Date Change and other tax law requirements. Assuming that
    mutually acceptable dates can be worked out, we should be able to make
    the changes envisaged by the restructuring bill within the limits of
    the fiscal year 1999 budget as now submitted. The restructuring bill
    does, however, make it even more essential that the amounts requested
    for technology and customer service improvements, as well as the $25
    million requested for organizational modernization, be approved.
        Question. What efforts have been made to include taxpayers in these
    reform discussions?
        Answer. The IRS' Office of Public Liaison and Small Business
    Affairs maintains a very active liaison relationship with the
    practitioner and small business communities, the Tax Executives
    Institute, Inc., Federation of Tax Administrators, American Association
    of Retired Persons, the payroll community, and the Commissioner's
    Advisory Group (CAG). This program enables IRS to maintain an
    interactive and frequent communication system to share information
    about the new concept of operations and request stakeholder feedback.
    These organizations represent nationwide practitioners and
    stakeholders. Through their members' daily interaction with taxpayers
    and IRS employees, these organizations are perfectly suited to assist
    us in our assessment of our customers' (the taxpayers) needs and
    concerns.
        The Deputy Commissioner or I have personally briefed these groups
    about my proposal to modernize the IRS.
        The CAG, composed of representatives from major market segments,
    has undertaken an in-depth study of the proposal. Members will convene
    in working sessions to discuss scenarios based on the currently
    proposed organizational structure and the implications this could have
    on taxpayers and practitioners. In addition, the CAG will also work
    with Booz-Allen & Hamilton to provide feedback about the new concept of
    operations. The CAG will present formal recommendations about their
    findings during upcoming public meetings.
        Booz-Allen & Hamilton will also meet with the various practitioner,
    small business, and stakeholder groups to discuss their constituencies'
    key issues and concerns.
        Question. The fiscal year 1999 budget requests a total of $25
    million from three accounts for organizational modernization. However,
    the budget justification provides no details about this proposed
    reorganization or modernization, other than a breakout of the requested
    funding by object class. Your testimony before this Committee included
    information about a reform plan you are investigating. However, I am
    told that this is still in the development stage. Exactly what
    organizational modernization is envisioned which will cost $25 million?
    If it is your own reform plan, which divides the organization along
    business lines, how were you able to determine the cost of a plan which
    has not yet been finalized?
        Answer. The $25 million requested for organizational modernization
    will support my proposal to move the IRS to a more customer-focused
    organization. These funds will be used to begin implementation of the
    organizational changes described in the modernization concept,
    including training, relocating, or retiring portions of our work force,
    as well as using the services of professional consulting firms who
    specialize in reorganizing organizations. This cost is a rough estimate
    of the funds needed in the short term to begin the modernization
    efforts; the consultants conducting the validation study will also
    provide a more accurate estimate of the total cost of implementation.
    We will provide more detail to the Committee staff.
        Question. Does each account and program activity for the Internal
    Revenue Service have performance measures associated with it?
        Answer. In our budget submission, there are performance measures
    associated with every account and program activity. IRS has three
    levels of key measures to focus the energies of the organization on
    attaining the mission: the mission-level indicator, the objective-level
    measures, and the budget-level measures. The measures appear in the
    fiscal year 1998 President's Budget, dated February 2, 1998. These
    measures are all being reviewed in light of our goal of transforming
    the IRS from an internally focused organization to one which views
    itself from the taxpayer perspective and in light of the elimination of
    use of all enforcement statistics for measuring organizational
    performance. We have a task force working on this problem and plan to
    get the assistance of expert outside consultants. We expect to have
    interim results to use for measuring performance during fiscal year
    1999. These measures will build on some of the measures included in the
    budget submission.
        Question. Does your plan include performance measures for which
    reliable data are not likely to be available until March 2000?
        Answer. The reality is that the IRS at this moment has very few
    performance measures that are meaningful, reliable, and appropriate.
    There are very few measures of customer satisfaction and the business
    measures traditionally used have largely been eliminated. It will be a
    major job to develop new ones and at best in fiscal year 1999 we will
    have an interim set of measures.
        In addition, the IRS today has no reliable measures of overall
    compliance . The figures generally cited are extrapolations of 10-year-
    old data. Furthermore, we have at present no proposal or plan to solve
    this problem. It is essential that this problem be solved, but we do
    not have an acceptable solution.
        Question. Do you have the technological capability of measuring and
    reporting program performance throughout the year on a regular basis,
    so that the agency can be properly managed to achieve the desired
    results?
        Answer. Yes, the Service has a longstanding tradition of measuring
    and reporting program performance in order to achieve its desired
    results. Our cyclical Strategic Management Process establishes long-
    range goals which drive the creation of near-term goals with their
    associated measures and targets. The near-term measures and targets are
    reflected in the Annual Performance Plan and used throughout the year
    to track and report on program performance. The last step in the cycle
    is a summary assessment of accomplishments known as Business Review,
    the results of which are used to update the long-range goals. The
    Service uses the Executive Management and Support System (EMSS), an
    automated management information system, to facilitate the monitoring
    of program performance.
        However, these measures are all being reviewed in light of our goal
    of transforming IRS from an internally focused organization to one that
    views itself from the taxpayer perspective and in light of the
    elimination of the use of all enforcement statistics for measuring
    organizational performance. We have a task force working on this
    problem and we expect to engage expert outside consultants to assist in
    this task. We expect to have interim results to use for measuring
    performance during fiscal year 1999. These measures will build on some
    of the measures included in the budget.
        Question. Throughout the development of the fiscal year 1999
    performance plan, what overlapping functions or program duplications
    were identified?
        Answer. Any changes to the mission or function of our current
    organization at the division level (``Division'' applies to all
    organizations two levels below the Commissioner, regardless of official
    title) and above are subject to the approval of the senior executives
    and a multi-functional review. At times, lower level changes affect
    division level mission or function; when they do, these procedures
    apply to them as well. This safeguards against programmatic overlaps or
    duplications, while facilitating the creation of cross-functional
    programs such as Electronic Tax Administration (ETA). ETA's purpose, to
    ``revolutionize how taxpayers transact and communicate with the IRS,''
    requires that they draw from multiple IRS organizations such as Tax
    Forms and Submission Processing, Information Systems Modernization, the
    Office of Public Liaison, and others.
        Question. Did those duplicative programs receive funding in the
    fiscal year 1999 budget?
        Answer. In the framework of the current organizational structure,
    there is a specific reason for each organizational unit and program.
    However, in the course of reviewing the entire structure of the
    organization as part of our organizational modernization study, we will
    be looking carefully at how we can streamline the structure. In fact,
    this is the only way that the IRS will be able to meet the increased
    demands of service to taxpayers and the increased workload from a
    growing economy without adding to overall staffing levels.
        Question. What do you believe will be the most difficult
    performance goal for the IRS to reach in fiscal year 1999?
        Answer. Two of the most important customer service measures for IRS
    to achieve in fiscal year 1999 are Toll Free Level of Access and Tax
    Law Accuracy Rate for Taxpayers. For Toll Free Level of Access, we plan
    to increase the level of access from 70 percent in fiscal year 1998 to
    86 percent in fiscal year 1999. This is a substantial increase given
    that we had previously planned an fiscal year 2002 goal of 80 percent
    for this measure. Equally important is maintaining a high level of
    accuracy for the responses provided to taxpayers and that target for
    fiscal year 1999 will be 96 percent.
        Question. Have you redirected resources to that particular goal?
        Answer. Yes, the IRS requested budget increases of $103 million to
    be directed to all of the customer service goals, especially the two
    critical goals: Toll Free Level of Access, and Tax Law Accuracy Rate
    for Taxpayers.
                                customer service
        Question. There are provisions within your fiscal year 1999 budget
    which focus on enhancing customer service. Overall, this increase is
    only 1 percent compared to your fiscal year 1998 budget and I believe
    that we would all place a greater emphasis on the need for the
    improvement of customer service within the IRS. I know that you only
    came to the IRS late in this budget cycle so I would only ask what you
    believe is a reasonable percentage the IRS should be spending on
    customer service?
        Answer. While the increase as a percentage of our total budget may
    be small, in terms of the budgets for each of the individual service
    oriented activities of toll free telephones, walk-in service and
    taxpayer education, the increases are larger. The toll free increase in
    fiscal year 1999 is actually 13 percent over fiscal year 1998 and the
    walk-in increase is 5 percent. Taxpayer Education was increased by 20
    percent in fiscal year 1998. So, there is significant emphasis on those
    program areas that we feel is appropriate at the present time and is
    consistent with our ability to measure short term change.
        However, there remains a great deal of improvement required before
    the IRS reaches an acceptable level of service to each taxpayer who
    needs it. As noted in the answer to the above question, we will need to
    modernize both the organization and the technology in order to free up
    the resources and to have the management structure needed to meet this
    service deficit and meet increased workload without significantly
    increasing overall staffing levels.
                                telephone access
        Question. Mr. Rossotti, one initiative in your fiscal year 1999
    budget request is to provide better telephone service for $50.3
    million. Today, what is the percentage of calls that the IRS is
    actually answering and I'm not talking about people actually getting
    into the queue, but the percentage of calls that actually get answered
    by a real person at the IRS?
        Answer. As of 3/14/98, 75 percent of the calls attempted to the
    various IRS toll-free telephone lines this filing season were answered
    by an assistor. This represents an improvement over the 56 percent of
    all calls that reached an assistor during the same period last year.

                                         FILING SEASON SERVICE LEVEL COMPUTATION
                                                 [As of March 14, 1998]
    ----------------------------------------------------------------------------------------------------------------
                                                                                                            Service
                              Filing season                              Calls to IRS     Calls answered     level
                                                                          (attempts)                       (percent)
    ----------------------------------------------------------------------------------------------------------------
    1998.............................................................        32,160,816        24,187,669         75
    1997.............................................................        41,697,669        23,210,084         56
    ----------------------------------------------------------------------------------------------------------------

        Question. What percentage of improvement does the IRS anticipate as
    a result of this additional $50.3 million?
        Answer. We anticipate significant improvement with the roll out of
    the intelligent call router, expanded hours and better scheduling and
    forecasting of the workload.
        Question. What would it take to have the IRS answering close to 100
    percent of the calls that come in?
        Answer. One challenge for the IRS in providing service to 100
    percent of its customers is that the telephone calls are not equally
    balanced over the course of the year. In fact, the greatest number of
    calls are received over a five month window of time beginning in early
    February and ending in late June. Consequently, additional staff and
    equipment resources need to be allocated accordingly. The establishment
    of the Customer Service organization is a step in that direction. By
    making use of a diverse work force that has the appropriate training
    and skills to shift from one type of work (i.e., responding to
    correspondence or working the Automated Collection System inventory to
    front line telephone service) to another where a peak demand is
    occurring has resulted in the higher level of service that has been
    provided in 1998. We must continue to refine our ability to do this as
    well as improving our systems to route calls without human
    intervention. It is possible eventually to reach a 90-95 percent
    level--which is a private sector standard, but this will take several
    years.
        Question. How long is the average wait-time a taxpayer is on hold
    before getting someone to talk to?
        Answer. Wait-time is calculated at the local site level based on
    individual application (type of question). Local management uses wait-
    time as a tool to determine where to place staff and when to have
    traffic transferred to another site. Some of the nearly 500
    applications are very heavily used and some are rarely used. The sites
    provide staff to the applications based on historical data and move
    staff when it appears necessary. However, in 1999, with the full roll-
    out of the call router, telephone traffic becomes a corporate asset and
    wait-times will be available on a national level.
        Question. How will this improve with the additional $50 million?
        Answer. With the roll out of the intelligent call router and the
    implementation of better scheduling and forecasting techniques, wait-
    time will decrease. Calls will be directed to a location where the
    caller will have the best chance for the least amount of wait-time
    where staff has been scheduled for phone work based on improved
    forecasting techniques.
                                taxpayer access
        Question. Mr. Rossotti, another initiative in this year's request
    is to make it easier for taxpayers to get answers in person. IRS is
    requesting an additional $5.6 million to extend the hours of district
    offices and having them open on Saturdays. With this $5.6 million, how
    many of the district offices will be open longer?
        Answer. $2.5 million of the $5.6 million will be used to expand our
    Saturday Service. Currently, selected walk-in offices are open for six
    Saturdays starting March 7, 1998, and ending April 11, 1998. In fiscal
    year 1999, Saturday service will start on January 23, 1999 and continue
    through April 10, 1999 for a total of 12 Saturdays. We expect to have
    over 150 offices open on any given Saturday. The remaining $3.1 million
    will be used to conduct Problem Solving days. Each district office will
    conduct a minimum of one Problem Solving day per month.
        Question. How long before we can see this change?
        Answer. Problem Solving days will start in October and expanded
    Saturday Service will start in January.
        Question. How do you intend to accommodate those taxpayers which do
    not live near a district office?
        Answer. The toll-free telephone line is one of the best ways of
    receiving IRS service. Information is available on our systems about
    the various services we provide and the telephone number for the
    services. IRS has commissioned a task force to perform an analysis of
    the service IRS does provide to taxpayers to determine what gaps in
    service exist. The task force will develop recommendations on effective
    methods for filling those gaps.
                                 small business
        Question. Mr. Rossotti, an additional initiative is focused on
    strengthening support for small business, for $1.1 million. It is my
    understanding that small businesses are the taxpayers which have the
    most difficulty complying with the tax law. What else are you proposing
    to improve service to small business?
        Answer.
      --Develop easy to read and understand forms, publications and
            notices.
      --Reduce the burden for reporting, filing and recordkeeping.
      --Provide more easily accessible, correct service the first time.
      --Apply fair treatment consistent with the law.
      --Expand the roles of our Compliance employees to include education
            of start-up and existing small businesses, particularly when a
            deposit or a penalty for failure to file is assessed.
      --Establish a small business tax assistance hotline.
      --Mail the taxpayer a Your Business Tax Kit, a Tax Tips Calendar and
            other pertinent information when they apply for an EIN.
      --Expand marketing to small business outlets to make them aware of
            IRS products and services.
      --Continue partnership with SBA to have IRS products available at
            their various locations, i.e., Business Information Centers,
            Small Business Development Centers, Women's Entrepreneurial
            Networks.
      --Ensure that Districts are more uniform in the outreach efforts with
            the small business community.
      --Apply ``softer'' penalties for first time offenders in major
            programs, i.e., EFTPS.
      --Partner with other federal, state and local agencies to inform and
            educate, i.e., licensing offices.
      --Develop avenues for open communications with the small business
            community, i.e., e-mail, specific mailing address, VMS mailbox.
      --Develop multi-agency small business CD-ROM.
      --Develop small business kits and publications in Spanish and other
            languages.
      --Focus more outreach efforts to Hispanic and other ethnic outlets.
      --Continue expansion of small business information provided on the
            IRS Homepage using plain language to explain regulations,
            procedures and tax information.
        Question. Although I know you do not track your budget this way
    currently, how much would you estimate of IRS' budget is in some way
    supporting the small business community beyond the $1.1 million
    requested in this year's budget?
        Answer. We do not separately track time spent supporting the small
    business community within our financial systems. However, significant
    portions of our various Servicewide customer service programs support
    small business. These programs include the Problem Resolution Program
    (PRP), Customer Service, and Taxpayer Education.
        Question. As a person who has just come from the private sector,
    what do you think it would take to address their needs?
        Answer. The new IRS focus on helping people comply with tax laws
    while ensuring fairness and uniformity of compliance will address all
    taxpayers' needs including those of the small business community. The
    IRS must become fundamentally committed to customer service. We must
    shift our focus, as many large companies have already done, from
    expecting our customers, the taxpayers, to understand and navigate the
    IRS according to our internal operations, to thinking about everything
    from the taxpayer's point of view. Revamped IRS business practices will
    focus on understanding, solving, and preventing taxpayer problems. Our
    work will be designed and organized around major taxpayer groups with
    similar needs and compliance requirements. The majority of taxpayers
    fall into one of four customer groups: individual taxpayers with wage
    and investment income; small business and self-employed taxpayers;
    large business taxpayers; and, employee plans, exempt organizations,
    and state and local governments. By dedicating a fully responsible unit
    to providing all IRS services for the self-employed and small business
    communities, we will be able to work closely with industry
    associations, small business groups, and preparers to solve problems
    for everyone's benefit. This is the long term solution to provide
    adequate service to small businesses.
                             irs employee training
        Question. Mr. Rossotti, we have all heard about the horror stories
    highlighted in the Senate Finance Committee's hearing. Within your
    fiscal year 1999 budget, there is $22.5 million requested to improve
    customer service training. What is the total amount that the IRS spends
    each year on customer service training for its employees?
        Answer. In fiscal year 1997, we spent $49 million in training. In
    fiscal year 1998, the amount is planned at $43.5 million.
        Question. Who does that training?
        Answer. Recognizing that we need to improve the development and
    delivery of training, IRS has begun to use outside contractors,
    affiliated with colleges and universities, to provide skills
    development to Customer Service employees. These courses include
    communications, listening, decision making, analysis, and `customer
    service' skills. This training is being provided to employees while
    concurrent managerial classes are provided on coaching and skills
    reinforcement techniques to support the training objectives. However,
    generally, instructors are IRS employees and managers who have
    successfully completed Basic Instructor Training and possess the skills
    and technical knowledge necessary for a Customer Service
    Representative.
        Question. Do you intend to do a review of how the IRS currently
    trains its employees with regard to how it treats the taxpayer?
        Answer. A memorandum dated January 2, 1998, requests that each
    regional office provide a monthly report on the training curriculum
    that was delivered, period delivered in, area trained, number of
    employees trained and hours expended to train. A critical part of our
    training program is the emphasis that is placed on providing
    professional, accurate, and fair treatment to every taxpayer.
        I intend to charge our soon-to-be-selected executive for IRS
    Training with the responsibility to conduct a thorough review on the
    training development and delivery systems within the IRS. How IRS
    treats taxpayers will be one element of this review, which will also
    include the required leadership, expertise, funding, and technology
    necessary to ensure an effective training program within the IRS. With
    regard to specific training to improve treatment of taxpayers, IRS is
    developing and will deliver the following two courses for frontline
    employees:
      --Interviewing Techniques for Revenue Officers; and
      --Establishing and Maintaining Quality Public Service in the IRS.
        Question. Do you believe that with the additional $22.5 million
    plus the total funds the IRS is spending on training IRS employees for
    customer service that we can turn around the customer service the IRS
    delivers?
        Answer. We believe we can make a significant improvement that will
    have a direct effect on the ability of our employees to assist
    taxpayers accurately. However, the 1999 filing season will be a much
    more difficult filing season than in recent years because of the many
    complex changes to the tax law that are effective in tax year 1998 and
    because of the massive technology changes required to comply with the
    Century Date Change. Thus, increased training effectiveness will be
    required to prepare our employees to even an adequate level.
    Furthermore, the IRS lacks a fully effective and modern training
    preparation and delivery strategy and organization. Therefore, as with
    many dimensions of the IRS, it will take several years and major
    structural change to reach the desired level of training.
                            taxpayer advocate office
        Question. There is $10 million to strengthen the Taxpayer
    Advocate's Office. How will this help the taxpayer and what will this
    provide them that they do not already have?
        Answer. There are four areas in which increased funding for the
    Taxpayer Advocate will have a direct and beneficial effect on
    taxpayers:
      --A second Problem Resolution Program position is being restored to
            each of the former district offices that were downsized as a
            result of IRS restructuring. Each of these 30 offices has been
            authorized at least two full-time PRP employees, who report to
            the taxpayer advocate in their district headquarters, yet are
            available to handle local taxpayers' needs in person.
      --The local telephone numbers of all of the district taxpayer
            advocates are being published in directories for the first
            time, which will make direct access to PRP far easier for
            taxpayers. Taxpayers will have a distinct listed number for
            PRP, instead of being directed to call the standard toll-free
            ``1040'' number. Additional PRP staff will be required to
            handle the increased phone traffic.
      --A new nationwide toll-free number is being created specifically for
            PRP. Taxpayers will be able to seek resolution of problems,
            without charge, and without first having to call the existing
            Customer Service ``1040'' number. The toll-free PRP calls will
            be routed to centralized locations where trained assistors will
            deal, on-line, with the less complex incoming issues. More
            complicated tax cases will be forwarded to the taxpayer
            advocates in taxpayers' local offices for resolution.
      --Additional staff will be added to the district taxpayer advocates'
            offices, in order to handle the anticipated increase in
            Applications for Taxpayer Assistance Orders (ATAO's). These
            requests (Forms 911) for hardship relief can only be acted upon
            by taxpayer advocates, and it is assumed that applications in
            fiscal year 1999 will increase after the IRS begins including
            the form in all Collection-related notices issued by service
            centers. The result for the taxpayer is that there will be a
            greater opportunity to apply for and, if warranted, receive
            relief from impending compliance actions.
        Question. In your fiscal year 1999 request there is mention to
    increase the Taxpayer Advocate's powers. Can you outline for the
    Committee how you anticipate increasing this office's powers?
        Answer. One specific change is that the Taxpayer Advocate has been
    given authority to issue Taxpayer Advocate Directives, which have the
    effect of mandating administrative or procedural changes, on a
    Servicewide basis, within other IRS functional areas. In this way, the
    Taxpayer Advocate may enforce systemic changes that he/she believes are
    necessary and in the best interest of taxpayers. The Taxpayer
    Advocate's role in IRS will also be expanded through ensuring the full
    exercise of his or her statutory powers, the selection of a Taxpayer
    Advocate from outside the IRS, a reiteration of the independence of all
    the local taxpayer advocates and the endorsement by the Commissioner
    and the Secretary of the Treasury to support in very visible ways their
    desire to buttress this independence and expansion of the use of
    powers. In addition, internal commitments to give the Taxpayer Advocate
    more staff to carry out the mission, establishing a new ``800'' number
    to provide direct access to the program, and undertaking a
    professionally developed major publicity campaign to advertise the
    program will all aid in the accomplishment of the above.
                                 modernization
        Question. Mr. Rossotti, your fiscal year 1999 budget contains a
    request for $323 million which is to be utilized for ``capital asset
    acquisition''. Last year this subcommittee had the same request for an
    advance appropriation by IRS, but part way through the year, IRS then
    changed its mind and decided that it ``may need to spend the funds''.
    Although you were not part of last year's cycle, I did want your
    intentions for this seed money for the record.
        Answer. The funding requested for the Information Technology
    Investment Account for fiscal year 1999 provides the ``seed money'' to
    support Modernization and begin implementation of much needed
    improvements in the area of Customer Service. In fiscal year 1997 and
    fiscal year 1998 careful preparation for this difficult task began with
    the publication of the Modernization Blueprint, the initial stages of
    establishing an internal systems life cycle management process, and the
    publication of a Request for Proposals for the Prime Systems
    Integration Services Contractor. In fiscal year 1999, long term
    modernization will continue with the strengthening of IRS internal
    systems management capabilities and the award of the PRIME contract.
    The initial task of the PRIME contract will be to complete the systems
    management life cycle and to develop the first two subreleases of the
    Modernization Blueprint, which provide telephone and other
    communications capabilities that are basic functions to support all IRS
    operations. All technology projects involve a significant degree of
    risk and changes as they proceed, but good management can manage change
    to produce ever improving results. Finally, I want to assure you that
    no money will be spent on any subreleases beyond these first two
    without my personal review and judgment that adequate business cases
    and control of risk factors exist.
                                taxpayer burden
        Question. In IRS' strategic plan submitted last year, there is
    mention that the IRS plans to ``contain the growth of taxpayer burden
    cost for the IRS to collect $100 at $10.48 compared to $9.38 for fiscal
    year 1996''. If I am reading this right, what this says to me is that
    the IRS is increasing the cost for the taxpayer burden with the $10.48
    target. Can you comment?
        Answer. It is possible to calculate and define taxpayer burden as
    we have in the past, limiting the definition to include paperwork
    burden, consistent with Paperwork Reduction Act requirements. This
    accounts for time taken by taxpayers in the following four activities:
    1) record keeping beyond what they would normally be required to do; 2)
    learning about a tax law or form; 3) preparing the form; and 4)
    copying, assembling, and sending the form to the IRS. One wage rate is
    used for both businesses and individuals when hours are converted into
    taxpayer cost in terms of dollars. For the strategic plan to which you
    refer, we employed an alternate accounting method. This recomputation
    includes not only paperwork burden, but also post-filing contacts
    taxpayers have with IRS including audits, responding to notices, and
    complying with collection activities. We also utilized different wage
    rates for individuals and businesses. Since the strategic plan was
    written, IRS has decided to calculate burden consistent with prior
    years, until more formal estimates can be made. Regardless of which
    accounting method is used, taxpayer burden cost to collect $100 is
    increasing. The anticipated increase is explained in the next question.
        IRS recognizes that the current method of calculating taxpayer
    burden has significant weaknesses. The model covers only the burden of
    IRS tax forms and regulations ignoring post-filing burden, is unable to
    capture changes in burden due to alternative filing methods (e.g., on-
    line filing, tax preparation software, and electronic filing), is based
    on outdated estimates, and does not differentiate wage rates for
    different types of taxpayers.
        Question. Mr. Rossotti, we need to be decreasing the taxpayer's
    burden, not increasing it, and we need to focus on making it easier not
    harder for the taxpayer to voluntarily comply. What will the IRS do to
    decrease the amount of time and effort it takes for the taxpayer to
    voluntarily comply?
        Answer. This year the IRS has taken several steps to make it easier
    for taxpayers to file their tax returns and help them voluntarily
    comply with the tax laws. For example, telephone assistance is now
    available 16 hours a day, 6 days a week for taxpayers to get answers to
    their account and tax law questions. We expanded walk-in service to six
    Saturdays beginning March 7, 1998 through mid April, and taxpayers
    wishing to call our tax form toll-free line for tax forms and
    publications can do so 16 hours a day 6 days a week. Internet services
    on our IRS Homepage also offer access to tax forms, answers to
    frequently asked questions, and taxpayers can E-mail us and receive
    general answers to tax law questions. We have also made it easier for
    taxpayers to file their returns. Results so far this filing season
    indicate that electronic filing increased 24 percent over the same
    period last year, and TeleFile is up 26 percent.
        Future initiatives: This spring, small businesses nationwide will
    be able to file Form 941, Employer's Quarterly Federal Tax Return, over
    the telephone, and we expect over 1.2 million returns to be filed using
    this option. Next year, we will continue to make it easier for
    taxpayers to file their tax returns by expanding telephone assistance
    to 24 hours a day, 7 days a week. We also plan to introduce new payment
    options, allowing taxpayers who file their returns electronically to
    pay their taxes with a direct withdrawal from their bank accounts.
        The President's budget for fiscal year 1998 showed basically static
    funding for IRS through fiscal year 2002. Faced with that scenario, IRS
    said that staffing levels would decline and most programs would suffer,
    with enforcement programs receiving the greatest reductions.
        Question. In your fiscal year 1999 submission, the IRS performance
    target for taxpayer burden is $8.55, up from $8.52 in fiscal year 1997,
    in essence each year the cost to the taxpayer is increasing. Can you
    explain?
        Answer. Taxpayer Burden Cost to Collect $100 is composed of two
    elements: Burden Cost and Revenue. The anticipated increase in Burden
    Cost to Collect $100 from $8.52 in fiscal year 1997 to $8.55 in fiscal
    year 1999 is driven by Burden Cost which we anticipate will increase
    slightly faster than Revenue. Burden Cost is composed of burden hours
    multiplied by wage rate. Burden hours are expected to rise
    approximately 1-2 percent per year as the filing population increases
    and as wage rates are expected to increase 3 percent each year.
    Overall, between fiscal year 1997 and fiscal year 1999, we anticipate
    Burden Cost will increase 10 percent while Revenue estimates provided
    by Treasury's Office of Tax Analysis will increase only 9 percent.
    Higher burden hours also result from more accurate filing figures as
    well as complexities associated with the Small Business Job Protection
    Act, the Taxpayer Relief Act, and additional lines on several tax
    forms. IRS continues to promote burden reduction efforts including
    electronic filing which help contain the rise in Burden Cost to Collect
    $100.
                             submission processing
        The IRS fiscal year 1999 budget request includes $888.4 million and
    15,113 FTE for Submission Processing, a budget activity within the
    Processing, Assistance, and Management appropriation. The following
    questions relate to that budget activity.
                            processing tax payments
        Question. Given the extra cost to the Government, and the lack of
    conclusive evidence on burden, why does IRS continue to have taxpayers
    send their tax returns to the lockbox banks?
        Answer. IRS considers it too burdensome to require taxpayers to
    mail their Form 1040 return separate from their payment and voucher.
    IRS is conducting focus studies to measure individual taxpayers'
    reactions to the different payment mailing concepts. FMS and IRS are
    planning a study to compare lockbox and service center processing. Once
    the data is compiled, a decision will be made on whether or not to
    continue directing Form 1040 returns/payments to the lockbox banks.
        Question. What, if anything, does IRS plan to do to develop more
    conclusive evidence on burden?
        Answer. IRS is conducting focus studies to measure individual
    taxpayers' reactions to the different payment mailing concepts. FMS and
    IRS are planning a study to compare lockbox and service center
    processing. Once the data is compiled, a decision will be made on
    whether or not to continue directing Form 1040 returns/payments to the
    lockbox bank.
        Question. How much did the government pay banks in fiscal year 1997
    to handle individual income tax returns?
        Answer. FMS reports that from October 1996 to June 1997, they paid
    the lockbox banks approximately $8.3 million for individual income tax
    return handling. FMS has not completed the calculation of lockbox costs
    for the entire year. In fiscal year 1996, FMS paid lockbox banks $10.8
    million.
        Question. How much does it expect to pay banks for that service in
    fiscal 1998?
        Answer. Presently the cost is unknown. FMS is currently negotiating
    1998 lockbox costs and since costs are tied to the Consumer Price
    Index, they cannot increase more than 2.2 percent.
        Question. Why are these costs paid by FMS rather than IRS?
        Answer. FMS is the U.S. government's financial manager. It manages
    Federal payments and collections, promote sound financial management
    practices by Federal agencies, oversee the Government's central
    accounting and reporting systems, provide information for investment
    decisions and manage the Government's relationship with commercial and
    Federal Reserve Banks. As a part of its role, FMS designates Financial
    Agents of the government, and monitors the daily deposit flows to the
    U.S. Treasury. The use of lockbox technology for collection of taxes is
    one mechanism managed by FMS for Federal agencies. FMS pays all IRS
    lockbox processing costs except those connected with the processing of
    installment agreement user fees. IRS reimburses FMS for these costs.
        Question. Since the proposed FMS study could have a significant
    impact on IRS operations what does IRS know about the study's status?
        Answer. FMS has advertised in the Commerce Business Daily to offer
    public vendors an opportunity to bid on the float study. FMS hopes to
    award the contract soon. The study will be conducted during the April
    peak to compare the service center and lockbox processing. This study
    should indicate any and all savings that are realized through the use
    of lockboxes.
        Question. Assuming the study is done and shows that it is not cost
    effective to process Form 1040 payments at lockboxes, will IRS return
    this workload to its service centers?
        Answer. If the study shows that is not cost effective to continue
    processing Form 1040 payments at lockbox, IRS will use this and other
    information in determining if the workload should be returned to the
    service centers.
        Question. Is the new remittance processing system being sized to
    handle the additional workload if IRS should decide it is more cost
    effective to process the remittances in-house? If not, why not?
        Answer. We are conducting a pilot of the new remittance processing
    system. The results of this pilot will be used to validate the hardware
    needs at each site. We will also determine what additional equipment,
    if any, will be needed to process the lockbox 1040 returns/payments if
    the work is returned to the centers.
                             processing tax returns
        Question. What does it cost IRS to process an individual income tax
    return filed on paper? Please break out the cost by type of return
    (i.e., 1040, 1040A, 1040EZ, 1040PC) and explain what type of costs are
    included and what are not. What does it cost IRS to process an
    individual income tax return electronically (not including those filed
    by telephone)? Please break out the cost by type of return (i.e., 1040,
    1040A, 1040EZ) and explain what type of costs are included and what are
    not. What does it cost IRS to process an individual income tax return
    filed via telephone (i.e. TeleFile? Please explain what type of costs
    are included and what are not.
        Answer. The IRS recently calculated the fiscal year 1996 fully-
    burdened cost of submission processing in the Service Centers. This
    study is almost completed and will be published shortly. ``Submission
    processing'' is defined as that portion of tax return processing from
    receipt of a tax return at the service center to the point where the
    return data is ready for posting to the IRS computer master file.
    ``Fully-burdened'' means that we have attributed an appropriate portion
    of overhead and support costs to submission processing, using activity
    based costing concepts. The cost information currently available is the
    full amount obligated in fiscal year 1996 that is attributed to each
    type of return, including the full cost of capital investments made in
    1996. Note: While we plan to revise the treatment of capitalized assets
    to amortize them over their useful life, the results of this revised
    approach are not yet available.
              total fiscal year 1996 cost of submission processing
        Based on the results of this study, we determined that the fiscal
    year 1996, fully-burdened cost of submission processing in the Service
    Centers was $827 million. This represents 11 percent of the IRS budget.
    The main cost components of this $827 million are labor, rent, computer
    and headquarters support, and overhead. Note: As a result of these
    costs being fully-burdened, these costs are larger by definition than
    those associated with returns processing in budget submissions. Of the
    $827 million, $72 million was the cost of processing electronic returns
    (e.g., 1040, 1040A, 1040EZ, 1040EZ TeleFile, 941, 5500, 5500-R, 5500-
    C). The remaining $755 million is the cost of processing all other
    returns, whether submitted on paper, tape or by other means.
        The costs below include the following: labor and non-labor (e.g.,
    rent, supplies, etc.) costs within the Service Centers which directly
    or indirectly support the processing of returns from receipt to good
    tape plus the unpostables operation; appropriate Information Systems
    costs; direct headquarters support and oversight; and support services
    host site and headquarters overhead costs (e.g. budgeting, accounting,
    personnel management, training, etc.). Capital investments obligated in
    fiscal year 1996 are included in full. Capital investments obligated
    prior to fiscal year 1996 are not included. Costs incurred upstream of
    the data capture processing (e.g., design, printing and distribution of
    tax forms and instructions) and downstream of data capture processing
    (e.g., archiving and retrieval of tax returns, compliance activities)
    are not included.

          COST OF PROCESSING 941 AND 1040 RETURNS FILED ELECTRONICALLY
    ------------------------------------------------------------------------
                                                                 Fiscal year
                                                   Fiscal year    1996 fully
                    Return type                  1996 volume of    burdened
                                                  returns filed    cost per
                                                                  return \1\
    ------------------------------------------------------------------------
    1040 ELF...................................       6,074,986        $4.69
    1040A ELF..................................       4,560,478         4.69
    1040EZ ELF.................................       1,499,356         4.63
    1040EZ TeleFile............................       2,840,973     \2\ 5.11
    1040EZ TeleFile............................       2,840,973     \3\ 3.58
    941 ELF....................................         272,000         2.61
    ------------------------------------------------------------------------
    \1\ Including full fiscal year 1996 obligations for capitalized assets.
    \2\ Includes fiscal year 1996 one-time TeleFile investment costs.
    \3\ Excludes fiscal year 1996 one-time TeleFile investment costs

      cost to process an individual income tax return filed via telephone
                                (i.e. telefile)
        Based on the results of this study, we determined that the fiscal
    year 1996, fully-burdened cost of submission processing of an
    individual return filed via TeleFile was $5.11 per return when fiscal
    year 1996 one-time TeleFile investment costs are included. This cost
    would be $3.58 per return if fiscal year 1996 one-time TeleFile
    investment costs were excluded. In addition to the previous description
    of costs included in this answer, the TeleFile costs include the one-
    time TeleFile investment cost of equipment to expand our capacity to
    receive TeleFile calls (included in the $5.11) and the costs of an
    average of two toll-free calls per TeleFile return filed.

              COST OF PROCESSING INDIVIDUAL RETURNS FILED ON PAPER
    ------------------------------------------------------------------------
                                                                 Fiscal year
                                               Fiscal year 1996   1996 fully
                   Return type                     volume of       burdened
                                                 returns filed     cost per
                                                                  return \1\
    ------------------------------------------------------------------------
    1040 Other-than-full-paid (i.e. refund or
     balance due)............................        44,561,449        $4.07
    1040 Full-paid (i.e. with remittance)....        15,500,170         5.35
    1040A Other-than-full-paid...............        16,561,316         3.35
    1040A Full-paid..........................         2,284,331         5.12
    1040EZ Other-than-full-paid..............         7,851,986         2.40
    1040EZ Full-paid.........................         1,025,330         4.44
    1040PC Other-than-full-paid..............         5,778,103         3.05
    1040PC Full-paid.........................         1,258,056         5.13
    ------------------------------------------------------------------------
    \1\ Including full fiscal year 1996 obligations for capitalized assets.

                    potential savings from electronic filing
        To understand the cost tradeoffs between electronic and paper
    returns filings requires an understanding of the fixed and variable
    components of these costs at various points of the electronic/paper
    filing mix. The IRS has begun a new study to determine this. Until that
    study is complete we will not have a definitive answer. However, at
    this point we can get some idea of this by looking at certain known
    costs for fiscal year 1996 for the Form 1040 family of returns and
    making preliminary judgments.
        In fiscal year 1996 the cost per return for electronically filed
    Form 1040 family of returns was $4.76, while the cost for paper filings
    was $4.49 (not including upstream/downstream costs). The small
    differentiation in cost between paper versus electronic processing is
    encouraging, as electronic filing expenses are amortized across 15
    million Form 1040 family of returns versus the 95 million for paper
    Form 1040 family of returns. Also, it is clear that much of the paper
    filing costs in fiscal year 1996 are related to labor, which results in
    high variable costs, while most of the electronic filing costs were
    fixed costs. Also, there may be other non-financial reasons (such as
    reduced taxpayer burden) that would compel an aggressive pursuit of
    electronic returns.
        If these data hold up in our study, this means that as electronic
    returns increase we will have substantial opportunity for savings in
    our variable (labor) costs. However, this data is preliminary. We do
    not yet know whether any additional fixed cost investments will be
    necessary to support increased electronic filing. It seems clear
    though, that the cost differences in variable costs favor increased
    electronic filing, and will result in labor savings.
                           electronic filing strategy
        Electronic filing is the primary component of IRS' Electronic Tax
    Administration (ETA) program whose overall mission is to revolutionize
    how taxpayers transact and communicate with the IRS. One of the key
    strategies for ETA is to make electronic filing, payment and
    communication so simple, inexpensive and trusted that taxpayers will
    prefer these to calling and mailing. Although the IRS has been
    continually expanding the electronic filing program over the past
    several years, some forms and schedules are still not accepted which
    prevents certain taxpayers from participating. In addition, paper, in
    terms of the signature jurat, W-2's and other forms, is still part of
    the electronic filing system. The IRS recognizes that steps must be
    taken to simplify the system and to make it more convenient and easier
    to use. Initiatives are already underway to move toward a truly
    paperless system beginning with a pilot of electronic signature
    alternatives in 1999. In addition, next year for the first time,
    taxpayers filing balance due returns will be able to pay using an
    Automated Clearing House debit payment as part of the electronic
    return.
        The IRS is currently in the process of developing a comprehensive
    Strategic Plan for Electronic Tax Administration which will clearly
    articulate ETA's mission, strategies and business goals, as well as the
    tactical initiatives to achieve those goals. Additionally, the
    Strategic Plan will describe the substantial market segments that exist
    for ETA, as well as the significant challenges that must be addressed
    if electronic filing, payment and communication are to become the
    preferred and most convenient means of taxpayers' interaction with the
    IRS.
        Question. What is the status of the electronic commerce strategy?
        Answer. A draft version of the Strategic Plan for Electronic Tax
    Administration is expected to be made available for public comment
    later this spring
        Question. When can the Committee expect to see a final product?
        Answer. The Committee will be receiving a draft version of the plan
    later this spring when it is released for public comment. The plan will
    be issued in final after the comments have been received, reviewed and/
    or incorporated into the plan.
        Question. What key factors have contributed to the delays in
    completing the strategy?
        Answer. Ownership and accountability are two key factors which
    affected completing the strategy. In the past, the Administration,
    Congress and other external stakeholders have been frustrated by the
    lack of a focal point for Electronic Tax Administration activities
    within the IRS. Last year, the IRS took an important step toward
    clarifying the responsibilities for Electronic Tax Administration by
    establishing a new organization headed by an Assistant Commissioner
    devoted exclusively to the management of existing and planned programs.
    Bob Barr, the new Assistant Commissioner for Electronic Tax
    Administration, who joined the IRS last fall has made the development
    the strategic plan one of his top priorities.
                                    general
        It is our understanding that the National Performance Review (NPR)
    made over 200 recommendations on how IRS can improve its customer
    service. Likewise, the National Commission on Restructuring IRS made
    recommendations aimed at improving customer service. The Commissioner
    has stated that improving customer service is one of his highest
    priorities. Also, earlier this year, the Commissioner outlined a plan
    for improving customer service by reorganizing IRS into four major
    operating units, each serving a group of taxpayers with like needs.
        Question. Which of the many NPR and Commission recommendations have
    been implemented or are targeted for implementation?
        Answer. The Commissioner established the Taxpayer Treatment and
    Service Improvements Program to bring discipline and rigor to the
    setting and tracking of priorities of those changes which have the most
    direct and lasting impact on the treatment of and service to taxpayers.
    A steering committee comprised of senior Treasury and IRS executives
    has been providing active oversight of the program. More than 245 NPR
    and Commission recommendations have been catalogued by the Taxpayer
    Treatment and Service Improvements Program staff. Analysis and
    implementation of the recommendations are in an early stage, since the
    final NPR report was issued very recently.
        Six recommendations with significant immediate impact have been
    implemented:
      --Ban the use of measures such as enforcement statistics to rank
            districts and to set dollar goals for districts and service
            centers.
      --Open district offices on Saturdays during the busiest weekends of
            the filing season.
      --Expand the number of taxpayers who are eligible to use TeleFile,
            the telephone filing system. Nearly three million additional
            TeleFile packages were sent to taxpayers for the 1998 filing
            season.
      --Increase the number of forms that can be filed electronically, and
            educate customers about the benefits of electronic filing. In
            1998 two additional forms are being accepted electronically as
            well as returns with an Individual Taxpayer Identification
            Number and an Adoption Taxpayer Identification Number. All
            other forms and schedules not currently accepted electronically
            are being analyzed. In conjunction with an advertising agency,
            IRS launched a public education campaign on electronic filing
            benefits. Through February, conventional electronic filing had
            increased by 20 percent over last year.
      --Expand telephone service to 6 days a week, 16 hours a day since
            January 2, 1998.
      --Establish a new full time position of a ``notices gatekeeper'' who
            has the authority and accountability to manage the entire
            notice process.
        Three other recommendations are presently being carried out. They
    are the monthly Problem Solving Days which started on November 15,
    1997; the tracking and reporting of the status of cases identified as a
    result of Problem Solving Day activities; and expansion of the TeleFile
    program to let many small businesses use their telephones to file Form
    941 and report their employment taxes starting in April 1998.
        Another 71 recommendations are in the process of being implemented.
    These are primarily ones which are planned to be completed within the
    next 18 months. The recommendations cover the following areas: the
    contents of notices; clarity and issuance criteria; further expanding
    telephone service; improving the availability of forms and
    publications; expanding services available through the Internet,
    electronic mail and CD-ROM; expanding availability of services in
    languages other than English, further expanding electronic filing and
    other electronic services; improving service to small businesses;
    reviewing the fairness and effectiveness of all penalties; improving
    handling of undelivered mail and updating taxpayer addresses; improving
    the system for handling non master file cases; improving the resolution
    of taxpayer problems; developing a balanced scorecard of measures to
    evaluate the IRS and its employees; and improving employee training in
    customer service.
        Although specific action plans have not yet been developed for the
    remaining recommendations, the vast majority of them are targeted for
    implementation within the next 19 to 24 months.
        Question. Which, if any, NPR or Commission recommendations does IRS
    not plan to implement, and why?
        Answer. There are no NPR or Commission recommendations which IRS
    does not currently plan to implement. However, the timeframes of
    implementation are still being considered.
        Question. Which, if any, of the recommendations would no longer be
    valid in light of the Commissioner's reorganization plans?
        Answer. Both the recommendations and the current reorganization
    plans are focused on improving service to the taxpaying public.
    However, the reorganization plan is currently at a high-level
    conceptual stage, while the recommendations are focused at a more
    specific program and functional level. Although the overall concepts
    behind the recommendations would remain valid, is it apparent that
    recommendations in several areas could be subject to modification as a
    result of the new concept for modernizing the IRS. Examples of such
    areas are the design of telephone systems for serving specific taxpayer
    segments, the nature and location of walk-in services, the design and
    content of training packages for employees directly serving taxpayers,
    and the nature of employee programs at various locations.
                                taxpayer service
        Questions. How many FTE's from across the agency does IRS plan to
    devote to true taxpayer assistance (e.g., answering the phones,
    responding to correspondence, providing walk-in service, conducting
    education programs, providing forms and publications, working problem
    resolution cases) in fiscal year 1999? How does that plan compare to
    the actual number of FTE's devoted to those activities in fiscal year
    1997 and number expected in 1998? Please break those numbers down by
    the type of assistance (e.g., the number of FTE's devoted to answering
    the phones).
        Answer:

                IRS FTE'S DEVOTED TO SPECIFIC PROGRAM ACTIVITIES
    ------------------------------------------------------------------------
                                                      Fiscal year--
              Program activity \1\          --------------------------------
                                                1997       1998       1999
    ------------------------------------------------------------------------
    Telephone:
        Toll free operations \2\...........      6,582      6,955      7,868
        Automated collection systems.......      3,095      3,240      3,240
                                            --------------------------------
          Subtotal, telephone..............      9,677     10,195     11,108
                                            ================================
    Correspondence:
        Adjustments/taxpayer relations.....      5,019      4,576      4,576
        Service center collection branch...      2,849      2,699      2,703
        Service examination branch.........      3,044      3,222      3,227
        Document matching..................      1,897      1,682      1,682
                                            --------------------------------
          Subtotal correspondence..........     12,809     12,179     12,188
                                            ================================
    Other:
        Walk-in--Face-to-face..............      1,080      1,191      1,248
        Taxpayer education.................        247        297        297
        Problem resolution program.........        418        437        628
        Forms and publications.............         90         90        103
        Customer service reserve...........  .........        216  .........
                                            --------------------------------
          Subtotal, other..................      1,835      2,231      2,276
                                            ================================
          Total............................     24,321     24,605     25,572
    ------------------------------------------------------------------------
    \1\ Includes activities in all IRS Appropriations.
    \2\ The 226 FTE for the fiscal year 1999 Customer Service training
      initiative has been included in the Toll Free Operations pending
      finalization of training plans within the correspondence functions to
      determine an optimal allocation.

                                customer service
        The IRS' fiscal year 1999 budget request includes a program
    increase of $103.0 million and 1,024 FTE to enhance customer service.
    As described in IRS' budget estimates, that money will be used, among
    other things, to improve taxpayer service, strengthen the Taxpayer
    Advocate's Office, and pay for additional Problem Solving Days.
        Question. In response to a question from this Committee last year,
    IRS provided a breakdown of the FTE's being requested for the Telephone
    and Correspondence budget activity. The breakdown showed the number of
    FTE's included in that budget activity for (1) the Problem Resolution
    Program, (2) Toll Free Operations, (3) Adjustments/Taxpayer Relations,
    (4) Service Center Collection Branch, (5) Automated Collection System,
    and (6) Service Center Examination. Please provide the same breakdown
    for fiscal year 1999.
        Answer:

              IRS FTE'S FOR TELEPHONE AND CORRESPONDENCE ACTIVITIES
    ------------------------------------------------------------------------
                                                      Fiscal year--
                    Program                 --------------------------------
                                                1997       1998       1999
    ------------------------------------------------------------------------
    Problem resolution.....................        418        437        628
    Toll-free phones.......................      6,582      6,955      7,868
    Adjustments/TP relations...............      5,019      4,576      4,576
    Collection branch--Correspondence......      2,849      2,699      2,703
    Automated collection system--Phones....      3,095      3,240      3,240
    Service center examination.............      3,044      3,222      3,227
    ------------------------------------------------------------------------
    Note.--Fiscal year 1998 figures for the Telephone and Correspondence
      activity were taken from the Financial Plan. Fiscal year 1999 figures
      are taken from the fiscal year 1999 President's Budget.

        Question. How many FTE's from across the agency does IRS plan to
    devote to true taxpayer assistance, e.g., answering the phones,
    responding to correspondence, providing walk-in service, conducting
    education programs, providing forms and publications, working problem
    resolution cases, in fiscal year 1999? How does that plan compare to
    the actual number of FTE's devoted to those activities in fiscal year
    1997 and the number expected in 1998? Please break those numbers down
    by the type of assistance, e.g., the number of FTE's devoted to
    answering the phones. In response to a question from this Committee
    last year, IRS provided a breakdown of the FTE's being requested for
    the Telephone and Correspondence budget activity. The breakdown showed
    the number of FTE's included in that budget activity for (1) the
    Problem Resolution Program, (2) Toll Free Operations, (3) Adjustments/
    Taxpayer Relations, (4) Service Center Collection Branch, (5) Automated
    Collection System, and (6) Service Center Examination. Please provide
    the same breakdown for fiscal year 1999.
        Answer:

    ------------------------------------------------------------------------
                                                      Fiscal year--
                    Program                 --------------------------------
                                                1997       1998       1999
    ------------------------------------------------------------------------
    Toll free--Phones......................      6,582      6,955      7,868
    Adjustments/taxpayer relations--
     Correspondence........................      5,019      4,576      4,576
    Automated collection system--Phones....      2,869      3,231      3,231
    Collection branch--Correspondence......      2,850      2,699      2,703
    Examination branch--Correspondence.....      3,044      3,222      3,227
                                            --------------------------------
          Total, customer service activity.     20,364     20,683     21,605
                                            ================================
    Document matching underreporter--
     Correspondence........................      1,669      1,682      1,682
    Document matching SFR--Correspondence..        228  .........  .........
                                            --------------------------------
          Total, document matching
           activities......................      1,897      1,682      1,682
                                            ================================
    Walk-in................................      1,112      1,191      1,248
    Taxpayer education.....................        198        297        297
    Problem resolution.....................        418        437        628
                                            ================================
    Customer service activity..............  .........     20,683     21,605
    Not included above:
        Customer service reserves..........  .........        216  .........
        Information systems for customer
         service...........................  .........          9          9
                                            --------------------------------
          Total, customer service..........  .........     20,908     21,614
    ------------------------------------------------------------------------

        The Customer Service training initiative included in the National
    Performance Review of 226 FTE has been included within the Toll Free
    component of Customer Service pending finalization of training plans
    within the correspondence functions to determine an optimal allocation.
        Question. How does IRS decide on how much to spend on the different
    customer service programs? Please provide information showing how much
    IRS spent or plans to spend and the number of full-time equivalent
    staff years allocated to the different programs for fiscal years 1997,
    1998, and 1999. Please include in these figures any costs/staff years
    associated with detailees from other functions, such as Exam staff who
    are detailed to help answer telephone calls. Also, provide information
    on the number of taxpayers served or expected to be served by the
    different programs during those years.
        Answer. Actual and estimated expenditures by program follow:

                                       FTE
    ------------------------------------------------------------------------
                                                      Fiscal year--
                    Program                 --------------------------------
                                                1997       1998       1999
    ------------------------------------------------------------------------
    Toll free..............................      6,541      6,944      7,694
    Taxpayer education.....................        247        297        297
    Walk-in................................      1,112      1,191      1,248
                                            --------------------------------
          Total............................      7,900      8,432      9,239
    ------------------------------------------------------------------------
    Note.--The Taxpayer Education and Walk-in figures include Information
      Systems resources.

    ----------------------------------------------------------------------------------------------------------------
                                                                                       Fiscal year--
                                 Program                             -----------------------------------------------
                                                                           1997            1998            1999
    ----------------------------------------------------------------------------------------------------------------
    Toll free.......................................................    $259,519,000              NA              NA
    Taxpayer education..............................................      13,036,000     $15,902,000     $17,540,000
    Walk-in.........................................................     112,509,000      51,671,000      54,014,000
                                                                     -----------------------------------------------
          Total.....................................................     385,064,000      67,573,000      71,554,000
    ----------------------------------------------------------------------------------------------------------------
    See note above.

        Due to the consolidation of Customer Service management activities
    into one activity in fiscal year 1998, dollar breakouts for Toll Free
    are not available for fiscal years 1998 and 1999 since our planning
    models are geared to FTE's.

                                                 SERVICE DATA BY PROGRAM
    ----------------------------------------------------------------------------------------------------------------
                                                                                       Fiscal year--
                                 Program                             -----------------------------------------------
                                                                           1997            1998            1999
    ----------------------------------------------------------------------------------------------------------------
    Toll free calls answered........................................     116,972,333     127,600,000     132,406,000
    Walk-ins served.................................................       6,400,000       9,900,000       9,900,000
    Taxpayers served through volunteers, taxpayer education, and
     outreach activities............................................       3,799,151       3,395,382       3,463,290
    ----------------------------------------------------------------------------------------------------------------

        Question. What is your accessibility goal for fiscal year 1998 and
    how are you doing in relation to that goal?
        Answer. IRS set an accessibility goal for fiscal year 1998 at no
    less than a 70 percent level of access. As of March 14, 1998, using the
    level of access measure agreed upon between IRS and GAO (calls answered
    + abandoned calls divided by total attempts), the fiscal year
    cumulative level of access for all Customer Service toll-free telephone
    lines is 89 percent. The filing season cumulative, as of the same date,
    is 91 percent.
        Question. Please provide information on your actual and expected
    accessibility rates, staffing and hours of operation for fiscal years
    1997, 1998 and 1999. With the expanded hours of operation in 1998, how
    many more taxpayers have you been able to serve?
        Answer. The accessibility goal for fiscal year 1998 is 70 percent,
    and 86 percent for fiscal year 1999. As of February 28, 1998, the
    fiscal year cumulative level of access is 88 percent. In fiscal year
    1997, a different formula was used to compute level of access. Thus,
    the goal and actual access rates are not comparable to fiscal year 1998
    and fiscal year 1999. Staffing for 1997 and 1998 is 6,664 FTE's and
    7,229 FTE's respectively. The IRS plans to provide customer service
    seven days a week, 24 hours a day (7 x 24) in fiscal year 1999. We are
    currently in the process of determining the staffing required to meet
    this goal and for the expansion of our hours of operation to 7 days a
    week and 24 hours a day (7 x 24). Hours of Operation for fiscal year
    1997 were 7:30 a.m. to 5:30 p.m. on the general information (1040)
    number and from 7:30 a.m. through 9:00 p.m. on the notice and refund
    numbers. Since January 1998, the hours of service were permanently
    expanded to six days a week, 16 hours a day, Monday through Saturday
    (7:00 a.m. through 11:00 p.m.). As of February 28, 1998 the IRS
    answered 26.5 million calls compared to 26.3 million as of a comparable
    period in fiscal year 1997. Although the number of calls answered in
    fiscal year 1998 is relatively the same as that answered in fiscal year
    1997, the impact of the additional staffing is evident in the reduction
    in busy signals and the increase in the level of access. By having the
    staffing available to answer the call the first time the customer
    calls, we have decreased overflows (busy signals) by over 70 percent.
        Question. Does IRS plan to continue detailing employees from other
    functions during peak periods to telephone assistance as was done in
    fiscal year 1997? If not, where will the necessary staffing come from?
    How does the detailing of employees affect the performance of their
    home units?
        Answer. Yes, historically, Examination and Collection provided
    employees to help with answering phone calls and working in walk-in
    during periods of high volume. This fiscal year we are also detailing
    employees from Automated Collection sites and from other areas of the
    service centers to supplement existing staff. Examination staff is also
    being utilized to answer specific topics where the taxpayer is asked to
    leave a message for call back. This process, commonly referred to as
    ``Call Back Messaging'' provides personal call back assistance while
    drawing upon the IRS' highly skilled technical staff, who are often not
    co-located with telephone operations/systems. At this point, it is too
    early to assess the impact on the other operations providing support to
    answer telephones.
        Question. What has been your experience with the interactive
    applications during fiscal years 1997 and 1998?
        Answer. By the end of calendar year 1997, the following 10
    interactive telephone applications were operational nationwide. Overall
    30 million calls were received by the Telephone Routing Interactive
    System (TRIS) in fiscal year 1997. Of those 30 million, 24 million were
    routed to Customer Service Representatives, 3 million abandoned, and 3
    million completed in (TRIS). The number of calls completely automated
    by each application in fiscal year 1997 is shown in the answer to the
    next question. Fiscal year 1998 information is not yet available. TRIS
    completed over 3 million calls in fiscal year 1997. Since fiscal year
    1998 will be the first year that TRIS will be available at all sites
    with a larger variety of applications, we estimate that TRIS will
    complete twice as many calls (or 6 million) in fiscal year 1998. For
    the future, we are currently piloting two additional TRIS
    applications--Refund Release and Refund Trace. Refund Release allows
    the caller to provide information needed to release a refund being held
    due to discrepancies such as name changes, name misspellings, or
    transposed or incorrect social security numbers. Refund Trace allows
    the caller to file a claim for a lost, stolen, or destroyed refund
    check, or sends Form 3911 for the caller's use in making a claim if the
    caller is not eligible to process the claim over the phone. An
    application to assist callers with questions regarding the earned
    income credit is currently being planned.
        Question. What are your expectations for fiscal year 1999 and
    beyond?
        Answer. From now through 2000, TRIS is in an enhancement and
    maintenance phase. Future TRIS applications are prioritized in the
    modernization blueprint with rollout scheduled to begin in 2002. Until
    then, we will be analyzing management information data to determine and
    implement improvements to the existing applications.
        Question. Please describe each application and provide information
    on the number of taxpayers who accessed, abandoned and completed the
    different applications.
        Answer:
        Refund Inquiry--after the caller enters the Taxpayer Identification
    Number, (TIN), he/she can obtain the status of his/her refund, filing
    and expected refund amount (2.7 million calls completely automated in
    fiscal year 1997).
        Location--allows the caller to get the mailing address for filing
    return or making payment (66,083 calls completely automated in fiscal
    year 1997).
        Voice Balance Due--allows eligible callers to set up a payment plan
    or receive a 30- or 60-day extension of time to pay (200,570 calls
    completely automated in fiscal year 1997).
        VPPIN--provides security and authentication solution for
    applications providing tax account information. Each caller establishes
    a unique PIN before accessing interactive applications that provide
    account information. This replaces the disclosure interview performed
    by Customer Service Representative.
        Payoff--provides caller with account payoff balance as of the call
    date or as of a date up to 120 days in the future (25,280 calls
    completely automated in fiscal year 1997).
        Transcript--allows caller to request account transcript, return
    transcript, or Form 4506 to order photocopy of return. Generates a
    cover letter and requested item to a caller's address of record (61,652
    calls completely automated in fiscal year 1997).
        Credit View--provides a caller with the status of a selected
    payment or list of up to last six payments made. (Call data not yet
    available. Application did not become operational until February 1998.)
        Debit View--provides a caller with detail or summary on account for
    a chosen tax year. (Call data not yet available. Application became
    operational February 1998.)
        Survey--offers statistical sample of callers the option to
    participate in customer satisfaction survey. Asks maximum of three
    questions regarding automated service received (12,000 surveys
    completed).
        Call Referral--asks for the phone numbers of certain callers to
    account applications who have a need to speak with Exam, Collection, or
    Special Procedures. Generates a daily report of phone numbers for
    follow-up by the various areas. (Call data not yet available.
    Application became operational February 1998.)
        Question. Have you solicited taxpayers' views on the interactive
    applications, particularly those taxpayers who abandoned their calls?
    If no, why not? If yes, what have you learned, and what actions have
    you taken as a result?
        Answer. Our automated survey application (see description in
    response above) surveys a sample of callers who completed the
    applications. Response data compiled from fiscal year 1997 indicates
    that 12,448 callers were offered the survey and 8000 of those agreed to
    participate. The majority of callers who participated found the
    applications easy to use, were satisfied with the service offered, and
    found it convenient.
        Customer satisfaction surveys on toll-free and Automated Collection
    System will be administered by a contractor during 1998 and will
    include a question regarding customer's level of satisfaction with
    automated service. Results will be tabulated quarterly. In addition, a
    more comprehensive automated survey is expected to be in place by next
    filing season that would have the capability of asking callers more
    detailed, directed questions (for example, why they defaulted out of
    automated service). We are also continuing to analyze our TRIS
    management information system data, which provides details about where
    in TRIS applications callers are defaulting so we can make improvements
    such as clarifying messages, increasing response times allowed, and
    adjusting business eligibility rules where possible to increase the
    number of callers who can use the system successfully.
        Question. How many interactive applications do you plan to
    implement and what is the schedule for development and implementation?
        Answer. By the end of calendar year 1997, the following 10
    interactive telephone applications were operational nationwide. We are
    currently piloting two additional TRIS applications--Refund Release and
    Refund Trace. An application to assist callers with questions regarding
    the earned income credit is now in planning stage. Future TRIS
    applications are prioritized in the modernization blueprint with
    rollout scheduled to begin in 2002. Until then we will be analyzing
    management information data to determine and implement improvements to
    the existing applications.
        Question. By fiscal year, how much have you spent on interactive
    applications and what are your future spending plans?
        Answer:

    Fiscal year 1997 actual expenditures:
        Labor...............................................      $4,049,000
        ADP (hardware/software purchases and maintenance)...         617,000
        Contractor services.................................       3,038,000
        Telecommunications (purchase and maintenance).......         918,000
        Other (travel, overtime, awards, supplies)..........         394,000
                        --------------------------------------------------------
                        ____________________________________________________
          Total.............................................       9,016,000
                        ========================================================
                        ____________________________________________________
    Fiscal year 1998 spending plan projections:
        Operational activities..............................       6,422,000
        Deployment activities...............................          40,000
        EITC application activities.........................         820,000
                        --------------------------------------------------------
                        ____________________________________________________
          Total.............................................   \1\ 7,282,000
                        ========================================================
                        ____________________________________________________
    Fiscal year 1999 spending plan projection...............       7,700,000
                                                                     +38 FTE
                        ========================================================
                        ____________________________________________________
    Fiscal year 2000 spending plan projection...............       6,619,000
                                                                     +38 FTE

    \1\ Does not include Y2K $$ for Y2K activities (app. $2M).

        Question. What are the return on investment and other expected
    benefits from use of interactive applications?
        Answer. TRIS will help move work from correspondence to telephones.
    Resolution over the phone will take minutes rather than days as
    required via correspondence. TRIS reduces burden by increasing IRS
    business hours, thereby allowing for increased taxpayer access. It also
    allows taxpayers the flexibility to resolve certain issues themselves,
    which may reduce stress levels for taxpayers who are anxious about
    talking to IRS employees. TRIS provides easy access to procedural and
    account information such as refund inquiries. Taxpayers need not wait
    in queue for available Customer Serve Representatives (CSR's). Once in
    the system, assistance begins immediately. The technology enables CSR's
    to improve productivity and resolve more issues using fewer resources.
        The projected benefits from TRIS over the 10 year period (1996-
    2005) total $814.9M. This is comprised of FTE benefits of $781.5M and
    telephone savings of $33.4M.
        Question. Why did IRS change its call-back goal for 1998 from 2
    business days to 3?
        Answer. In order to optimize customer access, an initiative was put
    in place in fiscal year 1997 and fiscal year 1998 whereby taxpayers can
    leave a message containing their questions on designated technical tax
    topics. These questions are then answered by technical Compliance
    professionals who are not necessarily co-located with the telephone
    operations/systems. In fiscal year 1998, the recording that taxpayers
    hear when leaving a message was changed to indicate that calls will be
    returned within three business days (fiscal year 1997 recording was two
    business days). The recording was changed at the beginning of this
    filing season in anticipation of an increase in message workload and
    because allowing an extra day to try to contact the taxpayer would
    increase the probability that we would be able to reach the taxpayer by
    phone (callers who cannot be contacted by phone are sent a letter.) In
    order to provide the same level of assistance in fiscal year 1998 as
    was provided in fiscal year 1997 to these taxpayers and because
    anticipated workload increases have not materialized, we have continued
    to maintain our internal goal to answer within two business days.
        Question. In 1997, what percent of the calls received on the voice
    messaging system were returned within 2 business days?
        Answer. During fiscal year 1997, data on the success rate of Call
    Back Messaging callbacks was not captured nationally. For fiscal year
    1998, a more formalized process for quality review of the Call Back
    Messaging program has been established.
        Question. So far this year, how many taxpayers left a message and
    how often did you meet your goal of returning the taxpayers' call
    within 3 business days?
        Answer. As of the week ending March 7, 1998, taxpayers left 707,473
    requests for information through customer messaging. Based on
    information to date, captured through the Quality Review process, 100
    percent of the taxpayers who left usable messages were contacted within
    two business days. (A usable message is one that contains sufficient
    information for a call back such as the name or telephone number).
        Question. For those that were not returned within 3 days, why were
    not they?
        Answer. Based on information to date, captured through the Quality
    Review process, 100 percent of the taxpayers who left usable messages
    were contacted within two business days. (A usable message is one that
    contains sufficient information for a call back such as the name or
    telephone number).
        Question. How does IRS ensure that a taxpayer's call is actually
    returned?
        Answer. Quality reviews administered at the local level ensures
    that the calls are returned timely.
        Question. Can IRS tell us the extent to which persons who are told
    to leave a message decide not to?
        Answer. Of the 845,019 opportunities for customer messaging,
    707,473 customers left messages and 137,546 elected not to leave a
    message. This represents 16.3 percent of the total.
        Question. How, if at all, has IRS changed its position on the
    importance of/need for walk-in service?
        Answer. IRS recognizes and supports the view that walk-in services
    are an important product line for serving taxpayers. Although most of
    the services performed in walk-in offices can be obtained elsewhere,
    some taxpayers trust and rely on the personal interaction of the walk-
    in situation.
        Question. How many full service walk-in sites (defined to exclude
    sites that merely distribute forms) were open during the 1998 filing
    season, and how does that compare to the 1996 and 1997 filing seasons?
        Answer. Currently, the are 403 open walk-in sites. In 1996, there
    were 448 open offices, and in 1997, there were 418.
        Question. To what extent, if at all, does IRS plan to increase the
    number in 1999?
        Answer. IRS is currently reviewing the service provided by the
    existing walk-in sites and has commissioned a task force to make
    recommendations regarding what should be done to improve existing
    service, including a review of the number of walk-in offices.
        Question. What information and services are available to taxpayers
    via IRS' web site?
        Answer. Below are examples of IRS Digital Daily Services (all items
    are updated and current; bolded items are new this year)
        Over 600 statistical reports and/or databases
      --Tax topics, short explanations of approximately 150 tax subjects
      --News releases
      --An electronic tax calendar with individual, business, and excise
            tax dates
      --The Internal Revenue Bulletin, issued weekly; contains Revenue
            Rulings and Procedures, Treasury Decisions, Notices and other
            items of general interest
      --Almost 200 frequently asked tax questions and answers
      --Tax regulations and plain English summaries
      --The capability to comment officially on proposed regulations
      --Sign-up for the Digital Dispatch, an E-mail newsletter of the
            latest tax news
      --Market Segment Specialization Audit Techniques Guides, training
            tools which describe how we handle certain industry-specific
            tax issues; currently 17 guides are available on industries as
            diverse as pizza restaurants, clergy, musicians, and Alaskan
            commercial fishing
      --Coordinated Issues Papers, over 80 documents which describe IRS'
            current thinking on industry-specific tax issues
      --Customer service standards
      --Thousands of tax forms, publications, and instructions; tax year
            1992 to current;
      --Portions of the Internal Revenue Manual
      --Local news from field offices
      --On-line want ads for IRS jobs
      --A Tax Professionals' Corner with news and information geared
            specifically for this customer base
      --A series of 26 interactive ``Tax Trails'' which allow taxpayers to
            click yes or no to a few questions and get the tax answers they
            need to complex tax issues
      --IRS Year 2000 program information, of particular interest to our
            electronic trading partners
      --Advance Notices; prior to issuance in the Internal Revenue
            Bulletin, these public notices provide late breaking tax news;
            the notices are widely used by tax research services
      --Disaster relief kits to assist customers who may need to apply for
            loans and obtain copies of prior year returns; links to FEMA
      --Information on electronic tax payment and filing options
      --Free downloadable tax software
      --Capability to answer tax law (no account) questions via E-mail
      --Links to related information and government sites such as state tax
            forms
      --Information on other electronic information services such as fax
            and CD-ROM
      --Extensive contact information such as where to file and key IRS
            phone numbers
      --A variety of exempt organization information such as how to apply,
            forms, educational materials, frequently asked questions and
            answers, a tax kit, a database of exempt organizations and
            types of exemptions
      --Small business tax information such as Work Opportunity Credit
            details, an electronic Your Business Tax Kit for businesses
            just starting out, a Tax Tips Calender geared just for small
            business, and information on employee versus independent
            contractor issues
      --Third party processor information (lock boxes)
      --Special notices on important tax news such as the Taxpayer Relief
            Act
      --Taxpayer Bill of Rights; related training materials and reports to
            Congress on taxpayer rights
      --Taxpayer Advocate Program information, including a directory for
            Problem Resolution and the 911 form for emergency relief
      --International Tax Forum, a newsletter for tax professionals
      --Tax Supplement, a compendium of articles normally used by news
            media to help spread the word on tax changes
      --Collection Financial Standards
      --Promotional kits for electronic return preparers
      --Information on educational materials, conferences and exhibits.
        Question. What additional services do you have planned for the web
    site?
        Answer. Our Internet site is updated daily. Thousands of pages of
    tax information were added just last month. Local news is also
    available from our field offices such as calendars of small business
    tax workshops.
        Tax professionals play a vital role in helping serve American
    taxpayers as well. To help them help others, we developed a tax
    professionals' corner on our web site which provides information on
    workshops, tax research materials, certifications, and how to become an
    electronic return preparer. We could not have been as successful
    without the help of industry to define its needs and help in the
    planning and development. Members of the IRS Commissioner's Advisory
    Group helped develop the Tax Pro Corner. We will expand this area based
    on recommendations and input from tax practitioners and the
    Commissioner's Advisory Group.
        We are currently testing a few Fill-in-the-Blank Tax Forms,
    available via the Net. We plan to make at least 250 of the most popular
    forms available for taxpayers to fill in on-line this year. Users can
    download forms from the IRS home page or the IRS Federal Tax Forms CD-
    ROM, fill in the blanks on their own computers, and print them out.
    Feedback thus far has been extremely positive and the majority of those
    customers who do comment request more fillable forms.
        Expand Tiered Distribution of Electronic Information (1998-2002).--
    Two key programs will be developed. The Corporate Partnership Program
    provides CD-ROM's of IRS tax products to large businesses. The
    companies place the CDS on their internal networks and provide free
    access to their employees. Other federal and state government entities
    may also join this program. This program will be expanded through 2002.
    The second key area is the Library program which currently provides IRS
    CD-ROM's to public libraries. In 1999 we will add web-based and E-mail
    services for librarians to assist them in distributing tax information.
    For example, the status of arrival dates for tax forms and CD shipments
    for filing season and back ordered materials would be important to this
    audience. This program will be expanded in 2000 to libraries which are
    not ``public'' (such as those in private colleges). For taxpayers, this
    will result in increased accessibility.
        Develop On-Line Learning Lab (1998-1999), Expand (2000-2002).--We
    are improving our taxpayer education program, particularly for first
    time taxpayers, students aged 13-18 who learn about taxes in school. We
    are developing an on-line learning lab which will cover, among many
    topics, the reasons we pay taxes and how they can meet their tax
    obligations. Particularly important is availability of electronic
    filing options and teaching electronic filing by electronic filing. The
    web-based education program will also have a companion CD product.
    Interactive games and activities will make taxes--almost fun! First
    time taxpayers will learn electronic filing methods rather than paper
    filing and learn to interact electronically with IRS. The initial web
    site will be available in May 1998, with the first school year
    availability for 1999. Additional services for other customer groups
    will be added during the years 2000-2002 (for example, on-line
    practitioner workshops, small business workshops, tutorials for updates
    in specialized tax fields such as estate and gift tax).
        Note: the draft opening screen is available now. A poster size
    image can be made available with two days notice. The lab will be an
    on-line ``Zine,'' part of the Digital Daily. The Zine is called Taxi,
    short for Tax Interactive.
        Expand CD-ROM, Fax, and Internet Service Capacity and Products, Add
    Media (1998-2002).--More IRS products will be added to all media,
    particularly products which promote electronic filing and payments. For
    example, in 1999 we plan to add locator services on the Internet for
    electronic return preparers. Taxpayers will be able to put in a zip
    code or city and get a list of certified ERO's near them. We plan to
    add DVD services in 2000. Additional services currently being examined
    include undelivered refunds, employment information, job announcements
    and position descriptions via fax-on-demand. Better tax research bases
    will be available because we will use ``intelligent'' text information
    which is accessible through a normal Internet browser interface and
    will provide significantly increased search capabilities.
        Expand Cross-Government Initiatives for One-Stop Service.--This
    year, IRS began the first project to develop a cross-government CD-ROM
    for start-up businesses. The CD will be useful for anyone who is
    starting a new business and will provide information from a variety of
    government agencies. The CD will be available in 1999. Additional
    cross-government services will be deployed through 2002. We expect this
    to be our first fully blended Web/CD project. In certain topic areas
    the CD would automatically go to a selected web site for updates,
    combine the updated information with the CD information, and present
    the most current combined information in a single interface.
        Question. Are their security concerns or other reasons that limit
    services you provide on the web site?
        Answer. Our choices for Internet services have primarily been
    driven by customer needs and usage rather than security concerns. Yes,
    we do have security concerns, but so do our customers in private
    industry. Very few citizens currently do their banking on the Internet.
    Certainly, we expect that to change shortly as industry and government
    security standards for Internet evolve. We are prepared to add new,
    secure services as our customers move to using secure Internet
    services.
        Question. What data, other than the number of ``hits'', does the
    IRS have to indicate how its web site is being used?
        Answer. Although predictive indicators such as hit counts,
    downloads, fax transmissions are useful to gauge taxpayer response, we
    will continue to use and expand on additional measures which provide
    better information on customer service improvements (increased
    availability, improved quality, faster service, improved accommodations
    for persons with disabilities, and more convenient hours) and business
    results (reduced waste, reduced distribution costs, improved production
    rates, improved time to market, lower cost per customer served) .
    Currently, for example, we code a sampling of forms so we know where
    they came from. Separate codes are used for Internet, fax, and CD
    services. Last year, 6 percent of forms sampled in submission
    processing sites came from Internet. Another example is the cost per
    form distributed. Via Internet the cost is about one penny compared to
    telephone orders at about $3. The time it takes to mail forms to
    international taxpayers is about two weeks or more and via fax or
    Internet, taxpayers get what they need in minutes. Even within the U.S.
    it takes 7-10 working days to deliver forms by mail. We constantly
    examine the most popular Internet products and ensure that taxpayers
    can get to this information with a minimum number of clicks from
    anywhere in the site.
        Question. To what extent, if at all, has use of the web site
    reduced the demand on other sources of assistance, including telephone
    and walk-in sites?
        Answer. Last year we know that more than 19 percent of tax forms
    submitted as tax returns came from the tax packages we mailed out.
    Approximately 6 percent of the tax forms submitted came from Internet.
    In 1996, the first year of operations for our Internet services, 2
    percent of the forms sampled were from our Internet site. So, in one
    year we saw a tripling from this one source. The percentage of forms
    submitted that come from tax packages has decreased over the past two
    years since we have provided Internet service. Two years ago more than
    30 percent of the forms we sampled came from tax packages. Likewise,
    the percentage of forms coming from our toll-free number for tax forms
    distribution centers and from walk-in centers has decreased. Similarly,
    we have seen, for the first time ever, a small decrease in the number
    of callers who try to reach us by telephone. By tracking and analyzing
    these trends we can plan resources to meet our customers' changing
    needs.
        Our goal is to make it more convenient for people to get the tax
    information they need. That is why we provide a broad range of choices
    for taxpayers. For some that may be Internet. For others it may be
    telephone services or a visit to their local library. The number of
    Americans with Internet access is increasing dramatically and we want
    to meet that service need.
        This is a difficult area to quantify however, telephone demand has
    decreased in the past two years, even though we have answered more
    calls.
        As for walk-in, part of the way we gauge the results of various
    channels for distributing tax information is to track the number of tax
    forms submitted back to us from various sources. We code forms in order
    to track the effectiveness of our distribution channels for our
    customers. Forms coming from the Internet have a different code than
    those in public libraries or from our distribution centers, for
    example.
        Question. Have you surveyed taxpayers to get their view on the
    services you provide via the web site? If not, why not? If so, what
    have you learned from the taxpayers, and what actions have you taken on
    what you have learned?
        Answer. Yes, we have surveyed taxpayers to get their views. We have
    learned much not only about the needs of taxpayers but about the impact
    of our Internet services are having on other IRS services. We have
    found that surveys alone, however, do not provide the detailed input we
    need. As just a few examples, there are numerous products that have
    been added based on taxpayer feedback from a variety of sources. Based
    on taxpayer E-mail received, we added Applicable Financial Rates to our
    site in less than two weeks. We added more searchable publications and
    fill-in-the-blank forms based on feedback from E-mail as well. Our
    Public Liaison Office arranged for us to meet with representatives of
    the small business community and we added a recommended reading list
    for small businesses. Our trading partners wanted a tax professional's
    area and we worked with representatives from that arena to design and
    implement that section of our web site. We work closely with the IRS
    Public Liaison Office and the Commissioner's Advisory Group to track
    user needs and gather input. We have also found through survey that 98
    percent of taxpayers who use Internet to ask tax law questions would
    have gone to our phone system. This is incredibly useful information
    which also tracks with the trend we have seen--a decrease of traffic
    into our phone sites. This also says that the Internet can help us in
    our efforts to provide better phone service by diverting some traffic.
        Our budgeting for different customer service alternatives is based
    primarily on trends in customer demand. For example, over the past two
    years we have seen a dramatic rise in customer demand for electronic
    services. Taxpayers are increasingly using convenient electronic media
    such as Internet, fax, and CD-ROM services to get the tax information
    they need. Another example of our responsiveness to changing customer
    needs is our IRS TaxFax system. Taxpayers can retrieve tax forms and
    information any time of day or night. We have found that some of the
    most popular IRS TaxFax products, as we predicted, are products for new
    or small businesses. One half million fax orders were filled this
    January and February--just two months. This figure is well over double
    last year's total at that time.
        Question. How, if at all, does IRS' Annual Performance Plan (APP)
    for fiscal year 1998 differ from its fiscal year 1997 Plan as it
    relates to customer service?
        Answer. In the fiscal year 1997 Annual Performance Plan, IRS began
    moving toward a budget structure consistent with its major business
    lines--Customer Service, Submission Processing, Compliance and the
    Support Functions (including Human Resources and Information Systems).
    In fiscal year 1997, the Customer Service business line included non-
    face-to-face responses (telephones, automated systems or written) to
    taxpayers on tax law and tax account issues and early resolution of
    less complex collection and examination cases. This business line also
    included the Problem Resolution Program, an independent complaint-
    handling system to assure that taxpayers' problems which have not been
    resolved through normal channels, are promptly and properly handled. In
    fiscal year 1998, the Customer Service business line broadened to
    include the Automated Collection System and the Document Matching
    Program (which enables IRS to identify and follow up on income
    reporting discrepancies) as well as the programs listed for fiscal year
    1997.
        Greater resources, both in terms of dollars and staffing, were
    directed to customer service in fiscal year 1998 as compared to fiscal
    year 1997 (assuming the same list of programs is compared in both
    years). In fiscal year 1997, approximately $717 million and 18,978
    full-time employees supported customer service [figures were obtained
    from the fiscal year 1997 Annual Performance Plan, dated December 4,
    1996, and the draft fiscal year 1998 Annual Performance Plan, dated
    February 27, 1998]. In fiscal year 1998, these resources increased to
    $827 million and 20,255 employees. This redirection of resources is
    consistent with the emphasis on customer service.
        In fiscal year 1998, IRS began working with a contractor in the
    development of IRS-wide customer satisfaction surveys for all business
    lines which interact with the public (e.g., telephone assistance, walk-
    ins, compliance, etc.). The surveys will provide statistically valid
    samples of customers who actually had contact with IRS. Data from the
    surveys will allow a detailed analysis of taxpayers' opinions relative
    to specific IRS business lines. Moreover, the data will lead to
    improved business practices that meet taxpayers' expectations.
        Question. Without comparable measures for the different programs,
    how can IRS be assured that it is getting the greatest return on its
    overall investment in customer service?
        Answer. Your question assumes that a single scale or measure is
    appropriate for all of our customer service programs and that Return on
    Investment is the best measure for customer service. We believe that
    gauging the return on our various customer service initiatives requires
    a number of different measures because the services themselves are very
    different and do not lend themselves to a single scale or measure. For
    example, programs that deliver telephone service, walk-in service and
    taxpayer education differ substantially and cannot be compared with a
    single measurement tool. Rather, we prefer to remain committed to
    supporting all of our customer service lines, and study them from the
    perspective of customer satisfaction.
        For many years, IRS has conducted customer satisfaction research to
    assess how taxpayers value different programs and attributes of the tax
    processing system. Historically, we have conducted surveys of small
    businesses, individuals and tax practitioners. The analysis of survey
    data includes identification of trends based on previous survey
    results, and an identification of program strengths and areas for
    improvement. Summary reports from the surveys are distributed
    throughout the organization. For fiscal year 1998, IRS plans to utilize
    the recently completed customer satisfaction survey to help better
    assess the effectiveness of our investment in customer service. Based
    on the results of these surveys, we plan to direct resources in a
    manner that increases the aggregate level of customer satisfaction.
        Question. What plans does IRS have to develop measures for all of
    its customer service programs that will enable it to compare their
    effectiveness, measure the quality of services provided, and obtain the
    views of taxpayers?
        Answer. New measures of customer satisfaction are a critical part
    of the development of the balanced scorecard for IRS. During September
    1997, the IRS began working with a contractor in the development of
    Servicewide customer satisfaction surveys for all business lines which
    interact with the public (e.g., telephone assistance, walk-ins,
    compliance, etc.) Phase I of the surveys was implemented in March 1998,
    and includes surveys for Collection, Examination, Employee Plans/Exempt
    Organizations, Customer Service (Toll Free, Automated Collection
    System, Service Center Examination, and Walk-ins) and Appeals. Phase
    II, a detailed analysis of the survey results, will be implemented by
    December 1998. The results of Phase II will enable us, with the
    assistance of a contractor, to develop better measures of customer
    satisfaction for all of our programs, including Compliance and Appeals.
        Question. How, if at all, can management and Congress use IRS'
    performance measures to evaluate resource allocation decisions? For
    example, a decision to detail compliance staff to help answer the
    telephone will likely reduce compliance results and increase the level
    of telephone access (both of which would probably be reflected in IRS'
    measures), but how can one determine the overall impact of that
    decision on IRS' mission effectiveness?
        Answer. IRS's existing measurement system is able to detail the
    direct impact on performance of some of our resource allocation
    decisions like the one mentioned in the question--detailing compliance
    staff to answer phone calls during the filing season. These measures
    are all being reviewed in light of our goal of transforming the IRS
    from an internally focused organization to one which views itself from
    the taxpayer perspective and in light of the elimination of use of all
    enforcement statistics for measuring organizational performance. We
    have a task force working on this problem, and we expect to engage
    expert outside consultants to assist in this task. We expect to have
    interim results to use for measuring performance during fiscal year
    1999. These measures will build on some of the measures included in the
    budget submission.
                              problem solving days
        Question. How much did it cost IRS to hold the initial national
    problem solving day on Saturday, November 15, 1997?
        Answer. The estimated cost is $1.5 million, based on the average
    spending for 4 months of problem solving days (PSD). A precise number
    for a given month's events is not available for two principal reasons.
    First, the PSD expenditures are being ``flagged'' via use of a new code
    in IRS' accounting system, and employees are to use this code for time
    spent planning PSD's, dealing with taxpayers during PSD's, and also
    working the cases that result from PSD's. Therefore, at any given time,
    the staff hours being reported may represent past, present and future
    PSD's, with no means of differentiating among them. In addition, when
    an employee earns compensatory time or credit hours for off-hour PSD
    work, the time is not reported in the payroll system as PSD time until
    the employee actually uses the comp time or credit hours, which might
    be weeks or months later.
        Question. What were the major components (e.g., employee salaries,
    overtime, office space, utilities, etc.) of these costs?
        Answer. The major spending categories, over the course of 4 months,
    have been: salaries and benefits (67 percent), overtime (21 percent),
    travel (4 percent) and utilities and guard services (4 percent). The
    other 4 percent consisted of a variety of support items.
        Question. How much did it cost IRS to hold subsequent problem
    solving days in December 1997 and January and February 1998?
        Answer. For the reasons stated in response to another question, the
    best estimate for individual monthly PSD expenses is to take an average
    of spending for all PSD's conducted to date. The average monthly cost
    after four scheduled PSD's is $1.5 million.
        Question. How many taxpayers visited IRS with problems during the
    problem solving days in November 1997 through February 1998?
        Answer. The number of taxpayers who visited problem solving days is
    as follows:

                                                                   Number of
            Month                                                  Taxpayers
    November, 1997.................................................... 8,418
    December, 1997.................................................... 4,257
    January, 1998..................................................... 4,125
    February, 1998.................................................... 3,065
                            -----------------------------------------------------------------
                            ________________________________________________
          Total.......................................................19,865

        Question. How many of those taxpayers had their problems resolved
    as a result of IRS' problem solving day initiative?
        Answer. For November, 90 percent of the taxpayers' cases have been
    closed; for December, 80 percent of the cases have been closed and for
    January, 70 percent of the cases have been closed. A taxpayer's problem
    (case) is not considered closed until it is fully resolved. However,
    closing a case does not necessarily mean that the resolution is what
    the taxpayer has requested or wanted. The rationale for the resolution
    is explained to the taxpayer, along with any follow-up action that
    could be taken.
        Question. How many were resolved in the taxpayer's favor?
        Answer. In general, IRS does not keep statistics about in whose
    favor the decision is made. We have groups studying the problems that
    cause the most taxpayers problems. For example, audit reconsiderations
    caused taxpayers the most problem solving day cases. Of the cases
    studied, approximately 60 percent of the cases were resolved with full
    or partial abatement of the additional tax assessed. These cases were
    certainly resolved in favor of the taxpayers.
        Question. What kind of follow-up is IRS doing to ensure that
    problems are being resolved and that corrective actions agreed to
    during the face-to-face meetings actually happen? Assuming there has
    been some follow-up, what has IRS learned?
        Answer. Procedures are in place to ensure that no case is
    considered closed until all case issues are addressed, fully resolved
    and all corrective actions are accomplished. IRS management reviews all
    cases, verifying that all necessary actions have been taken to resolve
    the taxpayer's problems. Only at this point is a case considered to be
    closed. Quality review is then done for a statistically valid sample of
    the closed cases to further verify that the proper actions have been
    taken to resolve the case.
        IRS has learned that there are many benefits to both taxpayers and
    employees in having face-to-face contact on these problem solving days.
    Having all the functional areas and management levels represented at
    the problem solving days, working in a team effort, really expedites
    resolution of taxpayer problems. The problem solving days embody the
    ideal of ``one stop service'' for taxpayers.
        Question. How much does IRS estimate this initiative will cost in
    fiscal year 1998, considering costs already incurred and anticipated
    costs for the rest of the year?
        Answer. Based on costs incurred through February, the IRS estimates
    that Problem Solving Days for all of fiscal year 1998 will cost between
    $12-$15 million. Most of these costs will be employee salaries and
    benefits which are not an incremental cost; they were already budgeted
    before the Problem Solving Days initiative was implemented.
        Question. How many taxpayers does IRS project will visit IRS as a
    result of the problem solving day initiative in fiscal year 1998?
        Answer. IRS has made no projections because this is a new program.
    However, based on current receipts, if the taxpayers continue to visit
    PSD's at an average of 5,400 per month, it is projected that
    approximately 59,000 taxpayers will visit IRS during the eleven month
    period from November, 1997 through September, 1998 (the end of fiscal
    year 1998).
        Question. How many of those taxpayers does IRS project will have
    their problems resolved?
        Answer. All cases are worked to resolution and subjected to
    management review prior to closure. Resolving a case does not
    necessarily mean that the solution is what the taxpayer may desire or
    request, but the outcome and rationale are explained to the taxpayer,
    along with other steps that may be taken.
        Question. What actions has IRS taken to hold down the costs of the
    problem solving day initiative?
        Answer. On a Servicewide basis, we have decided to hold more
    coordinated national events than in the months since November, 1997.
    After that first national Problem Solving Day (PSD), we encouraged our
    33 district directors to rotate their events among various cities and
    towns within their geographic areas and also allowed them to select the
    days and times for themselves. More recently, we have chosen to be more
    structured, by fixing two or three days only during a month, from which
    the various offices must choose their PSD's. This approach reduces
    publicity expenditures somewhat, but more importantly, limits the
    amount of time during each month when we must maintain access to our
    tax databases. In turn, that reduces the money spent on the computer
    specialists who must keep systems up and maintained during off-hours,
    as well as trimming hardware/software maintenance fees and utilities
    charges. We have also begun holding PSD's on weekdays, with hours
    extended into the evening, rather than hosting the events only on
    weekends. In March, 1998, two-thirds of the PSD's were held on weekdays
    which, while still affording taxpayers the opportunity to obtain help
    and deal with IRS face-to-face, reduced our overtime expenditures
    considerably.
        At the district level, as the offices have gained experience in
    hosting several PSD's, they have found ways to more efficiently plan
    for resource usage. They now know better how many taxpayers to expect
    at a given site and time, and can arrange their staffing and other
    support services (e.g., guards and utilities) accordingly to meet, but
    not exceed, the expected demand.
        Question. Has IRS identified systemic problems as a result of the
    issues raised by taxpayers during the problem solving day initiative?
    What are the major systemic problems identified; what actions has IRS
    taken or does it plan to take to address these problems in the future?
        Answer. Study groups commissioned by the Taxpayer Advocate are
    focusing on four areas that cause a majority of taxpayer problems:
    audit reconsiderations, offers-in-compromise, installment agreements,
    and penalty issues. These study groups are gathering data and analyzing
    these problem areas in depth. They are making recommendations to
    correct the underlying problems, often expanding outside the realm of
    the problem solving day cases to get a complete understanding of the
    systemic and procedural problems.
        Question. Recognizing that IRS already has a Problem Resolution
    Program in place, what actions will IRS take to direct taxpayers having
    problems to that program rather than to a separate problem solving day
    initiative?
        Answer. IRS has recognized that it needs to improve publicity
    about, and access to, the Problem Resolution Program (PRP). We expect
    that these actions should reduce the need for taxpayers to participate
    in the Problem Solving Day program, and instead provide ongoing access
    to the PRP program itself, so that taxpayers do not need to wait for a
    local PSD opportunity. Nevertheless, because of the evident benefit to
    certain taxpayers, IRS does intend to make the Problem Solving Day
    initiative a permanent feature operated under the auspices of the local
    Taxpayer Advocates.
        Question. How, if at all, has workload generated by Problem Solving
    Days affected the ability of the Taxpayer Advocate to handle the
    regular Problem Resolution Program workload?
        Answer. On a nationwide basis the workload has increased to the
    levels of two years ago. While in certain offices there are special
    workload burden issues, overall the workload is manageable. However,
    because of this program and planned increases in workload from new
    publicity efforts, additional staffing is being allocated to all
    offices to assure that all workload can be managed without compromising
    quality standards.
        Question. What are IRS' current plans with respect to future
    Problem Solving Days?
        Answer. IRS plans to conduct 12 problem solving days in every
    district office in 1999, and has made the Problem Solving Days a
    permanent ongoing program available for taxpayers.
        Question. Does IRS expect to continue having such days past fiscal
    year 1999?
        Answer. Yes. We see this as an ongoing program.
                 controls to ensure fair treatment of taxpayers
        Question. What is the status of IRS efforts to develop a management
    information system to ensure that taxpayer abuse is identified and
    addressed and to prevent its recurrence?
        Answer. To help develop management information on complaints IRS
    receives from taxpayers, a three-part definition of a taxpayer
    complaint was developed. The first category is complaints about
    employee behavior which violate specific statutes or the Code of
    Conduct. This activity is tabulated by the Chief Inspector and included
    in the semi-annual report of the Inspector General. The second category
    is complaints about IRS system failures or problems. These are reported
    in the statutorily mandated annual report (fiscal year basis) of the
    Taxpayer Advocate. The third category is complaints about employee
    behavior which is inappropriate in carrying out official business,
    e.g., rudeness or overzealousness. This behavior is reported in the
    Customer Feedback System in an annual report (calendar year basis)
    mandated by Congress.
        Question. What is the status of efforts to change the current
    information systems maintained by IRS, the Treasury Inspector General,
    and Justice to include specific data elements for taxpayer abuse?
        Answer. While we cannot comment on those systems not under the
    control of IRS, within IRS we are now reviewing the Customer Feedback
    System to see if it can be improved.
        Question. What is the status of the needed changes to this system
    that are required to ensure accurate and objective data?
        Answer. The Customer Feedback System (CFS) was implemented to
    collect the data needed to prepare the annual report on taxpayer
    complaints required by TBOR2. Managers complete Form 10004, Customer
    Feedback Record, when a taxpayer complains to them about the conduct of
    one of their employees. As part of the IRS' review of correspondence
    for the fourth quarter of fiscal year 1997, every Form 10004 prepared
    during that period was reviewed. To date we have not identified any
    weaknesses with the accuracy and objectivity of the data collected
    however, we continue to be concerned with the consistency of
    participation in CFS. The number of 10004's prepared varies
    significantly from site to site and function to function. We have taken
    and continue to take actions to increase awareness of the program and
    encourage completion of the 10004's as required. These actions include:
    articles in management publications (Leaders Digest and A Manager's
    Tool Kit); recertification for all managers as part of the filing
    season readiness review; program reviews; reviews of data by function;
    top level management emphasis on the program and many local initiatives
    to raise the profile of the CFS program.
        Question. How can IRS meet the mandate in the Taxpayer Bill of
    Rights 2, which requires the IRS to file an annual report on taxpayer
    complaints, if the Customer Feedback System does not contain accurate
    and objective data?
        Answer. We believe the data reported is accurate and objective. Our
    concern is to insure that all instances of taxpayer complaints are
    reported on Form 10004 and we are continuing to emphasize the
    importance to managers of their participation. Ongoing reviews and
    publicity have contributed to an increase in volumes reported in recent
    months.
          information systems--century date change effort (year 2000)
        Question. What progress has IRS made in completing unfinished
    assessments and identifying funding for these areas? How will the $42
    million be spent?
        Answer. The assessment of how we propose to spend the $42 million
    is complete. We have specific approved line items for expenditure of
    the entire $170 million appropriated in fiscal year 1998 for Year 2000
    conversion work. Consistent with the notification sent to Congress on
    February 9, 1998 (as part of our quarterly Appropriations report), IRS
    plans to spend the $170 million as follows (including realignment of
    the $42 million).

    ----------------------------------------------------------------------------------------------------------------
                                                                     Congressionally                     Increase/
                         Congressional category                          enacted       New alignment     decrease
    ----------------------------------------------------------------------------------------------------------------
    Conversion and testing.........................................      $79,000,000     $84,000,000     +$5,000,000
    Telecommunications.............................................       23,000,000      51,000,000     +28,000,000
    ADP equipment..................................................       13,000,000      21,000,000      +8,000,000
    Operating system S/W...........................................       17,000,000       9,000,000      -8,000,000
    CDC project office/program management..........................        9,000,000      14,000,000      +5,000,000
    Certification..................................................        7,000,000      11,000,000      +4,000,000
    Contingency....................................................       42,000,000  ..............     -42,000,000
    Offset within IRS budget.......................................      -20,000,000     -20,000,000  ..............
                                                                    ------------------------------------------------
          Totals...................................................      170,000,000     170,000,000  ..............
    ----------------------------------------------------------------------------------------------------------------

        It must also be noted that significant additional needs have been
    identified for fiscal year 1998, and that some areas are still under
    assessment. IRS expects that its Tier 2 (minicomputer) and
    telecommunications costing will be complete by the end of July 1998.
    Tier 3 (microcomputer) systems, needs identified through systems
    integration testing, and the non-information technology (non-IT) area
    may take longer to finalize. Some of these areas will have fiscal year
    1999 implications. Also note that areas of uncertainty and
    identification of new needs will continue into fiscal year 1999.
        Question. What is IRS' latest estimate of its additional funding
    needs for fiscal year 1998? Has IRS identified potential funding
    sources to cover its needs? If yes, what are they?
        Answer. The latest estimate of additional funding needs in fiscal
    year 1998 is about $64 million for year 2000 conversion work (a
    revision to our estimate of $90 million contained in the January Report
    to Congress). IRS has tentatively identified a source for $50 million
    of this need, but this will require Congressional approval to re-
    program certain expired unobligated balances.
        The President submitted a fiscal year 1998 Supplemental request for
    a number of agencies on February 20, 1998. Included in that
    supplemental was a request for the Department of Treasury to have
    authority to transfer up to $250 million among Department accounts for
    Y2K requirements, subject to advance notice to the House and Senate.
    Also included was a request for authority to make unobligated fiscal
    year 1998 balances available through September 30, 1999, subject to
    advance notice to the House and Senate. There was no request for
    additional funds for IRS in the supplemental. With this authority, the
    IRS should be able to cover any remaining unfunded Y2K needs, including
    those which will be identified later. In addition, Treasury has
    recently committed to fund the Treasury Communications System (TCS)
    conversion, which should free up the majority of the $29 million IRS
    has previously reserved for that purpose.
        Question. Please explain how IRS can consider the assessment for
    its mission critical systems complete. Why are contingency funds
    necessary if the mission critical systems have been fully assessed?
        Answer. The IRS considers its assessment of mission critical
    systems complete because all have been analyzed for year 2000 impact
    and committed to a conversion phase. For each mission critical system
    an executive has made a commitment to convert it and has allocated
    technical resources to complete the conversion. Furthermore, the agency
    is conducting a weekly progress oversight process and I receive a
    monthly progress report.
        Some unresolved issues remain, however, especially in the areas of
    telecommunications, Tiers 2 and 3 infrastructure, vendor products, and
    externally exchanged files. Contingency funds are required to cover any
    unforeseen Y2K impacts, or problems that are likely to be discovered in
    some areas. It has been our experience that additional needs are
    uncovered as we progress through the conversion process. IRS has
    established several mechanisms to identify additional needs or problems
    early: (1) systems integration testing; (2) the Risk Analysis process;
    (3) the Contingency Management process; and (4) External Trading
    Partner Risk Analysis. Nine internal audits have commenced to address
    the adherence to standards and the efficacy of the implementation of
    the Y2K conversion efforts.
        Question. How do the areas still under assessment impact mission
    critical operations?
        Answer. The IRS expects minimal impact on its mission critical
    operations resulting from areas still under analysis. Issues and
    potential problems will be discovered through the processes put in
    place for early detection of such items, and this identification will
    occur either prior to or in fiscal year 1999. The Risk Assessment and
    External Trading Partner outreach programs are in place, and systems
    integration testing will begin in January, 1999 and is scheduled to be
    completed by October, 1999. The Contingency Management process for
    applications is in place, with the COTS and external trading partner
    portions to be implemented soon. As new products or requirements are
    identified, they will be evaluated and solutions will be integrated
    into the Year 2000 Project Master Plan for tracking progress. The
    budget will also be adjusted accordingly to include any additional
    requirements.
        In addition, we have ongoing processes in place that will help us
    ensure that Telecommunications provides the essential infrastructure to
    allow the Mainframe Consolidation systems to operate.
        Question. What progress has IRS made in converting its systems to
    date? Please provide this information in terms of the names of mission
    critical systems that have had their applications, systems software,
    and hardware converted and tested.
        Answer. Of 126 Mission Critical applications systems, 75 have been
    renovated, 60 tested, and 59 systems have been implemented into
    production as of Phase 3. Please see the attached list of systems for
    specific names.
        These counts address our applications programs. These systems also
    rely on commercial software and hardware, telecommunications systems,
    electronic data from sources outside IRS, and to some extent, on
    equipment generally outside the scope of information technology, for
    example, building security systems and environmental controls.
        The IRS has established detailed conversion plans for each area and
    dedicated resources have been assigned to execute the plans. Progress
    in each area is monitored on a weekly basis and corrective actions are
    taken to ensure the progress is on schedule.
        Question. Are there any areas for which IRS is at risk of not
    meeting this goal? What is IRS' plan for addressing those areas that it
    may not be able to convert on time? Given that IRS has less than 2
    years to fix and test all of its systems, what contingency plans is IRS
    prepared to implement in each of the following scenarios: (1) funds are
    not available to convert all mission critical systems by 2000, (2)
    there is not enough time to convert all mission critical systems by
    2000, or (3) unexpected system failures occur for a variety of possible
    reasons including unassessed areas, conversion oversights, or
    incomplete testing? Does IRS have Year 2000 contingency plans for those
    systems that are critical to the collection of $1.4 trillion in annual
    revenues? If no, why not?
        Answer. The IRS has identified four potential risk areas that could
    affect the IRS' not being fully Year 2000 compliant. They are
    Telecommunications, Tier 2 hardware and software, Tier 3 hardware and
    software, and External Trading Partners Data Exchange.
        IRS has established detailed conversion plans for each area and
    dedicated resources have been assigned to execute the plans. Progress
    in each area is monitored on a weekly basis and corrective actions are
    taken to ensure the progress is on schedule.
        I chair a monthly Executive Steering Committee meeting to address
    immediately the critical issues and risks associated with the Year 2000
    efforts. In addition, I frequently communicate with selected IRS and
    other stakeholders on an individual basis to monitor the progress of
    specific components of the Year 2000 effort. I have met with the
    General Accounting Office and the IRS' Internal Audit function to
    ensure an independent view of the situation. I also met with Booz-Allen
    & Hamilton on their Independent Validation and Verification risk
    assessment.
        Given the scope of the IRS program and its critical importance to
    both the nation's economy and its taxpayers, it is imperative that the
    IRS' mission critical systems continue to function properly in the new
    millennium. Because the risks are significant, despite the progress
    made, the IRS has developed feasible contingency plans to neutralize
    any adverse impacts of a less than fully successful century date
    program. These contingency plans reflect the IRS functions as well as
    those of our data exchange partners. The overall IRS contingency
    planning strategy is to focus our efforts on planning for only those
    aspects of the program that may not be completed timely and/or fully
    successfully.
        The IRS has scheduled for conversion of all its application systems
    by January 1999, allowing the remainder of 1999 for integration
    testing, system level testing, and certification, and to address any
    unexpected conversion items. Contingency procedures will be developed
    and implemented for products if they become dangerously behind
    schedule. The IRS' Year 2000 Contingency Management Plan tracks Y2K
    remediated progress and allows us to create specific contingency plans
    when a need arises.
        With over 41,000 components and approximately 47 percent of mission
    critical systems converted and implemented as of January 1998, the IRS
    conducted a post-implementation (Phase 3) Review. As a result of this
    review, the IRS identified several lessons learned which were applied
    to all systems. Specific technical solutions, standards implementation
    and testing procedures were modified to reflect these lessons learned.
    In preparation for a similar review process after Phases 4 and 5, the
    IRS has instituted additional metrics. During fiscal year 1999 the IRS
    will implement an end-to-end test or systems integration testing of all
    systems. If a failure or problem occurs in the systems integration
    testing, an existing requirement for a contingency plan will be
    invoked.
        Question. What is IRS' fiscal year 1999 budget request for each of
    the following areas:
        a. Mainframe consolidation?
        b. Integrated Submission and Remittance Processing System?
        c. Year 2000 conversion efforts (i.e., those activities not covered
    by ``a'' and ``b''?).
        Answer. IRS refers to its non-infrastructure related Year 2000
    efforts as Year 2000 ``conversion'' work.
        a. The IRS' fiscal year 1999 budget request for the Service Center
    Mainframe Consolidation is $76 million.
        b. The IRS' fiscal year 1999 budget request for the Integrated
    Submission and Processing System is $18 million.
        c. IRS' fiscal year 1999 budget request for Year 2000 conversion
    activities is $140 million.
        Question. How much of the request for mainframe consolidation is
    attributed to the need to make IRS' mainframe computers Year 2000
    compliant? How much is attributed to non-Year 2000 data center
    consolidation efforts?
        Answer. As a result of the business alternatives analysis for
    mainframe consolidation, of the total investment required for Mainframe
    Consolidation initiative, $265 million represented the minimal cost
    required to achieve Y2K compliance through upgrading the existing
    legacy environment. The analysis to break this cost down by year has
    not been completed.

                            OVERVIEW OF COST AND DOLLAR BENEFITS (FISCAL YEARS 1997 TO 2006)
                                                 [Dollars in thousands]
    ----------------------------------------------------------------------------------------------------------------
                                                                       Contract costs        Total life
                        Delivery alternative                     --------------------------    cycle         Cost
                                                                   Investment      O&M        funding      savings
    ----------------------------------------------------------------------------------------------------------------
    Stay-in business............................................       $265.0       $357.2     $1,815.2  ...........
    Consolidation (with Lease To Purchase)......................        321.4        222.8      1,311.2       $503.9
    ----------------------------------------------------------------------------------------------------------------

        The mainframe consolidation program has four parts. Two of these--
    the Communications Replacement System (CRS) and the replacement of
    desktop devices, with the associated telecommunication infrastructure--
    are mandatory for Y2K compliance. The CRS cannot be upgraded and must
    be completely replaced. The Terminal Replacement Project replaces
    approximately 17,000 desktop workstations which cannot be otherwise
    modified or upgraded. The proprietary telecommunications infrastructure
    supporting connectivity between mainframes, as well as workstations at
    approximately 700 sites, requires significant modification or
    replacement. These projects are currently on schedule to be completed
    by December 1998.
        The other two parts of the mainframe consolidation program involve
    the replacement of existing IBM and UNISYS mainframe computers, in each
    of the ten service centers, with mainframe computers in the Martinsburg
    and Memphis Computing Centers. The Consolidation project is driven
    principally by the requirement to ensure Year 2000 compliance for all
    mainframe platforms. The benefit/cost analysis provided within the
    current Consolidation Business Case indicates that the chosen solution
    provides the greatest return on investment versus a ``pure'' Year 2000
    solution upgrading antiquated equipment in place, and offers a cost
    savings of $503.9 million over a ten-year period. There are a number of
    additional benefits, as described within the business case, which
    provide standardization, satisfy other business requirements and
    position the IRS for subsequent modernization activities. These
    include:
      --Reduced IRS Information Systems Operations and Maintenance Costs
      --Improved IRS taxpayer data quality
      --Improved Disaster Recovery and Business Resumption capabilities.
        Question. Has IRS identified any additional Year 2000 funding needs
    for fiscal year 1999 since the budget request was submitted to
    Congress? If so, what are those needs?
        Answer. IRS requested $50 million in Year 2000 contingency funds
    for fiscal year 1999. At this time, we have additional needs estimates
    for several area of conversion work, totaling approximately $39 million
    in fiscal year 1999. The majority of these needs occur in the areas of
    non-IT ($19 million), Tier 3 hardware ($11 million), and human
    resources retention allowances ($6 million). IRS plans to meet these
    needs out of the $50 million Contingency portion of the fiscal year
    1999 President's Budget request. Also, the Service Center Mainframe
    Consolidation (SCMC) Project is re-evaluating its fiscal year 1999
    needs and impacts, and may require additional funding as a result of
    schedule delays, and modified capacity and disaster recovery
    requirements. IRS is conducting further capacity analysis due to recent
    changes to its level of service (e.g., 6 by 16 hours of operations for
    Customer Service) as well as the additional functionality and the
    increase in locations for the Integrated Collection System. IRS is also
    reviewing modified disaster recovery requirements which call for more
    backup capabilities and shorter time frames for recovery operations. If
    the requested Treasury reprogramming authority is approved, it should
    yield sufficient flexibility to address unforeseen problems.
        Question. What has IRS done to ensure that its current budget
    provides sufficient resources to modify and test its systems to address
    these changes at the same time it is modifying and testing its systems
    for its century date change effort?
        Answer. The work required to accomplish Year 2000 conversion is
    competing for the same resources as the work required for the other
    efforts to which IRS is committed in this time frame, and this is a
    concern. In response to this, I have established the monthly Executive
    Steering Committee meetings to address Year 2000 impacts and 1999
    filing season issues together in an integrated fashion. All aspects of
    these areas, including testing and resource requirements are addressed
    and follow-up actions assigned. I have asked that all potential
    additional needs be flagged and evaluated to monitor their resource and
    schedule impacts and risks through the monthly meetings.
        When Year 2000 resource shortfalls are identified, IRS assesses its
    priorities and, when feasible, realigns funding from less critical
    activities. If there are still unfunded Year 2000 needs, IRS works with
    Treasury and OMB to identify funding sources or request additional
    funding as appropriate. Our requests for contingency funds are one way
    of ensuring that all necessary resources are available as, and when
    needed.
        One of the major areas we have requested funding for is contractor
    support to leverage our internal resources, especially in the area of
    systems testing and certification. In some areas, such as new hardware
    or operating environments (systems software), contractor expertise has
    been added to get the new systems rolling and allow internal staff to
    come up to speed. Also, many requests for systems enhancements are not
    being honored during this period and will accumulate for later
    implementation. The effects of accumulated attrition are also a factor
    in IRS' level of concern about its ability to do everything the IRS
    needs to do in this time frame. The Commissioner recently sponsored a
    six-part human resources initiative which should help in this area,
    especially with the retention of IRS experienced computer personnel and
    the recruitment of additional systems development and testing personnel
    to backfill behind significant attrition.
                            mainframe consolidation
        Question. Is the data center consolidation proceeding according to
    its original schedule?
        Answer. The Terminal Replacement and Communications Replacement
    Systems components, which need to be replaced to become Y2K compliant,
    are proceeding according to plan and are on track. Augmentation
    activities associated with Service Center legacy systems have begun in
    the initial five sites to be cut-over and are proceeding slightly
    behind schedule based upon training and operational issues. The Service
    Center Replacement System and the Integrated Collections System/
    Automated Collections System/PRINT projects are proceeding behind
    schedule based upon requirements to conduct much more thorough and
    exhaustive testing of new technologies and systems beyond what was
    originally envisioned when the project plan was first developed. IRS
    has developed several contingency options is currently reviewing them
    to assess impacts to the project critical path and business case due to
    schedule delays, and modified capacity and disaster recovery
    requirements. IRS is conducting further capacity analysis as a result
    of recent changes to its level of service (e.g., 6 by 16 hours of
    operations for Customer Service) as well as the additional
    functionality and the increase in locations for the Integrated
    Collection System. IRS is also reviewing modified disaster recovery
    requirements which call for more backup capabilities and shorter time
    frames for recovery operations. A decision regarding which option will
    be selected will be made by early June 1998, at which time we will
    provide an updated status assessment and the impacts on funding needs
    and the business case.
        Question. If not, what problems has IRS encountered and what are
    IRS' plans to address them?
        Answer. The challenges facing consolidation are typical of any
    large and complex information systems project. It is also true that the
    risks associated with the project are increased as a result of
    requirements to achieve Year 2000 compliance in a rapid time frame.
    Impacts experienced to date include:
        (1) Programmatic issues, such as the scope and duration of testing
    required to verify the capacity and performance of new systems and
    architectures. Several contingency options have been developed and are
    under review which provide more comprehensive verification and
    validation of new products within the IRS processing environment. To
    mitigate these risks, additional testing will be required to support
    capacity and performance, Disaster Recovery, Security, and Business
    Resumption planning and analysis.
        (2) Operational issues associated with the development of new
    standard operating procedures (SOP's) and inter-organizational service
    level agreements (SLA's). Inter-disciplinary teams composed of Service
    Center, Computing Center, and Business personnel have been created to
    address modifications required to over 400 SOP's based upon new
    technologies and the improved telecommunications infrastructure. A
    Business Project Manager, reporting to the Executive Officer for
    Service Center Operations as a matrix partner within the Project
    Management Office, has been charged with developing and coordinating
    all required SLA's. These will define the new working relationships
    between the computing and service centers, as well as the support to be
    provided between information systems organizations within the service
    centers and their local business area partners.
        (3) Personnel issues associated with staffing, training, and
    relocating personnel within very aggressive timeframes. Extended
    negotiations with the National Treasury Employees Union contributed to
    a later than expected implementation of the consolidation staffing
    plan. This has placed pressure upon the project critical path in
    regards to staffing ramp-up within the consolidated computing centers,
    as well as the associated relocation and retraining timeframes
    necessary to ensure successful filing season operations. The IRS is
    committed to taking whatever steps necessary to retain key expertise
    within the IRS and has provided a number of retraining and relocation
    incentives to employees electing to pursue careers within the
    consolidated computing centers. For those employees who remain within
    the Service Centers, several options are under evaluation for providing
    remote access support, temporary or long-term details to other
    computing or service centers, or retraining and assimilation within
    other areas in the IRS organization.
        (4) Technical issues associated with the delivery sequence of both
    commercial and IRS developed applications. Given the myriad of
    thousands of technology components, the interdependencies between
    individual systems and projects are enormous. The IRS is pursuing very
    aggressive management and oversight of all supporting vendors and
    organizations to ensure timely and quality delivery of products and
    services. Although there have been some impacts to the critical path,
    these have been mitigated through alternative testing schedules and
    options, as well as through interim manual procedures.
        Question. What are IRS' current cost/savings estimates for
    mainframe consolidation and how have they changed from the initial
    estimates?
        Answer. The cost savings adjusted to remove investment costs,
    normal business operating costs, and revenue benefits are $503.9
    million. This cost reflects projected life-cycle dollar savings
    resulting from consolidation. As a result of the on-going schedule
    contingency analysis, it is expected that these figures will change and
    updated information will be provided as it becomes available. However,
    given the initial very strong return on investment (ROI) results
    outlined within the Consolidation Business Case (330 to 350 percent),
    it is expected that any option will continue to support a positive ROI.
        Question. What accounts for the changes, if any?
        Answer. As has been previously stated, changes in the cost/savings
    estimates are under review as part of the overall contingency analysis
    and will be made available as this process is completed in early June
    1998.
        Question. What impact have schedule slippages, if any, had on
    projected costs/savings?
        Answer. The IRS is currently reviewing potential schedule
    modifications. The impact of schedule changes on cost is being
    analyzed. Several issues as previously described (e.g., capacity and
    disaster recovery) are driving potential modifications. The IRS will
    take appropriate measures to update its business case and inform the
    Senate of any significant modifications once the contingency analysis
    is complete.
        Question. What specific aspects of this consolidation are required
    to help IRS achieve Year 2000 compliance?
        Answer. Communications Replacement System (CRS) cannot be upgraded
    for Y2K compliance and must be completely replaced. The Terminal
    Replacement Project replaces approximately 17,000 workstations which
    cannot be otherwise modified or upgraded for Y2K compliance. The
    proprietary telecommunications infrastructure supporting connectivity
    between mainframes, as well as workstations at approximately 700 sites,
    requires significant modification or replacement for Y2K compliance.
    These components are currently on schedule and are scheduled to be
    completed by December 1998. The SCRS and ICS/ACS/PRINT projects achieve
    Year 2000 compliance while satisfying additional business requirements,
    as opposed to a ``pure'' Year 2000 solution upgrading antiquated
    equipment in place. The Consolidation business case identified
    alternative solutions for achieving Year 2000 compliance and determined
    that the current approach offered the best ROI.
        Question. In the event that aspects of this consolidation fall
    behind schedule, what parts, if any, could be delayed without
    jeopardizing Year 2000 compliance?
        Answer. The mainframe consolidation program has four separate
    parts. Two of these, the Communications Replacement System and the
    replacement of desktop devices, are mandatory for Year 2000 because the
    systems they are replacing cannot be made Y2K compliant. These two
    projects are currently on schedule and are scheduled to be completed by
    December 1998. The other two parts of the program involve the
    replacement of current IBM and UNISYS mainframe computers in each of
    the 10 Service Centers, with the new mainframe computers in the
    Martinsburg and Memphis Computing Centers. This aspect of the
    consolidation provides substantial annual cost savings and
    standardization, and positions the IRS for subsequent implementation of
    the modernization blueprint. It will also eliminate the need for
    upgrade of some vendor products and for testing and certification for
    Y2K compliance at each of the Service Centers. However, it is not
    mandatory to complete conversion of all Service Centers to the new
    technology to achieve Y2K compliance. Currently, one of the Service
    Centers has been converted to the new technology and is operating
    successfully. If the schedule for the mainframe consolidation
    components slips, the IRS has the option of remediating the legacy
    platforms in the non-consolidated service centers for Y2K compliance.
    Contingency plans are under development which address the requirement
    to pursue remediation of the legacy SCRS and ICS/ACS/PRINT environments
    in the event that some Service Centers operations cannot be migrated
    prior to January 1, 2000.
        Question. What portion of the total cost estimate is attributed to
    the need to make systems Year 2000 compliant?
        Answer. As a result of the business alternatives analysis for
    mainframe consolidation, of the total investment required for Stay-in
    Business, $265 million represented the minimal cost required to achieve
    Y2K compliance through upgrading the existing legacy environment. The
    analysis to break this cost down by year has not been completed.
        The consolidation solution offered the best return on investment
    for achieving Year 2000 compliance as well as satisfying other business
    requirements. The business case outlines the following figures. In this
    case, the Stay-in Business alternative represents the cost of upgrading
    and operating legacy technologies in-place to achieve Year 2000
    compliance. However, it does not include the additional investment
    necessary to position the IRS for future modernization, which is
    inherent within the Consolidation alternative.

                            OVERVIEW OF COST AND DOLLAR BENEFITS (FISCAL YEARS 1997 TO 2006)
                                                 [Dollars in thousands]
    ----------------------------------------------------------------------------------------------------------------
                                                                       Contract costs        Total life
                        Delivery alternative                     --------------------------    cycle         Cost
                                                                   Investment      O&M        funding      savings
    ----------------------------------------------------------------------------------------------------------------
    Stay-in business............................................       $265.0       $357.2     $1,815.2  ...........
    Consolidation (with Lease To Purchase)......................        321.4        222.8      1,311.2       $503.9
    ----------------------------------------------------------------------------------------------------------------

        Question. What has IRS done to independently verify actual costs
    against projected costs?
        Answer. Several steps are initiated as part of the overall budget
    and program management methodology. Vendor Invoices received against
    task orders/delivery orders are forwarded to the relevant Project
    Manager and COTR to validate that goods and services were received in
    accordance with the established work and cost breakdown structures.
    These are then reviewed within the context of the project and overall
    Consolidation Resource Management and Spending plans to ensure actual
    costs are were within projections and identified in accordance with the
    baseline Master Plan. Costs are ultimately reconciled with the
    consolidation business case and the initial contractor Program proposal
    to verify actual costs against projected costs. This method ultimately
    ensures that both positive and negative cost impacts are identified and
    addressed as quickly as possible.
        By utilizing a contracting paradigm which establishes fixed-prices
    for hardware and software products, while managing services under a
    time-and-materials arrangement, vendor risk is mitigated more
    effectively versus a fix-priced ``for everything'' approach. This
    ultimately yields significant cost savings to the Government for
    services, and at the same time builds a greater level of accountability
    into the management process.
        Question. What impact has this had on projected savings?
        Answer. Because we have not yet defined the contract's parameters,
    the impacts of our costs verification are not known at this time. IRS
    anticipates that, as a result of its efforts to build a greater level
    of accountability into the management process and once contract
    parameters have been defined, it will achieve cost savings in services
    and lower hardware and software prices. However, the project is likely
    to incur cost increases as a result of changes in requirements for
    security, disaster recovery, and the scope and duration of testing
    which will impact the schedule completion and result in a continuation
    of some service center operations. As soon as the net impacts of the
    cost increases and decreases are finalized, we will provide the Senate
    with updated information.
        Question. How much has been obligated to each of the major
    consolidation contractors?
        Answer. For the period July 1997 through March 19, 1998, the IRS
    has obligated the following to each of the major consolidation
    contractors:

    ------------------------------------------------------------------------
                                                            Expenditures \2\
                  Contractor                    Actual          (based on
                                           obligations \1\   invoices paid)
    ------------------------------------------------------------------------
    UNISYS \3\...........................     $130,705,373  \4\ $12,576,453
    IBM \3\..............................       40,595,088  ................
    TRW Telecom..........................       27,877,000    \5\ 2,940,000
                                          ----------------------------------
          Total..........................      199,177,461       15,516,453
    ------------------------------------------------------------------------
    \1\ The $199 million in obligations reserves funding for the entire
      fiscal year 1998 contract costs. The remaining balance (approximately
      $7 million) will be used to cover maintenance for terminals and
      mainframes.
    \2\ The $15.5 million currently expended does not reflect our efforts to
      assess contractor's cost proposals and define costs, or our efforts to
      negotiate the fixed-price components of the contract. Once these
      actions and our assessment of the modifications to the schedule are
      completed, we will provide updated cost and business case information
      to the Senate.
    \3\ Includes the cost of other, less prominent, subcontractors.
    \4\ Unisys/IBM as of March 19, 1998.
    \5\ As of January 1998.

        Question. How does this compare to planned obligations?
        Answer. Planned obligations for each of the major consolidation
    contractors for the period July 1997 through year-to-date March 1998
    are as follows:

            Contractor                                   Planned obligations
    UNISYS \1\..............................................    $121,665,896
    IBM \1\.................................................      35,360,192
    TRW Telecom.............................................      49,641,350
                        --------------------------------------------------------
                        ____________________________________________________
          Total.............................................     206,667,438

    \1\ Includes the cost of other, less prominent, subcontractors.

        Question. Is the contractor responsible for doing all system
    testing for mainframe consolidation?
        Answer. The contractor and the IRS jointly conduct evaluations and
    tests supporting functional, capacity and performance, Security, and
    Disaster Recovery capabilities, as well as mutual implementation of the
    five-step process of testing, verification and validation associated
    with the migration of individual Service Center operations.
        Question. If so, is IRS undertaking any independent assessment of
    the testing to help ensure the results are reliable?
        Answer. The IRS provides coordination and oversight to all vendor-
    related testing. IRS technical personnel conduct independent
    assessments of all vendor testing, to include review of documented test
    plans and procedures, observation of the test activities within secure
    test environments, and the evaluation of pre- and post-test baseline
    data to determine if results are consistent with testing objectives.
    These results are also evaluated against current legacy and historical
    IRS systems profiles to determine if new baseline results are
    consistent with the minimum operational capabilities. In addition, Y2K
    certification must be performed by the IRS Product Assurance
    organization. Upon completion of these activities, the contractor
    submits individual systems to the Government as Ready For Use (RFU), at
    which point the Government accepts the systems and enters them into
    operation.
        In addition, the IRS is in discussion with its Federally Funded,
    Research and Development Center to conduct an independent review of its
    performance and capacity testing and overall test plans.
        Question. With the heavy dependence on contractors to complete
    consolidation in a very short time frame, how does IRS plan to monitor
    contractor efforts?
        Answer. At the individual project level, Government Project
    Managers and COTR's monitor day-to-day performance in accordance with
    work-and cost-breakdown structures associated with individual task/
    delivery orders. These are further monitored at the Program level and
    summarized for initial executive review as a standard weekly report.
    Program management includes a Configuration Control Board with project,
    business, and vendor representation, supported by an issues tracking
    system and database; a Risk Management Committee which maintains
    contingency plans for each project issue; and an executive committee
    with first-line representation from both the vendor and IRS
    communities. In addition, I have implemented an executive steering
    committee which convenes monthly to review on-going status and the
    project implementation strategy. This committee includes
    representatives from the Treasury, and NTEU, as well as the IRS
    information systems and business sponsors.
        Question. Given IRS' past difficulties in developing clear business
    requirements for contractors, what types of activities did IRS
    undertake to help ensure that the contractor was provided a clear set
    of business requirements for mainframe consolidation.
        Answer. The overall scope for technical and functional requirements
    for Consolidation was first identified during the development of the
    Consolidation Business Case. Initial project implementation required
    the vendor to develop and deliver a comprehensive Project Master Plan
    which was based upon Government Furnished Information validated by the
    IRS at the time of writing. The Project Management Plan is then updated
    on a quarterly basis with oversight through a joint Treasury-IRS
    executive steering committee. All IRS organizations provide updated
    input in coordination with the Project Management Office. These updates
    are then controlled within the Project Management Office through the
    Configuration Control Board, which evaluates each modification as a
    Basic Change Request. The results of these actions are quantified in
    terms of cost, schedule, and risk impacts, and forwarded to the Program
    Manager, and ultimately the Program Executives, for review and final
    action.
                             systems modernization
        Question. Does IRS plan to postpone further work on the details of
    the May 1997 modernization blueprint until implementation plans for the
    revised organizational structure have been developed? When are those
    plans expected to be complete?
        Answer. The IRS is actively engaged in Modernization and is not
    postponing further work on the details of the May, 1997 Blueprint until
    plans are in place for the revised organization structure.
        Specifically, the IRS issued the Request for Proposals for a Prime
    Systems Integration Services Contractor on March 26, 1998. The Prime
    Contractor will partner with the IRS and its contractors (i.e.,
    Integration Services Contractor TRW and the Federally Funded Research
    and Development Center) to develop and deploy the Systems Life Cycle,
    develop the requisite program management capabilities and continue work
    on the first two subreleases for Modernization, Primary Telephone Call
    Routing and Management and Enhanced Secondary Telephone Call Routing
    and Management, respectively. The current estimated implementation date
    for these subreleases is December, 1999 and November, 2000. The IRS
    views the technology modernization as defined in the Blueprint as an
    enabler of the organizational modernization.
        The anticipated completion date for plans for the organizational
    modernization structure will be made available as soon as it is known.
    The IRS has begun detailed analysis with Booz-Allen and anticipates
    providing timeframes and implementation strategies in the near future.
        Question. Could the proposed reorganization also affect IRS'
    current effort to consolidate all data processing in 2 centers? If so,
    how?
        Answer. It is not anticipated that the proposed IRS reorganization
    would affect the mainframe consolidation activities, which are
    scheduled to be completed in 1999.
        Question. In light of the Commissioner's reorganization plans, the
    CIO's resignation, and the RFP's delay, how have IRS' plans for
    completing each component of the modernization blueprint (system life
    cycle, architecture, requirements, and sequencing plan) and commencing
    modernization changed?
        Answer. The IRS is moving forward with acquisition of the Prime
    Systems Integrated Services Contractor for Modernization and the first
    two subreleases of Phase I/Release 1 as planned. Any future
    Modernization activity would be performed consistent with and in
    support of the organization modernization and approved by internal and
    external oversight including the Commissioner, Treasury and Office of
    Management and Budget. As previously stated, we believe that technology
    modernization, defined in the Blueprint, enables organizational
    modernization. Attached for your information is a description of
    longer-term technology investments associated with the fiscal year 1999
    budget.
        Question. Why was release of the RFP delayed, and what is the
    current status? Does IRS still plan to award the Prime contract by
    October 1, 1998?
        Answer. The Request for Proposals (RFP) for a Prime Systems
    Integration Services Contractor was originally scheduled for release on
    January 15, 1998. The issuance of the RFP was delayed to provide the
    newly appointed Commissioner an opportunity to perform due diligence
    related to content and scope of the document. The RFP was released on
    March 26, 1998 with an award date by December 1998.
        Question. With so many other major efforts on its plate-a major
    reorganization, century date change, mainframe consolidation, and the
    replacement of IRS' primary returns processing and remittance
    processing systems--how does IRS expect to move forward with an award
    for a prime contractor?
        Answer. The single most important priority for the IRS is the Y2K
    program which is managed by IRS technical staff and supported by
    contractors other than the PRIME offeror teams. This team is solely
    dedicated to Y2K activities. Likewise, all activities for mainframe
    consolidation and the Integrated Submissions and Remittance Processing
    System are supported and managed by IRS and contractor teams other than
    the PRIME offerors.
        However, the IRS recognizes that although these critical programs
    need to progress, there is an immediate need for the PRIME to arrive
    and bring with it the requisite technical and management capabilities
    for the IRS to proceed with Modernization and implement much needed
    improvements in the area of Customer Service.
        The first two subreleases of Modernization will be managed by IRS
    and PRIME contractor staff who are not involved in the activities
    mentioned above. Additionally, the scope of these subreleases was
    crafted to ensure minimal design impact on IRS legacy systems which are
    the focus of the Y2K effort, mainframe consolidation and Integrated
    Submissions and Remittance Processing System.
        Question. Has the Commissioner agreed to the mainframe-centric
    blueprint that the CIO and his team created? If not, how will his
    disagreement affect future plans?
        Answer. As defined in the Commissioner's Statement before the
    Senate Finance Committee on January 28, 1998, the Organizational
    Modernization is based on five key elements, as follows:
      --revamped IRS business practices that will focus on understanding,
            solving and preventing taxpayer problems;
      --organizational structure built around taxpayer needs;
      --management roles with clear responsibility;
      --balanced measures of performance; and
      --new technology.
        The new CIO organization, the Modernization Blueprint and the
    recently released request for proposals for a Prime Contractor provide
    an outstanding and professional basis for managing the evolution of our
    technology. The revamped business practices and Organizational
    Modernization will provide a sound basis for completing and
    implementing the modernized systems envisioned in the Modernization
    Blueprint, including the mainframe centric solution and centralized
    databases, and will be tied to the development of lower level
    requirements for design and development through the Prime Contractor.
                            enforcement--examination
        Question. What plans does IRS have to use dollars collected to help
    measure and report audit results?
        Answer. IRS did not agree that the collection rate, as used by GAO,
    should be used as the sole measurement of the effectiveness or
    productivity of our audit program for large corporations. There are
    various actions outside of the control of the Examination function
    which can occur after an audit has closed. Items such as Net Operating
    Loss and Credit Carrybacks, as well as post closure abatements, can
    have a significant impact on the amount ultimately collected. The
    current budget does not include a collection rate as a measure of audit
    results.
        Many of the measures which IRS used in the past were business
    results measures involving IRS' tax law enforcement activities. While
    some of these business results measures tracked items such as cycle
    times and case dispositions, many were essentially productivity
    indicators that recorded dollar revenue per FTE for particular
    enforcement activities. Neither extensive external (customer)
    information nor employee satisfaction information has been used in
    evaluating organizational performance. Thus many managers and employees
    have focused primarily on productivity.
        To address this imbalance, the IRS has established a task force,
    the New Measures Task Force (NMTF). The ultimate aim of the NMTF is the
    development of a new, balanced measurement system for the IRS that is
    equal to the ``best in class'' in private industry. Such a system would
    reflect the new organizational structure of the IRS (to be aligned with
    major taxpayer groups) and would measure how well the IRS is meeting
    its strategic goals by incorporating measures of customer satisfaction
    and employee satisfaction with measures of business results and
    compliance.
        In the nearer term, however, the goal of the NMTF is to develop, in
    partnership with a contractor, an interim set of balanced measures that
    would move the IRS toward this ultimate goal. This task shall include
    the identification of measures for customer satisfaction, employee
    satisfaction, and key activity/productivity and quality measures.
    Specifically, one of the sub-tasks will be to develop and determine
    quality measures for each area. This is likely to require substitute
    measures for the cycle time and dollar revenue per FTE measures
    previously used in Examination and Collection. As part of the
    substitute measures, and building on ongoing IRS work in this area, the
    NMTF and the contractor will work to develop more qualitative measures
    of the quality of case work for Examination and Collection (including
    timeliness, accuracy, resources used, and assistance to the taxpayer to
    remain in compliance).
        Among other things, IRS' Employee Plans/Exempt Organizations (EP/
    EO) Division monitors employee pension plans and exempt organizations
    and examines returns filed by those plans and organizations. According
    to IRS' fiscal year 1999 budget estimates: ``Because of the size,
    complexity, and resources of exempt organizations, and the large sums
    invested in employee benefit plans, the potential for abuse is great *
    * *''. Despite that potential for abuse, IRS data show that the number
    of EP/EO employees has steadily declined from 2,448 at the end of
    fiscal year 1992 to 2,194 at the end of fiscal year 1996. Likewise,
    although the number of returns filed by exempt organizations and
    employee plans increased from about 1,654,000 in 1992 to about
    1,750,000 in 1995, the number of such returns examined decreased from
    about 42,000 in fiscal year 1993 to about 25,200 in fiscal year 1996.
    IRS' budget request for fiscal year 1999 calls for the same number of
    full time equivalent staff years as in fiscal year 1998 with a slight
    decrease in funding.
        Question. What factors govern IRS' decision that an apparent
    discrepancy on a tax return should be handled through service center
    correspondence rather than a face-to-face audit by the district office?
        Answer. Generally, the complexity of the issue(s) involved
    determines which office or type of employee is assigned an audit.
    Returns with the fewest and simplest issues are performed in our
    service centers. As the issues become more complicated, they are more
    likely to be assigned to a district office. The IRS tries to use the
    technique which is the least intrusive and least burdensome method for
    the taxpayer while still adequately resolving potential discrepancies.
        Question. Does IRS have plans to shift any district office audit
    workload to service centers? If so, what types of workload will be
    shifted, how will the service centers be prepared to handle the new
    workload, and when will the shift occur?
        Answer. IRS is involved in preliminary discussions about the
    feasibility of shifting some work from the district offices to the
    service centers. The work we would consider is primarily 1040A returns
    with total positive income below $25,000 and possibly some non-1040A
    returns with total positive income below $25,000. District Office
    Examination has had preliminary conversations with the Service Center
    Examination Division on the potential transfer of workload. We are
    considering the shift of this work in conjunction with our Examination
    Occupational Study project on Tax Auditors and Revenue Agent positions.
    However, because this is at a conceptual stage, we have not addressed
    specific issues including how the service centers will handle the
    workload and the timeframes when the shift will occur.
        Question. How do district audits compare to service center audits
    in terms of traditional audit results (e.g., percent of audits that
    resulted in no recommended change in tax liability, amount of
    recommended tax change per audit, and direct hours invested per audit)?
        Answer:

    ------------------------------------------------------------------------
                                                     Recommended
                                        No change   dollar change  Hours per
                                        (percent)    per return      return
    ------------------------------------------------------------------------
    Revenue agent individual..........         10         $19,330         22
    Revenue agent corporate...........         24          58,562         58
    Tax auditor.......................         14           3,447          4
    Service center....................         14           3,247          1
    ------------------------------------------------------------------------
    Data is fiscal year 1997. Data does not include Coordinated Examination
      Program results.

        Question. How often do taxpayers request a reconsideration of the
    results of a district office audit compared to the results of a service
    center audit?
        Answer. In fiscal year 1997, approximately 74,000 returns examined
    in district offices were appealed to the IRS' Appeals function. For the
    service centers, approximately 8,000 returns were appealed.
        Question. For both district office and service center audits, how
    does IRS ensure quality during the audit and measure quality after the
    audit?
        Answer. Ensuring Quality During The Audit.--Auditing Standards
    Examination has auditing standards which define the technical quality
    of completed casework. The standards address concepts of scope, audit
    techniques, technical conclusions, workpaper preparation, reports, and
    time management. Each standard is composed of key elements describing
    specific components of an examination which are present if a quality
    examination is conducted. The Auditing Standards describing case
    quality parallel the Critical Elements used to evaluate employee
    performance.
        Managerial Oversight Group managers are responsible for the
    procedural and technical quality of the work produced by examiners
    under their supervision. Management practices, appropriate for the
    individual examiner, are selected to provide oversight and quality
    control. For example, managers may choose on-the-job visitations, in-
    process case reviews, or workload reviews as a method of direct
    involvement for examiners. Experienced examiners with reputations for
    strong technical skills would require less ``hands-on'' supervision.
    Branch Chief oversight ensures that the appropriate tools are selected
    and are used with sufficient regularity.
        These are not the only management practices used to control and
    improve technical case quality. Managers may use the Individual
    Development Program (IDP) to identify an examiner's specific needs,
    determine corrective action, and monitor success. Examiners have access
    to technical expertise through the Industry Specialization Program
    (ISP) and Market Segment Specialization Program (MSSP) and each
    district provides continuing professional education (CPE).
        Measuring Quality After the Audit.--Examination Quality Measurement
    System (EQMS) is used to collect data regarding examination results and
    the examination process. IRS conducts post-audit reviews of randomly
    selected cases to determine compliance with the Auditing Standards and
    collect process measures. A Customer Satisfaction survey is also sent
    to every taxpayer selected for an EQMS case evaluation. The survey
    addresses concepts such as the fairness of the examination, if the
    taxpayer was treated with respect, and whether the taxpayer was
    satisfied by the services provided. The data from the case evaluation
    and the taxpayer's response are associated to provide a more complete
    and accurate picture of the examination process.
        Question. How valid are the DIF formulas for returns being filed in
    1998?
        Answer. Existing DIF Formulas were derived from data of the last
    TCMP surveys, 1987 returns for corporations and 1988 returns for
    individuals. Certain revisions of DIF Formulas resulting from major
    changes in the tax laws are implemented between TCMP surveys as needed
    to reflect the impact of law changes on the relative ranking of
    returns. These formula revisions are not considered updates of the DIF
    Formulas. Only data from examinations of randomly selected returns can
    serve as the basis for DIF Formula updates.
        Question. As the formulas age, has IRS noticed any differences in
    the returns being selected through DIF and/or in the results of audits
    done on DIF-selected returns?
        Answer. The results of audits done on DIF selected returns has
    remained relatively stable. Since we believe that these formulas do
    deteriorate over time, these stable results could be caused by more
    selective screening of returns and/or a drop in voluntary compliance.
        Question. What plans, if any, does IRS have to update DIF with
    statistically valid research data or to replace DIF with some other
    objective selection method(s)?
        Answer. Until such time as the IRS has access to statistically
    valid research data, such as that collected through a TCMP-type
    compliance survey, we will continue to be unable to update DIF. IRS has
    conducted research on alternatives for developing workload selection
    systems as a replacement for DIF and will continue its research in this
    area. However, none of the techniques that have been investigated
    performed better than, or even as well as, DIF.
        Question. Please explain how the Market Segment Workplan works. Is
    its use negating the need for DIF?
        Answer. Each region is presently participating in a test to convert
    the traditional Examination Plan to a market segment based plan. The
    test districts are North Florida, New Jersey, Illinois and Pacific-
    Northwest. The method that was developed allows a district to re-sort
    the traditional Activity Code workplan to determine the fallout of
    returns by market segment by district and post-of-duty. Feedback from
    the test indicates the primary benefit of the market segment plan is in
    determining the placement and assignment of market segment examiners.
        The market segment workplan does not negate the need for DIF
    because it is not a return selection process. The system for the
    ordering and delivery of returns is still based on DIF scored returns.
        Question. What is the status of the IRS' effort to collect data on
    taxpayer satisfaction with the audit process, and how will IRS use the
    data?
        Answer. Examination Divisions in each of our 33 district offices
    have received responses from taxpayers who received survey letters.
    Quarterly data from October-December 1997 has been compiled.
        The responses received from the taxpayers will be coupled with the
    data collected from our internal reviewers on the quality of closed
    examinations. This data will be used to identify systemic improvements
    to the audit process. In addition, districts will be monitored based on
    a customer service index tied to fairness, respect and satisfaction
    with the audit process.
        Question. GAO reported in its High Risk Report on IRS that the
    inventory of tax debts at the end of fiscal year 1996 was $216 billion.
    (GAO/HR-97-8, Feb. 1997). What was the inventory at the end of fiscal
    year 1997? Please provide a detailed breakdown of these receivables by
    their collection status at the end of fiscal year 1997. And please
    identify how much of this inventory represents valid financial
    receivables versus compliance assessments and how much IRS expects to
    eventually collect.
        Answer. The Gross Accounts Receivable Dollar Inventory as of
    September 30, 1997, was $236 billion. The attached charts show the
    collection status of the entire inventory, and a breakdown of the
    Currently Not Collectible inventory by condition.
        As the GAO stated in its report on our audited financial
    statements, IRS' unpaid assessments balance after auditor adjustments
    was about $214 billion. These adjustments arose primarily to eliminate
    the double counting from the trust fund recovery penalties assessed
    against officers and directors of businesses who were involved in the
    non-remittance of federal taxes withheld from their employees. The
    related unpaid assessments of those businesses are reported as tax
    receivables, but the IRS may also recover portions of those businesses'
    unpaid assessments from any and all individual officers and directors
    against whom a trust fund recovery penalty is assessed.
        This unpaid assessments balance has historically been referred to
    as IRS' taxes receivable or accounts receivable. However, a significant
    portion of this balance is not considered a receivable and a
    substantial portion is largely uncollectible.
        Of the $214 billion of unpaid assessments, $76 billion represents
    writeoffs. Writeoffs principally consist of amounts owed by bankrupt or
    defunct businesses, including many failed institutions resolved by the
    Federal Deposit Insurance Company (FDIC) and the former Resolution
    Trust Corporation (RTC). In addition, $48 billion of the unpaid
    assessment balance represents amounts that have not been agreed to by
    either the taxpayer or a court. Due to this lack of agreement, these
    compliance assessments are likely to have less potential for future
    collection than those unpaid assessments that are considered federal
    taxes receivable or financial receivables. The remaining $90 billion of
    unpaid assessments represents financial receivables.
        About $28 billion of the $90 billion financial receivables balance
    is estimated to be collectible. Components of the collectible balance
    include installment agreements with estates and individuals, as well as
    relatively newer amounts due from individuals and businesses who have a
    history of compliance. The remaining $62 billion of the financial
    receivables balance is estimated to be uncollectible due primarily to
    the taxpayer's economic situation, such as individual taxpayers who are
    unemployed or have other financial problems. However, IRS may continue
    to collect for 10 years after the assessment or longer under certain
    conditions. Thus, these accounts may still have some collection
    potential if the taxpayer's economic condition improves.
        Question. Is that report now available? If it is, can IRS tell us
    the amount of new receivables identified in the past 3 years and the
    collection outcome of these receivable? If the report is not available,
    when will it be?
        Answer. IRS' Enforcement Revenue Information System (ERIS) tracks
    dollars collected on accounts that become delinquent from the date of
    assessment until the account is resolved or until the statute expires.
    The IRS can provide the amount the IRS has collected on assessments
    that were made during fiscal years 1997, 1996, and 1995, but cannot
    provide detailed information on collections specific to existing unpaid
    assessments in the inventory as we report them in our reports on the
    Gross Accounts Receivable Dollar Inventory.
        The report that will show the dollars collected from new receipts
    versus dollars collected is not yet available. This report is being
    developed to support the information we report in our financial
    statements for the gross accounts receivable dollar inventory. This
    report is not yet available because the IRS has had to make changes in
    how we report on this unpaid inventory to comply with the standards
    defined in the Statement of recommended Accounting Standards Number 7,
    Accounting for Revenue and other Financial Sources and Concepts for
    Reconciling Budgetary and Financial Accounting. It has also been
    delayed due to Year 2000 programming. This report should be available
    by 9/30/99.
        Question. How soon after the April 15 filing deadline did IRS send
    out its nonfiler and underreporter notices for tax year 1996?
        Answer. We scheduled tax year 1996 notices for various intervals
    after the April 15th filing deadline. The first batches of notices were
    mailed to taxpayers during November, 1997 and February, 1998.
    Additional batches have been scheduled for May and August, 1998.
        Question. Does IRS expect any changes to those time frames for tax
    year 1997?
        Answer. We are continually evaluating the timing of these notices.
    It is our goal to get the notice to taxpayers, with accurate
    information, as quickly as possible. The schedule for tax year 1997
    notices has not been finalized.
        Question. GAO testified at the Senate Finance Committee hearings in
    September 1997 that the IRS did not have the information systems
    necessary to identify the extent to which its collection enforcement
    tools--liens, levies, seizures--may have been used inappropriately.
    What steps has the IRS taken to develop information systems needed to
    determine the extent to which liens, levies and seizures are used
    appropriately?
        Answer. We do not believe that information systems can be developed
    that can adequately determine the extent to which liens, levies, and
    seizures are used appropriately. Case files contain a number of forms,
    documents and case history about the tax delinquent case. Some of the
    documents include hand written case history entries, correspondence,
    financial analysis decisions, hardship determinations, steps taken to
    locate assets, and investigation results relating to the equity in the
    asset. An analysis of all of these documents are necessary to determine
    if the lien, levy, or seizure was appropriate. We believe that the best
    way to identify the appropriateness of an enforcement action is a
    review of the case by reviewing officials. Because a review of the case
    file is necessary, and an analysis must be made as to the
    appropriateness of an action, we do not believe a systemic, information
    systems approach would be feasible.
        There are, however, a number of non-systemic initiatives in use,
    and some initiatives under way, which track inappropriate enforcement
    actions. Currently, there are a number of review systems, independent
    of Collections, that are able to identify instances of inappropriate
    Collections actions. These include the Collections Appeals Program,
    Problem Resolution Program, and results from the Problem Solving Days
    initiative. Collections uses this information to determine seizure and
    sale trends. Historically, these systems show minor activity, usually
    in the 4 percent range. Collections is also recommending increased
    regional oversight of seizure cases and tracking the number of seizures
    denied by approving officials. The reasons for denial will be loaded on
    a newly designed seizure and sale tracking system.
        The appropriateness of lien filings must also be measured by
    taxpayer contact and managerial case review. The Automated Lien System
    (ALS), which generates Notices of Federal Tax Liens and their releases,
    allows for the insertion of a code designated for an ``Erroneous'' Lien
    situation. However, an analysis of the facts and circumstances of those
    cases shows that more often than not, these errors are the result of
    employees inputting incorrect entity information (such as incorrect
    name spelling, address, etc.), rather than an inappropriate judgment
    that a lien should be filed.
        Question. What additional controls, if any, over the use of these
    enforcement tools have been incorporated since these hearings?
        Answer. Since the Senate Finance hearings, a number of additional
    controls and taxpayer safeguards against abuse have been placed on the
    use of enforcement tools incorporated into collection procedures. Here
    is a list of some of the changes:
      --The District Director or Assistant Director must approve all
            seizures of principal residences and their contents (even if it
            is the residence of someone other than the taxpayer, e.g. a
            taxpayer's tenant). Also, the Director or Assistant Director
            must approve all seizures of perishable goods.
      --Procedures have been revised to require revenue officers to give
            the taxpayer an opportunity to file a corrected return before
            enforced collection proceeds when a liability is based on a
            substitute for return. (Under substitute for return provisions,
            the IRS prepares a tax return based upon third party
            information after the taxpayer has been afforded the right to
            file a tax return voluntarily, but neglects or refuses to file
            a tax form.)
      --Publication 594, ``Understanding the Collection Process,'' which is
            mailed with all Notices of Intent to Levy, is being revised to
            make it more useful to taxpayers. In addition, a ``tear-off''
            copy of Form 911, ``Application for Taxpayer Assistance
            Order,'' is being added to the Publication.
      --District and Service Center Directors review all complaint
            correspondence and confirm to the Taxpayer Advocate that all
            cases have been properly resolved.
      --District management met with all Compliance employees to correct
            any misunderstandings about the employees' responsibilities
            when dealing with taxpayers.
      --Revenue Officers are required to refer to the Taxpayer Advocate any
            instances when the taxpayer says that collection action will
            cause a hardship.
      --Deputy Commissioner Michael Dolan has assigned an executive to
            conduct a review of the lien and notice of levy processes and
            recommend legislative and procedural changes that will balance
            the rights of taxpayers and the IRS' responsibility to collect
            the correct amount of tax.
        Question. In fiscal year 1996, IRS issued over 3 million levies
    compared to 750,000 liens and 10,000 seizures. Given the relatively
    large volume of levies, please explain how this enforcement tool is
    used in the collection process and what controls exist to ensure it is
    used appropriately.
        Answer. Generally, a notice of levy is used when someone other than
    the taxpayer has the taxpayer's property and can turn it over by merely
    writing a check. This usually involves bank accounts, wages,
    commissions, or accounts receivable of a contractor. On the other hand,
    seizure generally involves property or rights to property in the hands
    of a taxpayer such as vehicles, buildings, and business property. The
    Internal Revenue Code lists the types of property and income that are
    exempt from notices of levy and seizures. Policy statements also limit
    what IRS can levy.
        Generally, employees initiate levies as a follow-up action when the
    taxpayer has not responded to a Notice of Intent to Levy, or taxpayers
    may be contacted and then miss deadlines for providing needed
    information or have broken a promise to pay or some other commitment.
        Frequently, the levy elicits responses from taxpayers who have not
    responded to calls and/or letters in addition to collecting dollars.
    Generally, the levy is released if the taxpayer responds before
    proceeds are sent. The taxpayer contact provides financial or other
    information to resolve the case, most often by granting an installment
    agreement, but also through short-term payment arrangement, a currently
    not collectible determination under hardship provisions, or a tax
    adjustment.
        The levy must be released if an installment agreement is granted
    unless the agreement specifically allows for the levy, or if the levy
    is causing an economic hardship, or for other reasons specified in the
    Internal Revenue Manual.
        Procedures involving levy releases apply both before and after levy
    proceeds are received. As a result of TBOR2, the IRS now has the means
    to return the proceeds of a levy to a taxpayer even after the IRS has
    processed the payment.
        The Taxpayer Bill of Rights also added provisions to the IRC that
    allow taxpayers to sue the government for damages, based on actions or
    inactions of IRS employees. If an IRS employee disregards the
    provisions of the IRC and its regulations in the course of his or her
    duties, the taxpayer may bring an action against the IRS to recover
    damages under IRC 7433.
        Safeguards are built into our billing system to ensure that
    taxpayers are systemically notified of their rights. The taxpayer is
    advised in our notices and publications about how to question the
    liability if it is wrong, how to get help if a levy would cause a
    hardship, and how to appeal collection actions. If the taxpayer
    questions the liability, the IRS' Policy P-5-16 is to withhold
    collection of any liability that is in doubt. Before a notice of levy
    is issued, taxpayers are sent at least two notices asking them to pay
    the amount owed. These are the ten day notice and demand (which
    includes Publication 1, Your Rights as a Taxpayer) and the thirty day
    notice of intent to levy (which includes Publication 594, The
    Collection Process). Often, there are more notices sent when individual
    income tax is owed. There is also an active Collection Appeals Program
    (CAP) which enables taxpayers to appeal proposed or executed liens,
    levies, seizures and termination of installment agreements. Other
    information is available to taxpayers regarding the Collection Appeals
    Program in Publication 1660, Collection Appeal Rights for Liens,
    Levies, Seizures and Termination of Installment Agreements. The reverse
    of Form 9423, Collection Appeal Request, also provides information to
    the taxpayer on how to file an appeal. The procedures also require that
    Publication 1660 for a Collection Appeal will be included with the
    Notice of Seizure.
        Question. What actions has IRS taken regarding the employees found
    to have violated taxpayer rights and/or the spirit and intent of
    Taxpayer Bill of Rights legislation?
        Answer. I have requested the Chief Inspector to conduct a
    comprehensive audit of general policy as well as investigate specific
    allegations. The reports will also focus on executive and senior
    management responsibility for issuing written guidance to the field on
    the use of enforcement statistics. As reports are completed, we are
    committed to fairness, objectivity, and consistency in reviewing the
    findings, taking corrective actions and deciding appropriate
    administrative actions. In this respect, we have devised a two-step
    decision making process. The first step consists of a panel that
    includes executives inside and outside the IRS who will review the
    results of the investigations. Members of this panel are: Doug
    Browning, Customs Assistant Commissioner for International Affairs;
    Steven Colgate, Assistant Attorney General for Administration; and Dave
    Mader, IRS Chief Management and Administration. This panel will propose
    corrective and/or administrative actions. The second step of the
    process is for situations where the proposed corrective and/or
    administrative action(s) requires a reply and final decision by another
    official. For actions requiring the second step, Kay Frances Dolan,
    Deputy Assistant Secretary of Treasury (Human Resources) has been
    designated. Deputy Assistant Secretary Dolan will make the final
    decisions on any adverse actions resulting from the first panel. This
    two-step process will continue as additional investigations are
    completed.
        Question. If IRS no longer uses ``dollars collected'' as a
    performance measure, how will it evaluate the performance of its
    collection employees?
        Answer. Collection employees should never have been evaluated on
    the measure of ``dollars collected.'' Nonsupervisory collection
    employees performing collection activities continue to be evaluated
    based on meeting, exceeding, or failing to meet the critical elements
    and performance standards of the position they occupy as outlined in
    their position descriptions. The critical elements and performance
    standards for these employees should not have contained in the past and
    do not currently contain numerical measures of performance or
    statistics such as ``dollars collected.'' The immediate supervisors of
    nonsupervisory employees are evaluated on their ability to meet their
    critical elements and performance standards, not on numerical measures
    of performance or statistics such as ``dollars collected.'' Although
    ``dollars collected'' as a performance measure has been used
    organizationally, it is not to be used at any time in a way that would
    identify the product or performance of any individual collection
    employee.
        Question. Without a ``dollars collected'' measure, will IRS
    collections staff be more inclined to defer collection action or
    consider delinquent accounts uncollectible? Is there a possibility that
    collections on delinquent accounts will decrease while the size of the
    accounts receivable inventory increases significantly?
        Answer. The possibility always exists that Currently Not
    Collectible (CNC) action will be used as an inventory control device
    resulting in fewer dollars collected and increased accounts receivable.
    The quality of the determination is the key to limiting this
    possibility. National Office reviews concentrate on the quality of case
    actions taken in the CNC case. The Regions are also expected to include
    CNC quality in their reviews of district operations. The Collection
    Quality Management System reviews a sample of hardship and operating
    corporation CNC's to determine the quality of actions taken. Collection
    is also studying other post action review possibilities to minimize
    inappropriate CNC determinations.
        Question. IRS' fiscal 1999 budget estimates include funding for
    further development of the Inventory Delivery System. This system will
    centralize collection case processing and use automated methods to
    evaluate delinquent accounts for collectibility so that the most
    productive accounts receive priority attention. What is the status of
    the system, and how many IRS field locations are using it?
        Answer. The Inventory Delivery System (IDS) is being developed in
    three phases, with the first release scheduled for pilot early in 1999.
    No field locations are currently using the system.
        Question. Has IRS evaluated the results of the system? If so, what
    do those results show?
        Answer. Results derived from the system will be evaluated during
    each of the three pilots and prior to implementation of each release.
    However, we are currently analyzing a sample of approximately 800 cases
    processed by an earlier test of the Financial Analysis Program (FAP)
    piece of the functionality. FAP provides for up-front identification
    and systemic closure of ``hardship'' cases and will be delivered early
    in 1999, as part of the first pilot. We have not yet completed this
    analysis, but the goal is to find any weaknesses in the FAP process and
    fix them prior to the upcoming pilot.
        Question. What is the current status of ICS, and where is it being
    used? Once ICS is rolled out of these 13 sites, will all field offices
    have it? If not, how many offices remain?
        Answer. As of April 1, 1998, the Integrated Compliance System (ICS)
    is fully installed and operational in all Collection offices in 21 of
    the IRS' 33 districts. The remaining 12 districts plus A/C
    (International) which do not have ICS, are scheduled for implementation
    in calendar year 1999. Once ICS is installed in these remaining 13
    ``sites,'' no other offices remain.
        Question. Why was ICS not rolled out to the 13 sites in 1998? If
    IRS was appropriated funds for this rollout in 1998, how were these
    funds used?
        Answer. Although ICS requested funds to complete its rollout in
    1998, none were included in the IRS' final budget for fiscal year 1998.
    Instead, the IRS directed all available deployment funds to its top
    priorities, the Century Date Change and the Service Center Mainframe
    Consolidation initiatives. To complete the roll out, $60.7 million has
    been included in the IRS' budget request for fiscal year 1999. The
    current plan to complete ICS rollout assumes that the requested funds
    will be available.
        Question. Many of IRS' functions, in particular the management and
    disposition of assets seized from delinquent taxpayers, are extremely
    labor and paper intensive. How much of the paperwork associated with
    asset seizures is affected by ICS? Has ICS made revenue officers more
    productive in controlling managing, and disposing of seized assets?
        Answer. ICS provides automation to the issuance of the forms and
    letters that revenue officers are required to complete before taxpayer
    assets can be seized and sold. ICS has made revenue officers more
    productive in controlling, managing and disposing of seized assets by
    reducing the time it takes to prepare these forms and letters.
        Question. Several years ago Collection adopted new procedures using
    Collection financial analysis in the development of payment schedules.
    Collection financial analysis applies national and local expense
    standards to help ensure that taxpayers are not inflating their
    expenses and to help IRS obtain maximum payment. How have these new
    procedures affected IRS' ability to obtain maximum payment?
        Answer. The Collections financial analysis standards were
    instituted to ensure fairness and consistency in determining a
    taxpayer's ability to pay a delinquent tax liability. The standards
    limit excessive expense claims, but they also provide national
    allowances for basic expenditures which were often overlooked in the
    previous system.
        Although difficult to quantify from available reports, we believe
    from interviews with revenue officers and group managers that the
    Collections financial analysis procedures are increasing dollars
    collected from higher-income taxpayers while increasing the likelihood
    that lower-income taxpayer accounts will be reported as currently not
    collectible.
        Question. What has been the effect of IRS classifying delinquent
    cases as currently not collectible? About half the delinquent cases in
    IRS receivable inventory were so classified in 1996.
        Answer. The overall percentage of currently not collectible (CNC)
    showed a slight decline for fiscal year 1997. The number of tax periods
    reported currently not collectible due to hardship (the category to
    which the new collection financial analysis procedures apply) decreased
    11.2 percent from fiscal year 1996 to fiscal year 1997, and dollars
    collected on taxpayer delinquent accounts increased 2.6 percent.
    However, we cannot definitively say this occurred due to the collection
    financial analysis procedures.
        The Collections Financial Analysis (CFA) standards have no impact
    on defunct corporation or bankruptcy CNC's, as payment from continuing
    income is not an option in those cases.
                              compliance research
        Question. In the absence of TCMP, what statistically valid data
    does IRS have to measure overall tax compliance as well as compliance
    among particular types of taxpayers?
        Answer. Since the completion of the last TCMP survey we do not have
    any new statistically valid data to measure taxpayer compliance.
        Question. Does IRS have any plans for improving these data or to
    find such data for use in measuring tax compliance?
        Answer. Following the cancellation of the proposed survey in 1995,
    the IRS decided to bring in an outside expert (Price Waterhouse) to
    look at the IRS' needs for compliance data and to recommend what
    alternatives exist for obtaining these data. Price Waterhouse has
    issued a final report that the IRS is still considering before making
    any decisions.
        Question. What is the current compliance level [Total Collection
    Percentage]? How confident is IRS about the reliability of that
    estimate?
        Answer. Our most recent estimate of the Total Collection Percentage
    (TCP), the total amount of income and employment taxes paid voluntarily
    and timely or collected through enforcement in a given fiscal year,
    expressed as a percentage of the corresponding true tax liability for
    that year, is 87.3 percent for fiscal year 1997. That estimate relies
    on compliance data that are 10 or more years old.
        Question. Does IRS believe that it can attain 90-percent compliance
    by 2001? If not, what is its revised goal?
        Answer. We are no longer setting specific goals for increasing the
    Total Collection Percentage. We do not yet know for sure how much of an
    increase IRS can realistically induce, since we do not have an
    effective way of monitoring changes in overall compliance.
        Question. Whatever the goal, what help does IRS need from Congress?
        Answer. We are currently considering recommendations made by Price
    Waterhouse in its report on the Taxpayer Compliance Measurement
    Program. In order to perform its mission, the IRS will eventually need
    some way to measure compliance on an ongoing basis.
        Question. What is the status of the Compliance Research and
    Planning Approach, and how is IRS assessing its effectiveness?
        Answer. The IRS created the Compliance Research and Planning
    approach in 1993 to merge the Compliance 2000 philosophy with a
    rigorous compliance research system. The Compliance 2000 envisioned
    using non-enforcement efforts to correct unintentional noncompliance
    and reserving enforcement efforts for intentional noncompliance.
        The National Office Research and Analysis (NORA) function was
    established in the Research Division and 33 District Office Research
    and Analysis (DORA) functions were established in the IRS District
    Offices. NORA serves as the central organization providing support to
    the DORA's. The DORA's:
      --develop measures of national and district compliance levels,
      --profile potentially noncompliant market-segments,
      --perform studies and tests to research any issues arising from these
            profiles, and
      --develop treatments to address these noncompliance issues.
        There are currently 12 measures projects, 34 profiles, 34 studies
    and tests, and 3 test treatments underway. These projects are guided
    under the auspices of various Cooperative Strategy Working Groups
    (CSWG). These CSWG's are composed of managers from both NORA's and
    DORA's.
        The three treatment studies are the Duplicate SSN, Self-Employment
    Tax, and Electronic Transfer Projects. These have all progressed from
    the profiling and testing phases to the treatment phase. All the
    treatments are using non-enforcement efforts to address unintentional
    noncompliance and raise the level of compliance. These measures
    projects provide the baseline data to determine the effectiveness of
    the new approach. Planning for fiscal year 1999 has started to
    determine the best studies and test projects to pursue into the
    treatment phase.
        Question. How is IRS ensuring that the necessary data on compliance
    can be collected and tracked?
        Answer. The Collection Research Information System (CRIS) was
    started early in the establishment of the Research and Planning
    Approach to provide compliance data for DORA research and provide
    measures of noncompliance. CRIS has evolved (and is evolving) through
    several stages:
      --CRIS Working File--CRIS was used in fiscal years 1994 and 1995 for
            training DORA staff. It had 75 data elements limited to one
            market segment.
      --Interim CRIS was delivered to all DORA's in the winter of 1996. It
            expanded to 800 data elements and samples of individual and
            business filers for all market segments.
      --Final CRIS is currently undergoing final validation with training
            for all DORA's to begin this spring. It includes over 2,500
            data elements on a sample of seven to ten million individual
            filers with more than 3 years of data.
        CRIS also contains measures of noncompliance developed by the
    DORA's. As various treatments are implemented, the effectiveness of
    these treatments can be tracked by applying these measures to the
    compliance data contained in CRIS. It should be noted, however, that
    the CRIS measures of reporting compliance are based on the latest
    available Taxpayer Compliance Measurement Program (TCMP) results.
        Question. How does IRS know/decide on which compliance issues to
    research?
        Answer. The DORA's first profile a potentially noncompliant market
    segment using data from CRIS. The purpose of the profiling is to
    identify any potential compliance issues for further research.
    Profiling is guided by the Market Segment and Profiling CSWG.
        After profiling, the results are evaluated by the Compliance
    Studies and Tests CSWG to determine which compliance issues are
    researched further in the studies and tests phase. The final results
    are then reviewed for potential development of treatments.
        Question. How will IRS use the research results to (1) plan
    compliance workload and allocate resources across programs and (2) link
    to IRS various measures, goals, and strategic objectives?
        Answer. (1) The ``Compliance Research and Planning Approach'' is
    intended to identify more efficient, effective, and economical ways of
    treating taxpayer noncompliance. Tested treatments or programs, which
    exhibit successful results, are evaluated against current programs,
    which encumber existing resources. This evaluation is part of the
    Operations Planning Process which leads to the development of the
    Operations Plan--a multi-year, multi-functional, data-driven planning
    document which allocates all Operations resources to specific programs
    for a given year.
        Research programs that appear to employ a more efficient, effective
    or economic strategy for combating noncompliance are incorporated into
    the Operations Plan and are allocated resources. These resources are
    taken from less efficient and effective existing noncompliance
    programs. The ultimate goal of the Operations Plan is to attain an
    optimal level of resources in each program to maximize the impact on
    compliance. The Office of Compliance Research, in conjunction with the
    Operations functions and an outside contractor, is currently developing
    a model to assist in achieving this optimal resource allocation.
        (2) Before new strategies or programs are incorporated into the
    Operations Plan, strategy owners (typically two IRS executives--one in
    National Office and one in the Field--assigned to oversee development,
    implementation, and review) are required to submit documentation. This
    documentation details the project's purpose/description, resource
    impacts, benefits, goals, and performance measures. These goals and
    measures must link to the broader strategic objectives of Operations
    and the overall mission and objectives of the IRS. Failure to provide
    any portion of this required information could prevent a strategy from
    receiving resources and being implemented at a nationwide level.
        As the Operations Plan is developed each year, it directly supports
    the development of the Service's overall strategic planning document--
    IRS Strategic Plan and Budget (SPB).
                      employee plans/exempt organizations
        Question. Given the ``great potential for abuse,'' how does IRS
    justify the downward trend in EP/EO staffing and examinations?
        Answer. Beginning with the fiscal year 1996 Appropriation, the EP/
    EO FTE level has declined as the IRS absorbed budget reductions.
        However, for several years, the level of staffing available to EP/
    EO within the appropriated budget has resulted in a decrease in EP/EO's
    ability to maintain the most effective oversight of a growing universe
    and has increased the potential that EP/EO may be unable to fulfill its
    Congressional mandate of ensuring that tax-exempt entities comply with
    the requirements for exemption and that benefits for employees in
    qualified retirement arrangements are preserved.
        The ultimate punishment for violation of tax exempt laws is
    revocation of a tax exempt organization's charter to operate. This is a
    time-consuming process for IRS staff and a disruptive process for the
    tax exempt organization. ``Taxpayer Bill of Rights 2'' (Public Law 104-
    168) provided for other measures that IRS could take in lieu of
    revoking an organization's charter. Specifically, the law provided for
    a series of excise taxes and penalties if certain charitable
    organizations failed to meet qualification requirements. These
    ``intermediate actions'' give the IRS a new tool that should deter
    abuse and improve enforcement.
        Question. What steps has IRS taken to ensure that the new excise
    taxes and penalties are being assessed where appropriate? How many
    organizations were assessed taxes and/or penalties in fiscal year 1997
    and how much was collected that year? How much does IRS expect to
    collect in fiscal years 1998 and 1999? What are the most prevalent
    violations for which charitable organizations were penalized?
        Answer. The IRS is working with the Treasury to develop regulations
    to provide guidance concerning the new excise taxes. Promulgation of
    the regulations in proposed form is a priority on the 1998 Business
    Plan. In the interim, the IRS has taken several steps to inform IRS
    personnel and tax exempt organizations about the new requirements. We
    issued Notice 96-46, 1996-2 C.B. 212, to advise tax exempt
    organizations of the new requirements and invite public comments for
    the IRS to consider in drafting future guidance. We also advised IRS
    exempt organizations personnel of the new requirements through
    memoranda and our Continuing Professional Education program, and
    encouraged our exempt organizations examination personnel to consult
    with National Headquarters staff when they encounter potential excess
    benefit transactions during examinations of exempt organizations.
    However, we do not yet have the capability to identify excise taxes
    paid under section 4958 from the total amount of excise taxes paid by
    exempt organizations. Excise taxes under section 4958 are reported on
    Form 4720, which is the form that has been used to report private
    foundation excise taxes under Chapter 42 of the Code and which was
    easily adaptable to section 4958 excise taxes. The computer programming
    necessary to identify Forms 4720 reporting section 4958 taxes will not
    be completed until 1999. We do not, however, expect to collect
    substantial amounts of tax under section 4958, as we anticipate that
    the provision will have a very positive effect on compliance by tax
    exempt organizations with the prohibition against inurement of the
    earnings of tax exempt organizations.
        Question. How, if at all, has the availability of penalties and
    excise taxes reduced the need to revoke charters?
        Answer. The primary effect of the section 4948 provisions will be
    to ease the IRS' administrative burdens in promoting compliance. We do
    not anticipate that the excise tax provisions will substantially reduce
    the need to revoke exempt status (we should note that issuing and
    revoking charters is a function of the states) because they will most
    often be applied in situations in which under prior law the IRS was
    reluctant to revoke because of the potential harm to a charitable
    organization's beneficiaries. Historically, the IRS has revoked the tax
    exempt status of few organizations, usually around 20 per year. IRS
    practice was to attempt to resolve the compliance problems through a
    closing agreement so that the organization's charitable work could
    continue. This often unwieldy process will be eased by the availability
    of section 4958 sanctions, which are targeted at the transgressors, not
    the objects of an organization's charitable mission. The section 4958
    sanctions will not, however, eliminate the need to revoke tax exempt
    status in egregious cases, such as the situation in the recently
    decided Tax Court case, United Cancer Council v. Commissioner. Treasury
    had proposed that the gross receipts threshold for determining if an
    exempt organization has to file be raised from $25,000 to $40,000.
        Question. What would be the rationale for changing the filing
    threshold? How would this affect EP/EO's workload?
        Answer. The proposal to raise the filing threshold was made by
    Internal Audit after a study of the exempt organization return-filing
    universe. The rationale is that since the $25,000 threshold was
    established in 1982, inflation has made many small organizations
    subject to the filing requirement. We are currently studying the
    proposal and requested input from the public as well as other users of
    Form 990. There is a question whether an increase by the IRS would
    substantially reduce the burden on small organizations because many of
    the 33 states that accept Form 990 in fulfillment of state filing
    requirements are reluctant to raise the threshold. Also, it is not
    clear that raising the threshold would significantly reduce the IRS'
    return-processing workload. We are also considering whether to increase
    the threshold for filing Form 990-EZ, which is currently available to
    organizations with less than $100,000 in gross receipts and less than
    $250,000 in assets.
        GAO's report on not-for-profit hospital conversions (GAO/HEHS-98-
    24, Dec. 16, 1997) raises issues of interest to IRS. GAO reviewed 14
    such conversions and found that nearly $1 billion in net proceeds from
    the conversions was provided to foundations, most of which had broadly
    defined missions that focused primarily on health and wellness. The
    foundations, in turn, awarded grants to a variety of health-related
    activities as well as a tutoring program, an adult care giver training
    program, and a summer remediation program. Other grants supported arts,
    public safety, and community development. For two conversions, proceeds
    totaling $115 million were not directed to charitable purposes. The
    Internal Revenue Manual does not directly address how the distribution
    of proceeds from hospital conversions to charitable activities should
    be done. There is a presumption that the nonprofit hospital's charter
    to provide charitable care--the basis of its tax exempt status--will be
    transferred to a tax exempt foundation to continue charitable
    activities.
        Question. Does IRS see the need to clarify current regulations so
    that the distribution of these charitable assets is done consistently
    on a national basis?
        Answer. Current law addresses distribution of assets upon
    dissolution of a tax exempt organization, which is a responsibility
    that is divided between the IRS and the states. The IRS' primary
    concern in a takeover of a charitable organization by a for-profit
    entity is that the charity receive fair market value in the
    transaction, and that those proceeds are used for charitable purposes.
    The IRS' tools to carry out this responsibility are the authority to
    revoke, retroactively, the exempt organization status, or apply the
    section 4958 excise taxes on excess benefit transactions, and in the
    case in which the sale proceeds are transferred to a newly-created
    organization, the authority to determine whether the new organization
    is organized and operated exclusively for charitable purposes. The
    authority to seek a specific application of the sale proceeds rests
    with the State of incorporation through its ability to enforce, at
    equity, the terms of the dissolution provisions of the exempt
    organization's governing instrument. This joint authority is made
    possible by the requirement in section 501(c)(3) that an organization
    be organized and operated for charitable purposes to qualify for
    exemption. Section 1.501(c)(3)-1(b)(4) specifically provides that an
    organization does not satisfy the organizational test unless its assets
    are dedicated to an exempt purpose, so that upon dissolution, its
    assets would be distributed, either pursuant to a provision in the
    organization's articles or by operation of law, to one or more exempt
    purposes.
        Of the 14 GAO case studies, 3 involved joint operating agreements
    between not-for-profit and for-profit ventures. IRS has raised
    questions about the tax implications of such arrangements.
    Specifically, the operation of the joint venture might result in
    charitable assets being used for private benefit, thereby creating a
    basis for revoking the tax status of the charitable entity. In its
    December 1997 report, GAO referred to a forthcoming IRS ruling that was
    expected to clarify these concerns.
        Question. What is the status of the ruling? What impact will it
    likely have on joint ventures as they currently operate? How widespread
    is the use of such joint operating agreements in the health care field?
        Answer. On March 4, 1998, the IRS released Rev. Rul. 98-15, 1998-12
    I.R.B. 6 (March 23, 1998). It describes two situations involving joint
    ventures in which an organization that operates an exempt hospital
    described in section 501(c)(3) of the Internal Revenue Code forms a
    limited liability company (LLC) with a for-profit corporation and then
    contributes its hospital and all of its other operating assets to the
    LLC. The revenue ruling applies a facts and circumstances analysis and
    holds that in one situation the organization continues to qualify for
    exemption because the activities of the joint venture further the
    organization's charitable purpose and, in the second situation, the
    organization no longer qualifies because the activities of the joint
    venture do not further the organization's charitable purpose and confer
    impermissible private benefit on for-profit partners. We hope this
    recent guidance will be helpful to the public. In addition, there is
    currently pending before the Tax Court Redlands Surgical Services v.
    Commissioner which involves issues in this area.
        We do not have precise data on the scope of the use of joint
    ventures in the health care field but instead customarily look to a
    variety of public sources for information on transactions in this area.
                           special agent retirements
        Question. How many of those eligible to retire in fiscal year 1997
    did retire that year?
        Answer. In Criminal Investigation, there were 167 special agent
    retirements during fiscal year 1997. In addition, 30 special agents
    left through normal attrition.
        Question. Does IRS still believe that about 550 special agents will
    have retired by the end of fiscal year 2000?
        Answer. Yes, in fact, we now believe that an average of 200 special
    agents will retire each year through fiscal year 2000. Added to the 167
    that retired during fiscal year 1997, a total of 767 will have retired
    from fiscal year 1997 through fiscal year 2000.
        Question. Last year, in discussing its plans for overcoming the
    potentially adverse effects of a high turnover of special agents, IRS
    told this Committee that it would reduce its commitment to the ``War on
    Drugs'' and concentrate on ``Tax Gap'' investigations. IRS also said
    that its support of narcotics and money laundering investigations would
    be limited to the resources provided by the Organized Crime Drug
    Enforcement Task Force of Justice, which would be a 50 percent
    reduction from then-current levels. According to IRS this reduction
    would seriously curtail its ability to participate in multi-agency drug
    task forces sponsored by local U.S. Attorneys and would significantly
    reduce the amount of funds flowing into the Treasury Asset Forfeiture
    Fund from IRS investigative forfeitures. Did IRS follow through on the
    plans described above?
        Answer. The IRS received the President's fiscal year 1998 Budget
    Request. Therefore, IRS has not found it necessary to significantly
    reduce its commitments to other Federal agencies, multi-agency task
    forces, and United States Attorneys Offices to provide its expertise in
    financial investigations, which is usually required for the successful
    prosecution of narcotics-related violations.
        Question. If not, what did it do differently, and why?
        Answer. Approval of the President's budget for fiscal year 1998 has
    enabled the agency to maintain program delivery relatively consistent
    with last year's results, despite some reduction in full-time
    equivalents (FTE) realized. During fiscal year 1997, the IRS increased
    its percentage of enforcement efforts in ``Tax Gap'' investigations
    related to legal industry income. The direct investigative time (DIT)
    for ``Tax Gap'' investigations was 59.7 percent, a slight increase from
    the prior two fiscal years; DIT in fiscal year 1995 was 56.8 percent
    and DIT in fiscal year 1996 was 59.4 percent.
        While DIT on ``Tax Gap'' investigations has increased slightly, the
    DIT on narcotics-related investigations has remained relatively the
    same, although FTE on narcotics-related investigations has decreased
    commensurate with the agency's realized FTE.
        Question. Have the consequences suggested by IRS come true?
        Answer. Seized property pending forfeiture has declined due to non-
    budgetary reasons.
        Question. For example, has there been a noticeable effect yet on
    the amount of funds flowing into the Forfeiture Fund?
        Answer. The value of property seized for forfeiture significantly
    decreased during fiscal year 1997. Seizures during fiscal year 1997
    total $56.6 million, as compared to fiscal year 1996 seizures of $71.7
    million. The value of property forfeited, particularly judicial
    forfeiture actions, often lags behind the value of property seized for
    forfeiture. The agency, therefore, anticipates that the amount
    forfeited and deposited to the Treasury Forfeiture Fund will continue
    to decrease, subsequently reflecting the amounts seized for forfeiture.
    However, due to the judicial processes required, the actual forfeiture
    of property seized in fiscal year 1997 may occur as early as two months
    and as long as three or four years after seizure.
        The amount forfeited during fiscal year 1997, and subsequently
    transferred to the Treasury Forfeiture Fund, has increased over the
    prior fiscal year. During fiscal year 1997, $72.6 million was
    forfeited, as compared to fiscal year 1996 forfeitures of $42.1
    million; however, one single forfeiture of $32 million skews the fiscal
    year 1997 total. Seizures, totaling $32 million, related to a health
    care fraud investigation, were forfeited during fiscal year 1997 and
    are being returned to governmental victims of the fraud as restitution.
    Absent that one forfeiture, the actual dollars forfeited would have
    decreased $1.5 million.
        Question. How, if at all, will the fiscal year 1999 budget request
    change existing circumstances, either for better or worse?
        Answer. Receipt of the full fiscal year 1999 President's budget
    request will allow IRS to provide approximately the same level of
    commitment to the ``War on Drugs'' as in fiscal year 1998. IRS has been
    revamping its special agent basic training program, which it expected
    to complete in time to train special agents being hired for fiscal year
    1999.
        Question. What is the status of this effort?
        Answer. The Special Agent Basic Training (SABT) redesign effort is
    on schedule and will be implemented with the next class of students
    scheduled to arrive for orientation on May 19, 1998. Three additional
    classes have already been scheduled before the end of this fiscal year
    (July, August and September); additional classes, commencing
    approximately six weeks apart, are anticipated during fiscal year 1999
    and beyond.
        Question. Does this effort represent a shift to on-the-job training
    versus the developmental form of training used in the past?
        Answer. No. The overriding goal of the redesigned program is to
    graduate new agents with decision making/problem solving skills
    equivalent to the experience level of an agent with two years field
    experience, thereby substantially reducing on-the-job training efforts
    by the field. As detailed below, the redesign effort represents a
    substantial change in the methods used to present the developmental
    training material to our students.
        The SABT redesign effort has resulted in the development of a
    three-phased learning process at the National Criminal Investigation
    Training Academy (NCITA):
        1. The first phase of training is a one-week orientation or Pre-
    Basic Training Program that became essential with the implementation of
    the new centralized hiring process that will also be implemented with
    our May 19, 1998 class. During this week long program, all personnel
    and administrative matters relating to new hires formerly accomplished
    at the district level will be completed at the NCITA. In addition,
    students will receive training in the Investigative Thought Process,
    Professionalism, Time Management and Core Values which includes IRS
    policies relating to ethics, diversity, quality and sexual harassment.
    The students will also be tested on their knowledge of federal tax law
    and familiarized with the computers and computer systems assigned to
    them upon their arrival at NCITA.
        2. The second phase of SABT training is the nine-week Criminal
    Investigator Training Program (CITP) that is sponsored by the Federal
    Law Enforcement Training Center (FLETC). This course, which has
    remained unchanged, is comprised of criminal investigators (special
    agents) from Treasury Department, Justice Department and other Federal
    agencies. The course includes blocks of instruction in criminal law,
    criminal court procedures, rules of evidence, defensive tactics, arrest
    techniques, weapons familiarization and other courses of common
    interest to Federal criminal investigators.
        3. The third phase and heart of the redesigned SABT program is the
    Special Agent Investigative Techniques (SAIT) course. This 12 week
    course has been completely revamped and is presented in a highly
    interactive, facilitative adult learning environment. The overall
    course presentation has been modeled, to a large degree, after the
    internationally acclaimed Royal Canadian Mounted Police (RCMP) recruit
    training program.
        SAIT students are placed in an office environment with facilitators
    (on-the-job instructors (OJI's) for every six to eight students, as
    well as a group manager advisor responsible for the overall evaluation
    of each student's performance. The students are exposed to over 40
    courses that are presented to them in a facilitative mode as they
    complete two separate investigations. The courses are presented ``just
    in time'' for the students to implement their newly acquired skills in
    a problem solving approach to maximize their learning experience and
    complete their assignments. During each step in the problem solving
    process, students are challenged to critically examine their actions in
    light of IRS mission statements, policies, customer needs, and core
    values. In addition to the numerous practical exercises, classroom
    exercises, and case studies, we have also produced approximately 40
    videos which serve to advance the case story line and to visually
    depict special agents interacting in the proper manner with witnesses,
    third parties and subjects of an investigation.
        The overriding goal of this interactive training environment is to
    achieve results in line with documented RCMP successes graduating new
    agents with an approximate equivalent experience level of two years in
    the field. Consequently, the redesigned SABT program will place much
    less of a burden upon the field for OJI activities, as field
    experiences are duplicated within the NCITA to enhance and reinforce
    the learning experiences of its trainees. These more experienced
    trainees will be able to work cases with minimal direction and
    guidance, rather than having their field OJI lead the new agent through
    the investigative process. Under this new model, the OJI will become
    more of a mentor than an instructor.
        Question. What are its advantages and disadvantages, if any,
    compared to past training?
        Answer. The primary advantages of the use of the facilitative
    problem solving approach to training are threefold:
        1. The NCITA will supply to the new field agents decision making/
    problem solving skills equivalent to an agent with two years field
    experience. The increase of the equivalent experience level of our
    trainees is critical to our mission due to the aging of our work force.
    We are currently losing more agents to retirement than we can hire and
    train to replace them. The experienced agents remaining in the work
    force will be hard pressed to accomplish program goals, even without
    the additional burden of training a new generation of agents. The prior
    SABT program was an instructor focused, OJI intensive process. The
    redesigned SABT process is learner focused and will greatly reduce the
    demands upon the field to develop our new agents to their full working
    level.
        2. The facilitative, problem solving approach used in the
    redesigned SABT program provides us with a vehicle to teach and
    reinforce investigative thinking skills and to critically evaluate
    proposed actions in light of IRS mission statements, policies, customer
    needs, and core values. On almost a daily basis, trainees will be
    challenged to develop an action plan during their problem solving
    exercises to accomplish their investigative goals. In each and every
    instance, the trainees will be required to critically evaluate their
    action plan to be certain that it is consistent with all IRS mission
    statements, policies, customer needs, and core values, thereby
    reinforcing the investigative thought process once the agents are
    placed in the field.
        3. Our new program will incorporate not only technical skill
    development, but will enhance critical people/behavioral skills, such
    as presentation skills, leadership skills, and active listening skills,
    etc., as well as instill in each agent the desire to become a life long
    learner. This new program extensively uses practical exercises and role
    playing. The trainees are required to successfully resolve situations
    and circumstances involving people from diverse social, economic, and
    cultural backgrounds. With the additional emphasis we place on these
    types of skill development, the trainee will return to the field much
    better equipped to perform tasks requiring these skills, whether
    dealing with peer agents, managers, other IRS Divisions, other
    agencies, and most importantly, the general public.
        Question. Are there cost savings from reduced relocation costs,
    less formal training, or training overhead?
        Answer. The redesigned SABT Program does not impact relocation
    costs relating to the students trained at the NCITA, nor are training
    overhead costs materially affected.
        The 22-week redesigned SABT Program includes a one-week
    orientation/pre-basic training program, a nine-week CITP course and a
    12-week SAIT course. The 21-week prior SABT program included a two week
    Tax-CI course, the nine-week CITP course and a nine week SAIT course.
    Personnel matters relating to new hires, as well as other
    administrative details, certifications and orientation were handled in
    the district offices prior to the trainee reporting to the NCITA.
    Consequently, the difference in length of the old and new versions of
    the SABT course is minimal.
        The new program requires the participants to attend 22 consecutive
    weeks of training. The previous program included a break between the
    CITP and SAIT segments, requiring Government funded round trip
    transportation for all participants between the Federal Law Enforcement
    Training Center and each participant's post of duty. These mid-course
    transportation costs are eliminated in the redesigned program,
    resulting in cost savings to the IRS.
        The advantages of the redesigned program in sending new agents to
    the field with an equivalent experience level of two years on the job
    places a significantly lighter burden upon the field for OJI
    responsibilities and will result in the new agents becoming productive
    in a much shorter period of time. Substantial savings are realized by
    minimizing the burden placed upon experienced field personnel for OJI
    duties, thereby allowing those experienced agents to concentrate on
    direct investigative responsibilities. Additional savings are realized
    as our new agents will become productive in a much shorter period of
    time.
        Question. Are training programs for other employees, such as
    revenue agents and revenue officers, also being revamped?
        Answer. A team from Corporate Education and the Assistant
    Commissioner (Examination) has been formed to review all levels of
    basic recruit training for revenue agents and tax auditors. The team
    will review the course material for the appropriate use of financial
    status audit techniques and for the inclusion of modules that
    specifically address the professional treatment of taxpayers.
        There have been some improvements in revenue officer training. A
    course in ``Interest Based Interviewing Techniques'' is mandatory for
    Continuing Professional Education in fiscal year 1998. This course is
    the first step in our commitment to delivering Conflict Management to
    Collection employees. The course presents the use of conflict
    management principles as a method of conducting taxpayer interviews to
    enhance taxpayer/revenue officer interactions, reduce the level of
    stress, and help to promote a customer service-oriented atmosphere for
    employees.
        Question. If so, please provide details, including information on
    specific subjects or job dimensions that IRS has identified as needing
    more emphasis during either classroom or on-the-job training.
        Answer. In addition to the ongoing review of basic recruit
    training, a separate but related activity is our work on Occupational
    Competency Models (OCM's) for revenue agent and tax auditor
    occupations. We will be matching competencies identified for successful
    performance with existing course material to identify additional
    training needs.
        A course focusing on the principles of customer service and fair
    treatment of taxpayers is being developed during fiscal year 1998. This
    course is the beginning of a Public Service curriculum for Collection,
    which will contain courses in active listening, interpersonal skills,
    etc. We expect that this course will be available for delivery in
    fiscal year 1999.
                               dispute resolution
    Dispute Resolution
        Every year, IRS must attempt to resolve thousands of disputes with
    taxpayers over tax liabilities. Traditionally, IRS has done this
    through its Office of Appeals. Resolving disputes through the Office of
    Appeals takes a long time and is costly to both IRS and the taxpayer.
    Since the early 1990's, IRS has been attempting to implement various
    alternative dispute resolution methods, such as early referral and
    mediation, to improve the cost-effectiveness of dispute resolution
    within IRS and to reduce the burden and cost imposed on taxpayers,
    particularly corporations.
        Question. For each alternative dispute resolution method used in
    fiscal year 1997, please provide data on how often it was used, what
    type of taxpayers were involved (e.g., individuals, corporations), and
    the results.
        Answer. The Appeals organization has a track record of independence
    and impartiality.
        1. Its mission is to resolve tax controversies without litigation
    on a basis that is fair and impartial to both the Government and the
    taxpayer.
        2. Its organizational placement within IRS ensures separation from
    both the enforcement and litigating functions. The National Director of
    Appeals reports directly to the Deputy Commissioner and has line
    authority over Appeals operations throughout the nation.
        3. Its history since formation in 1927 repeatedly shows its
    effectiveness in resolving disputes. Most taxpayers who disagree with
    adjustments choose to come to Appeals without docketing their case in
    the Tax Court. Each year, Appeals reaches agreement on 85 percent to 90
    percent of the cases that come before it. For the fiscal year 1997,
    Appeals received almost 77,000 cases and disposed of just under 72,000
    cases. In comparison, about 1,200 tax cases a year are resolved in the
    courts.
        Appeals Initiatives to Resolve Disputes (See Attachment 1 at end of
    Senator Campbell's questions for a description of each program.)
        Early Referral.--The early referral process, including employment
    tax, has been used in 54 cases, involving approximately $7.8 billion in
    proposed adjustments, and thus far has resulted in approximately $3.6
    billion in agreed adjustments.
        Mediation.--Sixteen mediation requests have been made, of which
    nine were denied because they did not meet the mediation criteria. One
    mediation case involving $70 million in disputed adjustments was
    successfully resolved. This resulted in $37 million in agreed
    adjustments. One case involving approximately $1.9 billion in disputed
    adjustments was successfully resolved after the agreement to mediate
    was signed, but prior to any mediation session. This resulted in
    approximately $1.3 billion in agreed adjustments. Two cases involving
    approximately $46 million did not resolve. Three cases involving
    approximately $114 million are in process.
        Simultaneous Appeals/Competent Authority.--Eleven simultaneous
    Appeals/competent authority cases have been completed and one taxpayer
    withdrew from the process. There are sixteen other cases in process,
    involving over $800 million in proposed adjustments.
        Collection Appeals Program (CAP).--For the fiscal year 1997,
    Appeals received 1,479 CAP cases and closed out 1,461 cases. Of those
    cases closed, Collection's action was fully supported in 1,054 cases,
    Collection was partially reversed in 207 cases and fully reversed in
    200 cases. It is important to note that a CAP appeal requires that
    taxpayers discuss their dispute with the IRS employee's manager to
    attempt resolution before coming to Appeals. Most CAP cases are
    actually resolved at the management level.
        Question. Were there any significant developments/changes in the
    use or availability of alternative dispute resolution methods in 1997
    and the first half of fiscal year 1998? Last year, for example, IRS
    told this Committee that it anticipated expanding mediation to cases or
    issues involving at least $1 million in dispute. Has that step been
    taken? If no, why not? If yes, what have been the results?
        Answer. Bankruptcy Appeals Process.--With the issuance of
    Announcement 97-111 on November 6, 1997, Appeals began testing a new
    Bankruptcy Appeals dispute resolution program. We anticipate conducting
    a review of this program at the end of June 1998. The purpose of this
    process is to eliminate litigation in Bankruptcy Court on certain IRS
    related issues by providing an administrative forum within Appeals to
    settle these disputes. There are numerous benefits to this process. It
    provides taxpayers with a no-cost, risk-free opportunity to resolve
    disputes. Taxpayers who are not satisfied with the proposed resolution
    are free to litigate the matter in Bankruptcy Court. Furthermore, in
    all instances where a resolution is reached, this process also provides
    benefits to all entities related to this process: the IRS, the
    taxpayer's estate, and the Bankruptcy Court. The IRS will not expend
    resources incident to litigation, the taxpayer's estate likewise will
    not expend such resources and this will increase the estate's value to
    creditors, and congestion in Bankruptcy Court calendars will be
    reduced.
        International Penalties.--Appeals is considering extending the
    concept of the early referral procedures contained in Rev. Proc. 96-9
    by providing for an expedited appeal of the following penalties: I.R.C.
    Sections 6038(b), 6038A(d), 6038B(b) and 6038C(c), which are not
    subject to deficiency procedures. This expedited referral procedure
    will allow taxpayers an administrative appeal prior to the payment of
    the penalty. We expect to publish a Revenue Procedure by June 1998.
        Appeals Request For Review.--Appeals is developing a form for
    taxpayers to request an administrative appeal, along with a customized
    Publication 5 that explains the Appeals process, which taxpayers and
    their representatives have told us would facilitate the Appeals
    process. We expect to begin testing this form in a Service Center in
    May 1998. This form will significantly reduce the time span to resolve
    these cases in Appeals and the taxpayer burden in using the Appeals
    process.
        Mediation.--Mediation is currently limited to Coordinated
    Examination Programs (CEP) cases assigned to Appeals Team Chiefs. The
    initial one-year mediation test period concluded in October 1996 and
    Announcement 97-1 extended the test of the mediation procedure set
    forth in Announcement 95-86 for an additional one-year period that
    concluded in January 1998. We have recently completed our review of the
    mediation procedure and we are considering expanding the mediation
    process to include more cases or issues. We expect to publish an
    announcement on the new mediation program in April 1998.
        Employment Tax.--Announcements 96-13 and 97-52, allow taxpayers
    whose returns are being examined to request early referral of one or
    more employment tax issue(s) from district compliance functions to
    Appeals. The purpose of early referral for employment tax issues is to
    resolve them more expeditiously through simultaneous action by the
    District and Appeals. These Announcements are part of the IRS' strategy
    designed to improve employment tax administration for all taxpayers,
    including those who are small business owners. We expect to publish a
    Revenue Procedure with the final procedures when the two-year test
    concludes in May 1998.
        Question. What specific goals and measures--both qualitative and
    quantitative--does IRS use to assess whether each of the alternative
    methods works? What have these measures shown to date about how well
    the various methods meet their goal(s)?
        Answer. TRACES: Appeals has initiated a review of Appeals functions
    and processes to come up with new, key performance indicators that will
    foster continuous improvement and provide improved customer
    satisfaction. These key performance indicators are known as ``TRACES''
    were developed for: Timely, Responsive, Accurate, Complete Service,
    Education, and Sustention Rate. These key factors focus on providing
    better products and services by reducing cycle/lapse time, providing
    prompt hearings for taxpayers and making settlements that are fair,
    impartial, technically and procedurally correct.
        Customer Satisfaction Surveys: ADR Programs.--Through the recently
    established evaluation programs, Appeals encourages taxpayers using
    dispute resolution programs to comment on the procedures. Evaluation is
    the key to determining whether Appeals is successfully meeting its
    goals. Evaluation can also be used to assess the need for changes in
    administering the program and in determining what our customers value.
    In 1996, the Office of Management and Budget approved taxpayer customer
    satisfaction surveys for the early referral, simultaneous Appeals/
    Competent Authority and mediation programs.
        The responses to our customer satisfaction surveys reveal that both
    the early referral and simultaneous Appeals/competent authority
    procedures help taxpayers resolve their cases more quickly than using
    the standard procedures. Also, taxpayers responded that they saved
    money by using mediation instead of having to litigate the issues.
        Appeals ADR initiatives offer prompt and less expensive methods for
    taxpayers to resolve their disputes after good faith negotiations have
    failed in Appeals or agreement cannot be reached with Compliance. When
    any of these programs enable the taxpayer and the IRS to reach
    agreement, burdens and costs to both of them are reduced.
        Appeals Process.--As part of its on-going evaluation of dispute
    resolution programs, the Office of the National Director of Appeals
    conducted a Customer Satisfaction Survey in June 1997 to collect
    feedback from taxpayers about the Appeals process. Of the 6,800
    taxpayers and tax practitioners who were mailed a two-page survey, 43
    percent chose to participate in the survey.
        The survey was designed to capture information about the taxpayers'
    knowledge and understanding of the Appeals process. Key elements of the
    survey were the taxpayers' ratings for their level of satisfaction in
    nine facets of the Appeals process, including:
      --How long it took:
        --to get a case to Appeals;
        --for Appeals to schedule a conference; and
        --to get a case through Appeals
      --Correct application of the law to the facts of the case
      --Appeals fairness and impartiality in resolving the case.
        The survey captured other data relating to how well the Appeals
    officer explained the Appeals process and the outcome of the appeal.
        Some of the findings are:
      --84 percent of respondents would use Appeals again
      --70 percent satisfied (completely or somewhat) with Appeals fairness
            and impartiality
      --70 percent satisfied (completely or somewhat) with the overall
            Appeals process.
        Future customer surveys.--The IRS announced in IR-98-7 that in a
    new series of upcoming surveys, taxpayers who have dealt with the IRS
    will be asked to complete questionnaires to rate the service they
    received. A private contractor will conduct customer satisfaction
    surveys of all IRS functions, beginning in March 1998. In that
    announcement, the IRS stated, ``For the first time, we're looking at
    specific services through our customers' eyes.'' Appeals has endeavored
    to adopt this focus since 1995 with its TRACES measures noted above.
    Appeals will use results from these new taxpayer surveys, along with
    those from the 1997 survey, to improve the administrative Appeals
    process, make sure it is more customer friendly and achieve a high
    quality product by striving for continuous improvement and customer
    satisfaction.
        Collection Appeals Program.--Our goal on CAP cases is to provide an
    expedited decision (within 5 days) that is the most appropriate
    resolution for the dispute. To measure numbers we track of how many
    cases we received and how cases are closed by type of appeal (i.e.
    lien, levy, seizure, or termination of installment agreement) and
    whether decisions are timely.
        We measure quality by CAP caseload reviews. We have completed two
    reviews. The first was a 100 percent review of all CAP cases closed
    during the first 90 days of the program. The second was done as part of
    the Nationwide Appeals Review Program, which reviews selected issues or
    types of cases when they are closed. Our program reviews have shown
    that generally case decisions are being made appropriately. The numeric
    data indicates that CAP is being used and decisions are generally
    timely, i.e. within the 5 days.
                            performance measurement
        Question. What progress has been made in developing an overall
    balanced measurement process?
        Answer. The IRS is in the process of analyzing and redesigning its
    entire measurement system from the development of corporate measures to
    how the measures are used and interpreted by management and employees.
    The redesign effort will consist of two phases. Phase I comprises a
    near-term goal to develop a set of practical, interim measures which
    are aligned with the IRS' current organization structure and can be
    used in fiscal year 1999 to measure IRS district and service center
    performance. Phase II of this effort, which will build on the results
    of Phase I, will entail the development of a new measurement system
    that is equal to the ``best in class'' in private industry and that is
    aligned with the IRS' modernized organizational structure.
        In late 1997, the IRS established a task force, the New Measures
    Task Force (NMTF) to lead the effort of developing a balanced
    measurement system. This task force includes IRS executives, managers,
    and technical experts, as well as representatives of the National
    Treasury Employees Union (NTEU), Treasury, and the Office of Management
    and Budget (OMB). The NMTF has outlined an action plan for moving the
    IRS from its current measurement system to one with a more balanced
    approach and is working to integrate a number of ongoing projects
    involving customer and employee satisfaction surveys, exam and
    collection quality measurement systems, and other measures refinement
    activities into its overall approach. The IRS is in the process of
    selecting a contractor to work with the NMTF in developing the balanced
    set of measures.
        Question. Are the five measures cited by Internal Audit still being
    used as measures? If so, how?
        Answer. The five measures cited by Internal Audit were: (1) dollars
    collected, (2) dollars collected per full time equivalent, (3) total
    dollars collected as a percentage of current year receivables, (4)
    average cycles per Taxpayer Delinquent Account (TDA)/Taxpayer
    Delinquent Investigation (TDI) disposition, and (5) TDA/TDI average
    hours per entity disposition. Of these measures, measure No. 1, dollars
    collected, will continue to be tracked at the national level, because
    it is a budgetary measure. Measures No. 2, 3 & 5 have been dropped from
    the Annual Performance Plan and will not be used for purposes of
    business review evaluations. Measure No. 4, average cycles per Taxpayer
    Delinquent Account (TDA)/Taxpayer Delinquent Investigation (TDI)
    disposition, is a Budget level measure, so results will be used for
    reporting purposes, but the measure will not be used in business review
    evaluations. Data for these measures is still available on our
    Management Information Systems, but a district will only be able to
    access information about its own results and the composite Servicewide
    results.
        Question. In light of recent testimony on over-zealous collection
    activity and IRS reliance on enforcement statistics, how does IRS plan
    to meet this mandate in the future? (mandate refers to requirements of
    the Government Performance and Results Act--GPRA)
        Answer. These measures are all being reviewed in light of our goal
    of transforming the IRS from an internally focused organization to one
    which views itself from the taxpayer perspective and in light of the
    elimination of use of all enforcement statistics for measuring
    organizational performance. We have a task force working on this
    problem, and we expect to engage expert outside consultants to assist
    in this task. We expect to have interim results to use for measuring
    performance during fiscal year 1999. These measures will build on some
    of the measures included in the budget submission.
        Question. What plans, if any, does IRS have to improve the
    reliability of this performance measure?
        Answer. We do not have any plans currently.
        Question. What are IRS' plans to ensure that its strategic plan
    contains results oriented measures that can be used to assess how well
    its strategic goals are being met for the Customer Service and
    Compliance business lines?
        Answer. The IRS recognizes that many of its existing measures are
    output-oriented. The New Measures Task Force will work with private
    sector experts to address that imbalance and identify results-oriented
    measures for all its business lines. These measures will be included in
    the IRS' strategic plan and will be used to monitor success in meeting
    strategic goals.
                                     other
        Question. Given the additional resources provided in fiscal year
    1998 for the Earned Income Credit initiative and the President's budget
    request for fiscal year 1999, how, if at all, has IRS' long-range
    outlook changed?
        Answer. Out-year budget estimates included in the fiscal year 1998
    budget request were based on OMB assumptions that agencies would be
    required to absorb inflationary increases (including annual pay
    raises). Given the labor-intensive nature of the IRS' budget and the
    compelling need for technology investments (e.g., Century Date Change)
    long-range resource forecasts suggested steadily declining FTE levels.
        The fiscal year 1998 budget, enacted by the Congress, provided the
    first ``real dollar'' increases to the IRS' budget since fiscal year
    1995. While FTE levels during that three-year period had fallen by more
    than 10 percent (from 112,000 to fewer than 102,000), the fiscal year
    1998 budget allowed IRS to stabilize its work force at nearly 101,000
    FTE. The IRS' fiscal year 1999 request includes 1,462 additional FTE--
    primarily for enhanced customer service in connection with the National
    Performance Review. The agency's renewed commitment to customer service
    and organizational modernization is based--in part--on maintaining
    these FTE levels during the next five to seven years. It should be
    noted that although the Earned Income Tax Credit initiative is designed
    to combat noncompliance and reduce overclaim rates, most of the FTE and
    dollar investments are in customer service staffing in the service
    centers (e.g., correspondence examinations and Questionable Refund
    Detection Teams), education and outreach, and compliance research--not
    traditional enforcement programs that have been most directly affected
    by prior year budget cuts.
        Question. Is it not fair to say that any anticipated decline in
    enforcement programs is due not so much to inadequate funding but
    rather to a conscious decision to emphasize customer service?
        Answer. The loss of the fiscal year 1995 Compliance Initiative
    funding and the recent emphasis on customer service have contributed to
    a long-term reduction in traditional, face-to-face enforcement
    programs. Prior year reductions in core Compliance programs such as
    Examination, Criminal Investigation and Collection were accomplished
    largely through attrition, early-out retirements and buyouts. Losses in
    key employment categories (e.g., revenue agents, special agents and
    revenue officers) in a tight labor market make recruitment of new hires
    difficult and technical training expensive. Beyond FTE cuts,
    disproportionate reductions to support costs such as training, supplies
    and automation have strained managers' ability to ``do more with
    less.'' The fiscal year 1999 budget request would partially restore
    prior year cuts and help stabilize funding for these critical
    activities.
        Question. How many employees are in these so called temporary
    customer service type jobs? What type of work are they doing? What is
    the likelihood that IRS will continue to keep these employees in their
    current positions?
        Answer. There is a total of 114 Customer Service employees in
    temporary positions. They range in grade from GS-4 to GS-13 and include
    employees in Walk-in offices, the automated collection system, toll
    free telephones, in addition to clerical and analyst positions. IRS
    plans to evaluate the sites in April 1999 to determine the next step to
    take regarding these positions.
        Question. In March 1997, GAO reported that IRS did not have well-
    defined procedures for requesting and processing innocent spouse claims
    (GAO/GGD-97-34, Mar. 12, 1997). GAO recommended that IRS (1) develop
    new or modify existing publications to better inform and educate
    taxpayers about the availability of and criteria for innocent spouse
    relief, (2) develop a tax form and procedures for requesting and either
    granting or denying such relief, (3) provide additional guidance to IRS
    employees to better insure consistency in processing innocent spouse
    cases, (4) establish a cost-effective process for monitoring
    consistency, and (5) update regulations to reflect current
    requirements. What steps has IRS taken to implement each of GAO's
    recommendations?
        Answer. (1) New Publication 971, Innocent Spouse Relief, is under
    development and we expect to make it available early in April 1998. (2)
    New Form 8857, Request for Innocent Spouse Relief, is in the final
    stages of review and we expect to make it available for distribution
    early in April 1998. However, we expect the form to be available on the
    IRS Web page by the end of March. (3) Pipeline processing instructions
    have been updated to ensure proper processing of Form 8857. Cincinnati
    Service Center will be the central location to process Form 8857.
    Receipt and Control, Code and Edit, ERS, and Rejects will route Form
    8857 to the Examination function for review. In addition to pipeline
    processing, Files instructions have been completed and updated
    accordingly.
        Question. What has IRS done to implement each of the
    recommendations in the cited GAO report?
        Answer. The IRS currently has a program in place to reconcile all
    Form 8610's and supporting documents, i.e., Form 8609's and Carryover
    Allocation Contracts. All state agencies have been reconciled for 1995
    and 1996. This process will be improved with electronic filing, which
    we are currently testing.
        The revised Form 8610 was made available to the public January 1,
    1998. However, Form 8609 has not been revised to date since a
    ``Carryover Allocation'' document will also require a regulation
    change. This has been discussed with Chief Counsel. An effective date
    of January 1, 1999 is expected.
        The IRS is generating a semiannual extract report which provides
    information on taxpayers claiming the Low Income Housing Credit on
    business tax returns. This information is run against the Low Income
    Housing Database of Forms 8609's filed by the states which give the
    amount of the credit allocated.
        Form 8823 (Low Income Housing Credit Agencies' Report of
    Noncompliance) was revised and made available to the public effective
    January 1, 1998. It clarifies the types of noncompliance State Housing
    Agencies must report to the IRS.
        We continue to identify projects with audit potential using
    classification specialists to evaluate Forms 8609 and 8823 against
    filed returns. In conjunction with State Housing Agencies, we are
    expanding a selection process which focuses on the developers of
    projects.
        Question. What is the status of IRS' actions on NARA's
    recommendations? Has the backlog of uninventoried records been removed?
        Answer. In his letter dated December 1, 1997, Michael Miller,
    Director of the Records Management Program at NARA, advised David A.
    Mader, Chief Management and Administration, how pleased NARA is with
    the progress IRS has made in implementing their recommendations. Mr.
    Miller also stated NARA agrees that IRS has successfully implemented
    all but one of the 58 recommendations. The one outstanding
    recommendation deals with records created by the Philadelphia Service
    Center during the 1985 filing season; NARA urged IRS to make another
    attempt to locate these records. As a result, representatives of the
    Service Center and the records management staff conducted an in-depth
    inventory, and recently uncovered approximately 2 cubic feet of
    records. This information was reported in our final status report to
    NARA on March 31, 1998. Closure of this last recommendation will mean
    that all 58 were implemented within 2 years of the submission of our
    initial action plan on March 6, 1996. NARA has stated that this is a
    record that no other agency has achieved.
        Our work has resulted in the submission of Records Control
    Schedules for all uninventoried backlogs. Each schedule identified the
    unique management and policy records of the organization. Several major
    schedules are still awaiting action by NARA; however, others have been
    approved and are being implemented, i.e., schedules covering records of
    the former Historian; former Commissioners, as well as the current
    Commissioner; Chief Counsel; Information Systems; Communications; and
    Legislative Affairs.
        Question. It is my understanding that the IRS is losing the
    potential to collect hundreds of millions of dollars in overdue taxes
    due to problems in determining which accounts are collectible and which
    are not. What action is the IRS taking to develop information on
    written-off accounts to determine whether cost-effective collection
    measures can be developed and applied?
        Answer. The Inventory Delivery System, a system under development,
    will centralize collection case processing and use automated methods to
    evaluate delinquent accounts for collectibility so that the most
    productive accounts receive priority attention. The system has three
    releases planned. The first release containing Financial Analysis
    Profile and basic core functions to support case assignments and data
    base updates is scheduled for pilot in February 1999. The second
    release with Telephone Number Research is scheduled for August 1999
    with a third release containing Address Research in 2000.
        Question. What is the status of IRS efforts funded through the new
    Earned Income Credit Compliance Account?
        Answer. This year, the IRS has taken a number of proactive efforts
    as part of the Earned Income Credit Initiative, including:
      --Sent notices to over 6 million EITC recipients informing them of
            the advance EIC payment option.
      --Sent an informational letter to the top 100 employers most likely
            to employ taxpayers who would be eligible for the credit.
      --Sent notices to approximately 2.5 million taxpayers who did not
            claim the credit but appear eligible for the credit.
      --We are providing toll-free assistance for EITC questions 24 hours
            per day 7 days a week.
      --We expanded outreach efforts to service EITC eligible low income
            and elderly taxpayers by providing tax information and return
            preparation during the last three Saturdays beginning March 28.
      --We designated March 28 as EITC Awareness Day, where walk-in sites
            provided taxpayers with up-to-date information regarding the
            new tax laws and the penalties associated with intentional
            noncompliance, and assisted EITC eligible taxpayers with return
            preparation.
      --Informational products such as stuffers, posters, employee and
            employer brochures were provided to local offices to use in
            partnering efforts with groups and agencies.
      --As of March 19, 1998 we have issued 47,730 EIC Math Error Notices
            for Invalid/Missing Social Security Numbers.
                                 [attachment 1]
                     Description of Appeals ADR Procedures
    Early Referral
        Early referral procedures, contained in Revenue Procedure 96-9,
    expedite Appeals consideration of key issues that are ``unagreed'' (the
    taxpayer does not agree with the proposed examination adjustment).
    Appeals officers begin reviewing the unagreed issue while the
    examination of other issues continues, allowing for the possible
    settlement of key unagreed issues, and possibly closing the entire case
    in the Examination function, reducing costs for the taxpayer and the
    IRS.
    Early Referral--Employment Tax
        Although the early referral program was initially limited to
    Coordinated Examination Program cases, in Announcement 96-13 the IRS
    extended the early referral provisions to employment tax issues on a
    one-year test basis. Announcement 97-52 extends the test of the
    procedures for early referral of employment tax issues for an
    additional one-year period beginning on May 27, 1997.
        IRS examiners now consider the taxpayer's eligibility for
    employment tax relief under section 530 of the Revenue Act of 1978
    before initiating any examination of the relationship between a
    business and a worker. Taxpayers that disagree with the District's
    determination regarding the application of section 530 have the option
    of immediately requesting early referral of the issue from the District
    to Appeals.
        Effective August 5, 1997, section 1454 of the Taxpayer Relief Act
    of 1997 added a new section 7436 to the Internal Revenue Code. Section
    7436, as amended, provides new judicial review rights concerning
    certain employment tax determinations. Generally, Code section 7436
    applies to employment tax cases in which the IRS has determined that at
    least one worker should be reclassified as an employee and/or that the
    taxpayer is not entitled to relief under section 530 of the Revenue Act
    of 1978. The law requires that any employment tax that depends upon
    such determinations cannot be assessed unless the taxpayer has been
    given an opportunity to file a petition for Tax Court review of the
    IRS' determinations on those two issues. If, during the course of the
    employment tax examination, the taxpayer and Examination are unable to
    agree on worker classification and/or section 530 issues, the taxpayer
    will be strongly encouraged to request early referral of these unagreed
    issues from Examination to Appeals. The enactment of I.R.C. Sec. 7436
    does not change the early referral procedures.
    Mediation
        The IRS, in Announcement 97-1, extended the test of the mediation
    procedure set forth in Announcement 95-86. Mediation is used later in
    the administrative process, after good faith negotiations have failed
    to produce resolution. Factual issues, such as valuation and transfer
    pricing issues, are appropriate for mediation. Appeals is considering
    expanding the mediation program. Cases over $10 million in dispute that
    currently qualify for mediation account for only 1 percent of the
    inventory in Appeals, but 88 percent of the dollars in dispute. Cases
    over $1 million in dispute are 4 percent of the inventory, but 95
    percent of the dollars. Mediation is a negotiation between the parties
    assisted by an objective and neutral third party mediator who has no
    authority to impose a decision. Mediators can come from Appeals or
    outside the IRS. Co-mediators can also be used.
        Appeals process.--The mediation procedure in Appeals is
    specifically designed to be used at the end of the administrative
    process, as a final attempt to resolve a dispute before litigation.
    Appeals has built a strong record of success through our standard
    techniques of dispute review and conferencing. Most tax controversies
    are resolved through the time-tested successful negotiation process of
    the Appeals conference. Very few cases are litigated--about 1,200 in
    any given year. The vast majority of cases are successfully resolved
    without the need for any additional resources. While there are
    relatively few taxpayers using the ADR initiatives, these cases involve
    a significant amount of the dollars in Appeals inventory. As a result,
    Appeals ADR processes initially focused on the cases that involve the
    majority of disputed dollars coming into Appeals.
        Relationship to early referral.--Taxpayers presently can use the
    mediation procedure in conjunction with early referral. By combining
    the two procedures, taxpayers may be able to expedite their resolution.
    After early referral negotiations are unsuccessful, taxpayers are able
    to then request mediation if the early referral issue satisfies the
    mediation criteria. However, early referral currently has a broader
    application and is available for all CEP cases; by expanding mediation,
    all early referral cases could be covered.
    Simultaneous Appeals/Competent Authority
        Section 8 of Revenue Procedure 96-13 allows a taxpayer who has
    filed a request for competent authority assistance to also request
    simultaneous Appeals consideration of the competent authority issue.
    The procedure encourages taxpayers to request competent authority
    assistance and the participation of Appeals while a case is under
    Examination jurisdiction.
    Collection Appeals Program
        The Collection Appeals Program (CAP) started in April 1996 and
    allows taxpayers to appeal lien, levy or seizure actions proposed by or
    made by the IRS. Before this time, the only opportunity a taxpayer had
    to appeal these actions was through the Collection manager and up
    through Collection's chain of command. This is the first time in the
    history of U.S. taxation that an appeal on these Collection actions
    through an independent organization such as Appeals was possible. In
    January 1997, appeals of installment agreements proposed for
    termination were added to the program. This installment agreement
    appeal right was provided for in the Taxpayer Bill of Rights 2 and the
    IRS decided to add it to CAP.
        Any taxpayer may request an appeal and we expect to reach a
    decision in 5 days. This ensures taxpayers a quick decision and that
    collection activities will not be delayed unnecessarily.
                                     ______

                     Questions Submitted by Senator Shelby
                             audits of southerners
        Question. One explanation the IRS has given in its defense for
    auditing a disproportionate number of southerners, is that a
    disproportionate number of people from these states file for the Earned
    Income Tax Credit which has been targeted because it is known to be an
    area where compliance is a problem. Can you tell me if this correlation
    can fully explain why so many of my constituents were targeted?
        Answer. There appears to be a large number of workers earning less
    than $29,290 and claiming EITC qualifying children in the southern
    states. Historically, southern states have had the largest percentage
    of returns claiming EITC. Where there is a larger population of tax
    return filers claiming EITC, there is a high potential for abusive and
    erroneous EITC claims. The returns we focus on have the same
    characteristics nationwide, but the fall-out is greater in the South.
        Question. In the fiscal year 1999 budget request, the IRS is asking
    for $143 million and 2,184 FTE positions for the EITC compliance
    initiative. Can you please submit a formal plan to the subcommittee
    outlining the program's goals and the initiatives that will be used to
    accomplish them?
        Answer. A formal plan for fiscal year 1999 will be completed and
    submitted to the subcommittee by the end of May, 1998.
        Question. In the plan please explain in detail what tasks these FTE
    positions will perform and how specifically the appropriated funds will
    be allocated with the program.
        Answer. A formal plan for fiscal year 1999 will be completed and
    submitted to the subcommittee by the end of May, 1998.
                              financial management
        Question. On several occasions, the GAO has found that it could not
    conduct reliable audits of the IRS because the agency's financial
    statements were in such disarray. I have said in the past and continue
    to believe now that it is ironic, to say the least, that the IRS
    requires more of taxpayers than it does of itself. The IRS requires
    taxpayers to keep receipts for several years to justify their
    deductions while the IRS cannot reliably account for billions of
    dollars worth of tax revenues. Having said that, in a report to
    Congress provided by the GAO in December on the financial audit for the
    fiscal year 1996 custodial financial statements there is a table that
    lists recommendations that GAO has made in the past and the degree of
    progress that has been made. Unfortunately, the body of the report and
    the table in Appendix 1 provide very little detail as to the response
    of the IRS to these recommendations. Can you have your staff provide
    the subcommittee with detailed and concise written explanation as to
    what specifically the agency has done thus far in order to implement
    the GAO recommendations?
        Answer. In response to the statement that ``the GAO has found that
    it could not conduct reliable audits of the IRS because the agency's
    financial statements were in such disarray,'' the IRS is pleased to
    report that on February 26, 1998, the GAO has given an unqualified--or
    ``clean''--opinion on the reliability of the IRS' fiscal year 1997
    Custodial Financial Statements. The statements audited by GAO were IRS
    reports on taxes collected and refunds paid during fiscal year 1997.
    GAO also can attest to and has assured Congress and the American people
    that our reports on $1.6 trillion in revenue collected and $28 billion
    in accounts receivable are reliable. This GAO opinion means it could
    reconcile the total revenue reported to the total taxpayer account
    records IRS maintains, substantiate the amounts for various types of
    taxes collected and determine that accounts receivable estimates were
    reliable.
        While we recognize that the IRS needs additional work to assure
    that its financial house is in order, we believe this February, 1998
    GAO Report is a significant step in this right direction.
        In response to the question--the GAO has made 59 recommendations
    through their financial statement audits for the last six fiscal years,
    which have improved financial management at the IRS. The attached IRS
    detailed action plan, developed in cooperation with GAO, addresses
    corrective actions and tracks the progress toward correcting
    deficiencies and implementing GAO recommendations. Of the 59
    recommendations, 51 have been closed. Of the remaining eight
    recommendations, IRS and GAO have mutually agreed that no action was
    required for one, and we anticipate closure of the remaining seven (six
    by September 30, 1998, and one by November 1, 1998). The IRS is
    committed to working with GAO to resolve these recommendations and
    believes that through mutual cooperation and effort this goal will be
    achieved.
                                taxpayer service
        Question. One of the reoccurring problems that I hear about from my
    constituents is that when they call the IRS they often cannot get
    through. Once they do, they are transferred around multiple times until
    they find the ``right'' person. Then after getting the run-around, they
    often receive erroneous information from IRS officials. Under current
    law, taxpayers can only be relieved of responsibility of bad advice
    from the IRS when they have received it in writing. In other words,
    there has to be a paper trail. I know you have outlined some of your
    plans to deal with this problem, but do you think it would be
    reasonable to have the IRS provide advice in writing to taxpayers when
    requested so we can avoid these kinds of problems?
        Answer. Taxpayers can currently send their questions in writing to
    the IRS and request and receive a response in writing. The IRS will
    also respond in writing when a taxpayer calls for assistance and
    requests a written response. Section 6404 (f) provides for abatement of
    penalties and additions to tax that result from erroneous written
    advice by the Service. However, in order to qualify for relief, both
    the request for advice from the taxpayer and the IRS' response must be
    in writing. Requiring that both the request and the response be in
    writing allows a proper evaluation of whether the taxpayer provided
    sufficient information on which correct advice could have been based.
    Most taxpayers requesting tax assistance call the IRS rather than
    write, and this is the most effective way for the taxpayers to get
    information and for the IRS to provide it. Based on the volume of
    individuals calling the IRS for tax assistance, it would require
    substantial resources to have taxpayers ask all their questions in
    writing and have the IRS respond in writing.
                        employee disciplinary procedures
        Question. In the summary of the IRS fiscal year 1999 budget request
    there is a section that outlines the disciplinary action which resulted
    from unauthorized accesses of taxpayer files by IRS employees. It
    indicates that ``161 employees were removed/separated from the IRS.''
    Does this mean that they were fired and are in no way, shape, or form
    working for the American Taxpayer any more?
        Answer. Employees who are accused of committing an unauthorized
    access are accorded due process rights prior to being removed. An
    employee can resign without prejudice at any time during an
    investigation as long as the departure occurs prior to issuance of
    proposed disciplinary action. If eligible, the employee may retire.
    Such an employee could be hired by another Federal agency and IRS would
    not know about it. If they resign or retire after notification of a
    proposed action, a record is placed in their Official Personnel Folder
    (OPF) and is available to any prospective government employer.
    Similarly, a removal is documented in the OPF. It is unlikely another
    agency would choose to hire such a person. IRS would not rehire anyone
    for whom an investigation had been opened and it appeared that the
    charges would be substantiated.
        Question. Were they given incentives to leave?
        Answer. The IRS Buyout program specifically excluded paying
    incentives to anyone for whom a proposed disciplinary action had been
    initiated. If someone was under investigation but the case had not
    reached a point where misconduct was substantiated, then it was
    possible for a buyout to have been paid.
        Question. One taxpayer that my staff has worked closely with
    reported that an IRS official told her to ``get a real job'' in order
    to help pay off her husband's tax liability. This sort of flippancy is
    obviously uncalled for and very inappropriate. Many financial
    institutions monitor incoming phone calls to ensure that customers are
    being treated politely by customer service personnel when they call in.
    Does the IRS have any similar system in place to monitor the conduct of
    its employees?
        Answer. Yes. In addition to a nationally managed Quality
    Measurement Program, IRS managers evaluate their employees through
    telephone monitoring to ensure that our customers are treated in a
    courteous, professional manner as well as to ensure that the
    information we provide is complete and accurate. The Customer Service
    Organization redesigned the Critical Job Elements (CJE) and Standards
    for the Customer Service Representatives. These are used to evaluate
    Customer Service Representative performance and will be implemented
    nationally on May 1, 1998. The redesigned CJE's reflect a strong
    customer focus. The most important job element is Customer Service.
    When managers evaluate their employees on this element they consider
    specific standards including Customer Focus, Interpersonal Sensitivity,
    Oral Communication and Listening, and Influencing and Negotiating. The
    results of the monitoring are documented and shared with the employees
    and are used in the Performance Appraisal Process.
        We also agree that a comment like the one described in your
    question is completely unacceptable. We believe the implementation of
    our new performance standards for Customer Service Representatives will
    help assure such comments are not made.
                                     ______

                      Questions Submitted by Senator Kohl
                                    general
        Question. The IRS is setting up Special Disciplinary Panels to
    provide objective assessments regarding allegations of taxpayer abuse.
    The panel will have authority to impose sanctions against employees
    when warranted. These sanctions could lead to dismissal. Are you
    proposing legislation to provide these executives outside the Federal
    Government with the authority to fire a Federal employee?
        Answer. The Special Review Panel consists of executives from
    Customs, IRS, and Treasury. The panel is receiving assistance from a
    small staff of IRS and Treasury employees representing Counsel and
    management, and will have IRS technical experts available to provide
    guidance or clarification as needed. Adverse or disciplinary actions,
    if warranted, will be decided by the Deputy Assistant Secretary of
    Treasury (Human Resources). No legislation is currently proposed to
    delegate authority for these types of personnel actions.
        Question. Are the Taxpayer Advocate Panels and Problem Solving
    Forums working together to share information to develop a unified
    approach to deciding how to work with Taxpayers?
        Answer. Yes. The Taxpayer Advocates are now responsible for the
    Problem Solving Day program, including assuring that cases are
    completely worked, that case data are analyzed, and systemic problems
    and possible solutions are identified. In addition, in the future when
    Citizen Advocacy Panels become operational, the Taxpayer Advocates will
    be responsible for integrating data flowing from the panels into their
    advocacy efforts and assuring the inclusion of such data where
    appropriate in the Taxpayer Advocate's report to the Congress.
        Question. Are the groups working with the Special Disciplinary
    Panels? And, what about the contractor that is putting together the
    plan to restructure the IRS along customer service lines?
        Answer. The special disciplinary panel, which includes individuals
    from outside the IRS, was established to provide fairness, objectivity,
    and consistency in reviewing the findings of Inspection reports,
    recommending corrective actions and appropriate administrative actions.
    As an independent panel, it will not be working with the Taxpayer
    Advocate Panels (officially known as the Citizen Advocacy Panels),
    individuals working on Problem Solving Days, or the contractor that is
    conducting the validation study of the modernization concept. However,
    any lessons learned from the work of the disciplinary panels will be
    shared with the Taxpayer Advocate, the CAP's, and the contractor.
                               electronic filing
        Question. I know the IRS agrees that by the year 2007 no more than
    20 percent of all returns should be filed on paper. Has the IRS
    estimated the number of returns that could be filed electronically with
    existing equipment?
        Answer. As would be required by the pending IRS reform legislation,
    the IRS is currently in the process of developing a Strategic Plan for
    Electronic Tax Administration which is designed to eliminate barriers,
    provide incentives and use competitive market forces to make
    significant progress towards the overriding goal that 80 percent of all
    tax and information returns be filed electronically by 2007. As part of
    this effort, the IRS will be clearly articulating the strategic
    objectives and business goals for 2007 that it is proposing for
    Electronic Tax Administration.
        Furthermore, the IRS believes that it has sufficient capacity to
    process the projected electronic filing volumes. However, as part of
    its strategic planning process for Electronic Tax Administration, the
    IRS will be re-assessing its current technical infrastructure to ensure
    that it is positioned to handle the expected demands of the future. Not
    only does the IRS expect a significant increase in the number of
    Electronic Return Originators who transmit returns for taxpayers, but
    it also envisions developing additional products and services which
    will enable individual taxpayers and businesses to transact and
    communicate directly with the IRS.
        Question. What percentage of all taxes filed are filed
    electronically?
        Answer. The following chart provides the projected volumes for
    1998.

                            PROJECTIONS FOR 1998 \1\
    ------------------------------------------------------------------------
                                                                    Percent
                 Form               Total volume      Total ETA     of total
    ------------------------------------------------------------------------
    1040.........................     123,950,600  \2\ 20,979,700         17
    941..........................      24,109,600       3,521,000         15
    1041.........................       3,517,800       1,032,100         29
    1065.........................       1,745,800  ..............  .........
    5500.........................       1,215,700          14,400          1
    ------------------------------------------------------------------------
    \1\ Source of data: Document 6194, Calendar Year Return Projections for
      Districts & Regions (Rev. 1-98) except for Form 941 Total ETA volume
      which includes the Form 941 mag tape volume.
    \2\ Includes TeleFile returns.

        Question. I know we have discussed this, but could you tell me once
    again what the estimated savings are from filing electronically?
        Answer. A study was recently initiated by the IRS to better
    understand the cost tradeoffs between electronic and paper filings
    which will involve further analysis of the fixed and variable
    components of these costs at various points in the electronic/paper
    filing mix. Until this study is completed, we do not have a definitive
    answer to this question. However, at this point, we can get some idea
    of this by looking at certain known costs for fiscal year 1996 for the
    Form 1040 family of returns and making preliminary judgments.
        In fiscal year 1996 the cost per return for electronically filed
    Form 1040 family of returns was $4.76, while the cost for paper filings
    was $4.49. Capital investments obligated in fiscal year 1996 are
    included in full. Capital investments obligated prior to fiscal year
    1996 are not included in the costing process. Costs incurred upstream
    of the data capture processing (e.g. design, printing, and distribution
    of tax forms and instructions) and downstream of data capture (e.g.,
    archiving and retrieval of tax returns, compliance activities) are not
    included. The small differentiation in cost between paper versus
    electronic processing is encouraging, as electronic filing expenses are
    amortized across 15 million Form 1040 family of returns versus the 95
    million for paper Form 1040 family of returns. Also, it is clear that
    much of the paper filing costs in fiscal year 1996 are related to
    labor, which results in high variable costs, while most of the
    electronic filing costs were fixed costs. Also, there may be other non-
    financial reasons (such as reduced taxpayer burden) that would compel
    an aggressive pursuit of electronic returns.
        If this data holds up in our study, this means that as electronic
    returns increase we will have substantial opportunity for savings in
    our variable (labor) costs. However, this data is preliminary. We do
    not yet know whether any additional fixed cost investments will be
    necessary to support increased electronic filing. It seems clear though
    that the cost differences in variable costs favor increased electronic
    filing, and will result in labor savings.
        Question. Can the IRS make any additional incremental changes or
    investments that would increase the electronic filing such as
    leveraging the existing Third Party filing program?
        Answer. Yes. The IRS has a number of initiatives underway for
    leveraging the existing Third Party filing program. To begin with, the
    IRS recognizes that it needs to do a better job of informing and
    educating taxpayers and practitioners about the benefits of electronic
    filing and plans to build on its 1998 Filing Season Public Service
    Campaign which was developed in conjunction with its advertising
    agency, Emmerling Post. This year's campaign, which introduced a new
    name and logo, IRS e-file, promoted the use of electronic filing
    options with primary emphasis on practitioner electronic filing. This
    year's campaign also included an evaluation component consisting of
    third party preparer surveys, an attitude and awareness survey among
    taxpayers, and an analysis of paid media tests. In addition, a
    quantitative market research survey was conducted by Russell Marketing
    Research, Inc. from March 13, 1998 through March 27, 1998. The final
    report which is due in May will provide demographic and psychographic
    data that will assist IRS in targeting taxpayers within markets more
    efficiently. Furthermore, the IRS recognizes that tax practitioners
    authorized to electronically file tax returns to the IRS (Electronic
    Return Originators) must be recognized, managed and motivated as ETA
    product and service distributors. Much as the private sector employs
    store front operations (whether independent, franchise or corporate
    owned), the IRS depends upon tax practitioners to promote electronic
    filing and payment to taxpayers. In support of this vital channel, the
    IRS will seek to support ERO's with national advertising, promotional
    kits, education and training, secure communications, management
    information systems and various product and service incentives
    available depending upon an ERO's success in marketing Electronic Tax
    Administration products and services.
        Question. $2.5 million is requested to expand electronic filing
    including electronic taxpayer ``authentication'' that eliminates the
    need for them to issue a separate written document. Where are you in
    terms of providing electronic authentication?
        Answer. Electronic Tax Administration prepared a Draft IRS
    Electronic Authentication Principles and Strategy document in late
    January, 1998. The document will be used as a starting point to develop
    and publish an authentication policy. The policy will be subject to
    public review and the Internal Revenue Manual procedure before becoming
    an official IRS policy.
        The intent of the policy will be to establish a frame work for the
    selection, implementation, and use of alternative methods of signature.
    A strategy and tactical plan will be developed to support the
    electronic authentication policy.
        For 1999, the IRS will work toward an authentication pilot(s) as a
    means of increasing electronically filed returns. The pilot will use an
    alternative method of signature to replace the paper Form 8453. In
    addition, a waiver will be requested to eliminate the need for
    submission of paper W-2, W-2G, and 1099R attachments by pilot
    participants.
        Our preference is to accept private sector proposals through ETA's
    Request for Proposal (RFP), which will require minimal IRS involvement
    for the 1999 authentication pilots. However, as a parallel activity, we
    are developing a Request for Information Services for an IRS-built
    pilot to be used in the event that no acceptable proposals are received
    through the RFP.
        In addition, the Office of Chief Counsel is analyzing the paper
    attachments which are currently required by statute and regulations.
    Chief Counsel's analysis will identify those attachments which may be
    received electronically rather than as a paper attachment. Based on the
    analysis, Electronic Tax Administration will determine, from a business
    perspective, how IRS e-file will be expanded to include attachments
    identified by Chief Counsel. For example, this expansion could be done
    through additional programming or through a request to waive the
    requirement to send the attachment.
        Question. Does the IRS have the systems in place to continue
    electronic communication with the taxpayer. How would you ensure the
    system provides sufficient privacy?
        Answer. The IRS has been answering general tax law questions
    submitted over the Internet since 1996. These questions submitted over
    the Internet are held by a Fedworld server until downloaded into an E-
    mail processing system for review and response. Currently, the
    questions must be downloaded one at a time. Within the processing
    system, the answer is entered into a response box and sent (with the
    original question) back to Fedworld to be sent to the E-mail address
    provided by the customer. The IRS employee must have Internet access
    and a login and password to have access to the questions.
        Beginning in March, 1998, questions will be automatically
    downloaded (every 15 minutes) to a server that is within the ``Treasury
    firewall''. When the questions are answered, the server will
    reformulate the response into an E-mail to be sent to the customer.
        The IRS is not currently accepting specific tax account questions
    through the Internet. Customers are told on the site that we will not
    answer such questions and they should not provide personal identifying
    information.
        Question. IRS' date for preparing an electronic commerce strategy
    has slipped several times. When can we expect to see a final product
    and what factors contributed to delays?
        Answer. As would be required by the pending IRS reform legislation,
    the IRS is developing a Strategic Plan for Electronic Tax
    Administration. This effort is headed by Bob Barr, the new Assistant
    Commissioner for Electronic Tax Administration, who joined the IRS last
    fall and who has made the development of the strategic plan one of his
    top priorities. A draft version of the strategic plan is expected to be
    made available for public comment later this spring.
        Ownership and accountability are two key factors which affected
    completing the strategy. In the past, the Administration, Congress and
    other external stakeholders have been frustrated by the lack of a focal
    point for Electronic Tax Administration activities within the IRS. Last
    year, the IRS took an important step toward clarifying the
    responsibilities for Electronic Tax Administration by establishing a
    new organization headed by an Assistant Commissioner devoted
    exclusively to the management of existing and planned programs.
                            earned income tax credit
        Question. Given that there are already high error rates in filing
    the EITC--half of which are honest mistakes--have you considered a new
    communications effort to ensure that these individuals are made aware
    of their eligibility for the EITC and that they file correctly for it?
        Answer. The IRS has taken a number of proactive efforts to inform
    and educate taxpayers about the Earned Income Credit. These efforts
    include:
      --Sending notices to over 6 million EITC recipients informing them of
            the advance EIC payment option;
      --Sending an informational letter to each of the top 100 employers
            most likely to employ taxpayers who would be eligible for the
            credit; Sending notices to the approximately 2.5 million
            taxpayers who did not claim the credit but appear eligible for
            the credit;
      --Providing toll-free assistance for EITC questions 24 hours per day,
            seven days a week;
      --Expanding outreach efforts to service EITC eligible low income and
            elderly taxpayers by providing tax information and return
            preparation during the last three Saturdays of the filing
            season beginning March 28, 1998;
      --Designating March 28, 1998 as EITC Awareness Day, where walk-in
            sites provided taxpayers with up-to-date information regarding
            the new tax laws and the penalties associated with intentional
            noncompliance, and assisted EITC eligible taxpayers with return
            preparation; and
      --Providing informational products such as stuffers, posters,
            employee and employer brochures to local offices to use in
            partnering efforts with groups and agencies.
        Question. GAO's review of the IRS audit techniques has determined
    that the IRS is focusing its resources on audits of taxpayers claiming
    the EITC? Why?
        Answer. District Examination is focusing a very small part of its
    resources on EITC returns. As of February 20, 1998, there were
    1,506,173 returns in inventory. Of these returns, 38,207 were
    identified as having EITC as an audit issue. This represents less than
    three percent of returns. Resources are focused on EITC because of the
    high degree of concern over error rates in EITC filing.
        Question. What is the IRS' return on investment in these cases?
        Answer. The IRS has not conducted a study on return on investment
    for EITC cases. Resources are devoted to EITC because it is a
    recognized area of noncompliance.
        Question. Has the IRS conducted a study to determine that these
    types of cases provide the greatest return on investment?
        Answer. No. However, return on investment is not the sole criterion
    used to select returns. A system based solely on return on investment
    would omit issues such as the indirect impact of examining returns and
    insuring that all classes of returns are subject to examination.
                              information systems
        Question. Does the language on Page 9 of your statement:
    ``Additional sub-releases of the blueprint will be very carefully
    planned and coordinated with modernization of the business processes
    and organization before they are allowed to proceed'' indicate that
    there may be a change in the modernization plan for totally integrated
    and secured data bases and infrastructure as detailed in the
    modernization blueprint?
        Answer. No. As defined in the Commissioner's Statement before the
    Senate Finance Committee on January 28, 1998, the Organizational
    Modernization is based on five key elements, as follows:
      --revamped IRS business practices that will focus on understanding,
            solving and preventing taxpayer problems;
      --organizational structure built around taxpayer needs;
      --management roles with clear responsibility;
      --balanced measures of performance; and
      --new technology.
        The new CIO organization and the recently issued Modernization
    Blueprint and the Request for Proposals for a Prime Systems Integration
    Services Contractor, provide an outstanding and professional basis for
    managing the evolution of our technology. The revamped business
    practices and Organizational Modernization will provide a sound basis
    for completing and implementing the modernized systems envisioned in
    the Modernization Blueprint including the mainframe centric solution
    and centralized databases, and will be tied to the development of lower
    level requirements for design and development through the PRIME
    contractor.
        Question. It is my understanding that in the past field offices
    have purchased systems and equipment without worrying about its
    integration with the existing IRS systems. How can IRS ensure complete
    continuity and commitment to the modernization efforts and to the
    Integration Support contractor?
        Answer. Several active steps have been taken to ensure that newly
    purchased systems and equipment are approved only if they are
    consistent and compliant with existing systems, the Modernization
    Blueprint architecture and sequencing plan. With the issuance of the
    Modernization Blueprint in May, 1997, a Standards Profile was issued.
    All purchases must be technically consistent with the Standards
    Profile. To ensure consistency across the board, effective October,
    1997, the Office of Procurement no longer accepts paper requisitions.
    Requisitions are only accepted electronically using a Request Tracking
    System. Within this system, the appropriate approvals are required from
    the Chief Information Officer organization. Requisitions for more than
    $100,000 require the approval of the Director, Government Program
    Management Office, who is responsible to ensure consistency with the
    Modernization plan and compliance with the technical standards. In
    addition, a Project Office has been established to centralize
    procurement of key infrastructure components and ensure workstation and
    system standardization in the field.
        The Request for Proposal for a PRIME Systems Integration Services
    Contractor, issued March 26, 1998, demonstrates our strong commitment
    to the modernization effort and to the existing Integration Support
    Contractor. The IRS and the PRIME must ensure the continuity and
    commitment of the Integration Support Contractor to provide for the
    near-term completion of process improvement projects and the longer
    term engineering and architecture service. As part of the proposals,
    the PRIME Offerors must ensure continual involvement of our existing
    Integration Support Contractor.
        Question. As it relates to Y2K efforts, where is the IRS in terms
    of its inventory of the computer code comprising IRS' Core Business
    Systems?
        Answer. IRS' inventory has been completed and is maintained on the
    IRS Integrated Network & Operations Management System (INOMS). IRS
    inventory includes all applications developed either by IRS employees
    or contractors, all commercial-off-the-shelf (COTS) products,
    telecommunications systems and Tiers 1, 2 & 3 hardware. IRS created an
    application inventory for Y2K. We are working to ensure we can keep it
    accurate and current. IRS has had an inventory of hardware and
    commercial software but to be useful to Y2K we have had to upgrade it
    to make it more of a management tool. The upgrade has included a four-
    month effort to insure every product has an industry standard name and
    appropriate management control assigned. IRS has had telecommunication
    products in several separate inventories, some controlled by IRS, some
    by vendors, and some by Treasury. We are acting to consolidate these
    inventories.
        Question. When do you expect to complete the Code Remediation Phase
    and be ready to enter into the test and evaluation phase and who will
    actually conduct this phase?
        Answer. The test and evaluation phase has begun for the majority of
    IRS applications. Year 2000 conversion is being done in five phases
    between January 1997 and January 1999. Each phase involves code
    remediation and testing prior to production. Code remediation and
    testing are complete for all programs that were implemented through
    January 1998 (Phase 3). All code remediation is scheduled to be
    completed prior to January 1999.
        IRS tracks data by component (e.g., application program, job
    control language), system (consisting of one to many components), and
    lines of code. As of February 27, 1998, a total of 66.5 percent of IRS
    mission critical applications were Y2K compliant and tested.
    Certification of these applications will be completed no later than
    October 1999. A total of 46.8 percent of our systems have had all of
    their applications software converted to be Y2K compliant and are in
    production.

    ----------------------------------------------------------------------------------------------------------------
                                                                                 Mission critical
                                                            --------------------------------------------------------
        Inventory tracking category        Total     To be       Converted            Tested          Implemented
                                                    retired --------------------------------------------------------
                                                              Number   Percent   Number   Percent   Number   Percent
    ----------------------------------------------------------------------------------------------------------------
    Components (application program and
     COTS software)....................    84,857    11,689    56,789    78.64    48,016    66.49    41,474    57.43
    System.............................       127         1        75    59.52        60    47.61        59    46.82
    Lines of code (million)............      49.8      13.1        23    66.09      17.8    51.12      16.6    47.78
    ----------------------------------------------------------------------------------------------------------------

        Unit and compatibility testing are done by the programmer in the
    development organization. After unit and compatibility testing, the
    application is sent for Systems Acceptability Testing (SAT), which is
    primarily conducted by the Product Assurance Division, with the
    assistance of contractors, for Information Systems applications. Field
    and Customer applications will be SAT tested locally using guidelines
    developed by the Product Assurance Division. Certification is being
    done by the Product Assurance Division or by the field organizations
    using guidelines prepared by the Product Assurance Division and will be
    completed by October 1999.
                                customer service
        Question. I have been in touch with the IRS in the past about the
    need to improve customer service and I am pleased that the IRS has
    increased the number of days and hours during which taxpayers can call
    for information, but we are not there yet. Beyond all the training,
    what additional steps are you taking to improve customer service?
        Answer. In fiscal year 1999, on the toll-free telephone lines, the
    IRS plans to further expand its service to provide telephone assistance
    seven days a week, 24 hours a day. Also, in fiscal year 1999, IRS plans
    to provide its customers with an 86 percent Level of Access and
    decreased queue times. The level of telephone access through the month
    of February, 1998 was 90 percent. This compares with a 68 percent level
    of access at the same time during 1997, and shows a marked improvement
    in customer service at the IRS. In the walk-in program, IRS will expand
    Saturday service from six Saturdays in 1998 to 12 Saturdays in 1999.
        Question. Are you aware that many callers' efforts to get answers
    to questions are being routed to a voice mail system that only offers
    to call them back within 2 to 3 days. What alternatives are you
    considering to this situation?
        Answer. In order to optimize customer service when demand far
    exceeds the existing staffs' and telephone systems' capability to
    handle the volume, we are asking the taxpayer to leave a message on
    specific tax topics for callback. We are then utilizing Examination
    staff to respond to these messages. This process, commonly referred to
    as ``Compliance Messaging'' provides personal call back assistance
    while drawing upon the Service's highly skilled technical employees who
    are often not co-located with telephone operations/systems. Because our
    efforts to increase the taxpayer access to our assistors have had very
    good results in 1998, and because we expect greater improvement in
    1999, we are reviewing the policy of Compliance Messaging and will
    probably not need to use this callback method to respond to taxpayer
    inquiries next year.
        Question. Many individuals who have been assessed tax penalties
    often ask if they can be abated once payment of the tax has been
    arranged for. There are numerous categories of ``reasonable cause'' on
    which a decision to abate penalties can be based, but they do seem to
    lend themselves to varying interpretations by different staff in
    different offices. What can be done to ensure that everyone has an
    equal chance to have a penalty abated and determinations are more
    consistent?
        Answer. Internal Revenue Manual (21)000, Customer Service, was
    published and distributed to the field on October 31, 1997. The purpose
    of this IRM and IRM (20)000, Penalties, is to provide instructions and
    guidelines for Customer Service Representatives in responding to all
    taxpayer inquiries (including requests for penalty abatement for
    reasonable cause). In combining the work processes of various functions
    to achieve a greater degree of initial contact resolution, this IRM is
    a tool that will allow the assistor to provide more responsive customer
    service in a consistent and fair manner.
                                     ______

                    Questions Submitted by Senator Coverdell
        Question. In the GAO report entitled ``IRS' Use of Random Selection
    in Choosing Tax Returns for Audit'' and in recent press reports, the
    IRS claims it is engaging in random audits pursuant to congressional
    instruction. Please explain in specific detail how the IRS supports the
    notion that the Congress of the United States mandated the IRS engage
    in random audits.
        Answer. The IRS does not support the statement that Congress
    mandated random audits. Because Congress specifically asked the IRS to
    study the compliance level of EITC filers, a scientific statistical
    sample of that filing population was examined. This statistical sample
    limited the inconvenience to the taxpaying public by limiting those
    affected to the 2,472 returns examined. The report does state that,
    ``Traditionally, the only IRS program using widespread random selection
    has been the Taxpayer Compliance Measurement Program (TCMP).''
        Question. Please comment on the appropriateness of the IRS using
    random audits when more than ninety percent of random audits of
    individuals from 1994 to 1996 are employed against low income taxpayers
    earning less than $25,000 as reported in the GAO report entitled ``IRS'
    Use of Random Selection in Choosing Tax Returns for Audit.''
        Answer. The population of EITC filers is approximately 20 million
    taxpayers. The IRS conducted a compliance study of that filing
    population. A scientific statistical sample needed to be employed to
    efficiently perform that study. Using this technique, 2,472 returns
    were examined which represented a very small percentage (approximately
    0.01 percent) of that filing population. Those who claim EITC are
    typically low income and earn less than $25,000; therefore, we were
    sampling lower income taxpayers.
        Question. Please comment on the appropriateness of the IRS
    confining random audits within individual states when conducting an
    information gathering project or compliance initiative, for example
    focusing on small business in Georgia that simultaneously file Schedule
    C losses and qualify for EIC benefits.
        Answer. As previously stated by GAO in ``IRS' Use of Random
    Selection in Choosing Tax Returns for Audit,'' ``During fiscal years
    1994 through 1996, IRS did not randomly select returns for audit from
    either the population of all taxpayers or all returns . . . IRS audit
    sources do not rely on random selection from the population of all
    returns but rather IRS selects returns having characteristics
    indicative of potential noncompliance.''
        This information gathering project identified a population of
    returns having characteristics of potential noncompliance. Available
    resources would not permit the examination of all returns in this
    population to determine the level of noncompliance within this
    population. Therefore, a sample of this population was examined by the
    Georgia District which initiated the project.
        The Information Gathering Project is a tool that is used to
    identify and measure the level of noncompliance. It usually involves a
    relatively small sample of returns in a limited geographical area.
    Based on the results of the sample, the enforcement action may be
    expanded to other taxpayers with similar return characteristics within
    or outside the sample geographical area, action other than enforcement
    may be taken (taxpayer education or seeking legislative change), or no
    further action may be deemed necessary.
        To summarize, if an information gathering project uncovers a
    significant area of noncompliance, the enforcement or non-enforcement
    action taken will not be confined to an individual state.

                              Subcommittee Recess

        Senator Campbell. With that, I appreciate you being here
    and this subcommittee is recessed.
        [Whereupon, at 2:48 p.m., Thursday, March 5, the
    subcommittee was recessed, to reconvene at 10:17 a.m.,
    Thursday, March 12.]

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 1999

                                  ----------

                            THURSDAY, MARCH 12, 1998

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:35 a.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)
    presiding.
        Present: Senators Campbell, Faircloth, and Kohl.

                           DEPARTMENT OF THE TREASURY

                            Office of the Secretary

    STATEMENT OF HON. ROBERT E. RUBIN, SECRETARY
    ACCOMPANIED BY NANCY KILLEFER, ASSISTANT SECRETARY FOR MANAGEMENT

                                Opening Remarks

        Senator Campbell. The Treasury Subcommittee will be in
    session. Good morning. Today, we will be reviewing the fiscal
    year 1999 budget request for the Department of the Treasury.
    With us this morning is Secretary of the Treasury, Robert
    Rubin, and he will be accompanied by his assistant secretary
    for management, Nancy Killefer.
        The Treasury Department is our Nation's tax administrator,
    revenue collector, law enforcer, and financial manager. For
    example, the IRS collected $1.5 trillion in taxes last year,
    the Customs Service collected almost $20 billion, and the ATF
    collected almost $13 billion last year alone. The Department's
    law enforcers include the Secret Service, the IRS enforcement
    arm, ATF, Customs, and FinCEN. It also includes FLETC, which
    provides consistent training for law enforcement, not only for
    Federal agencies but for States and locals as well.
        However, there is much more to the Department of the
    Treasury than just the law enforcement and collecting of taxes
    and fees. For example, there is someone actually responsible
    for keeping track of how much money the Government spends and
    receives every single day. The savings bond program is part of
    the Bureau of the Public Debt, which encourages the country to
    invest and save.
        The Comptroller of the Currency protects American citizens
    by making sure that our local banks comply with the law. The
    Bureau of Engraving and Printing which prints our paper money
    and the U.S. Mint which makes our coins are part of the
    Treasury Department also. In addition, if there is a monetary
    crisis somewhere in the world, such as in Mexico or Asia, it is
    the International Affairs Office that develops recommendations
    for how this country should respond.
        In short, the Department of the Treasury is responsible for
    making, protecting, and tracking our Nation's money.
        Perhaps one of the biggest problems facing the Department
    right now is the year 2000 century date change conversion. The
    Treasury Department has identified almost $174 million in
    additional costs in fiscal year 1998 to make sure that when
    January 1 in the year 2000 rolls around that the Department's
    computers do not crash. This is an addition to the funds
    provided during the regulatory fiscal year 1998 budget cycle.
        I want to welcome you, Mr. Secretary. And with that, I
    would ask Senator Kohl if he has an opening statement.

                           Statement of Senator Kohl

        Senator Kohl. I thank you, Mr. Chairman. I have just a few
    brief remarks.
        As usual, Secretary Rubin, it is a pleasure to have you
    before us. We appreciate you taking the time to meet with us
    here today, especially since we know that you are busy with the
    International Monetary Fund and the Asian governments.
        As you know, the Treasury agencies involved in the Asian
    crisis are not within the jurisdiction of this subcommittee.
    However, I hope that we will have an opportunity to discuss
    some of these issues during the course of the hearing, even if
    it is just to get you to tell us whether or not this is the
    time to invest in an Asian emerging market stock fund.
    [Laughter.]
        In terms of appropriations, let me say that I have enjoyed
    working with you on a number of Treasury issues this past year.
    I especially appreciate all the help that you gave us in
    getting my child care tax credit included in the President's
    budget and I hope that we can get it done this year.
        I look forward to working with you on this year's
    appropriation for the Department of the Treasury. I know that
    you have a number of priorities that you want to see funded in
    fiscal year 1999. I am not sure whether we will be able to
    accommodate all of them, but I very much hope that we will be
    able to fund those departments and those programs that will
    help you carry out your vision of the Department of the
    Treasury.
        Thank you, Mr. Chairman.
        Senator Campbell. Senator Faircloth, do you have any
    comments before we start?

                         Statement of Senator Faircloth

        Senator Faircloth. Thank you, Mr. Chairman. Thank you for
    holding this hearing. I welcome our two witnesses this morning.
    Thank you, Secretary Rubin and Ms. Killefer.
        The President is requesting $12.3 billion in fiscal 1999
    for the Treasury Department, which is an increase of a little
    over 7 percent. The funding, as we all know, supports a wide
    range of things including banking policy, law enforcement,
    domestic economic policy, tax policy, and tax administration.
        Mr. Chairman, as you well know, I have a particular concern
    over one of the agencies involved, and that is the Internal
    Revenue Service. I was pleased to have a very good meeting with
    Mr. Rossotti, the new Commissioner of Revenue last week, and he
    readily said that much had to be done to reform the IRS. It was
    a very good meeting. I would also note that Secretary Rubin has
    said that many things needed to be done to change the IRS.

                              IRS Oversight Board

        I have introduced legislation that I think will do the job.
    It is an oversight board composed entirely of private citizens
    with authority to oversee the Internal Revenue Service and to
    delve into--pretty much a free hand to delve into whatever is
    going on in the Internal Revenue Service. I think it has become
    such an in-house unit and that the commissioners have only been
    there for a very short time.
        I mean, I cannot quote them specifically, but the history
    of people that have served as head of the Internal Revenue
    Service, their tenure has been very, very short. So it has
    become an entrenched group of people who simply have run it as
    they saw fit without any real oversight from the rest of the
    Government really.
        The $4 billion they wasted on a failed computer system is
    just the ultimate in how not to run a business. So in my view,
    the board needs to be totally separate from the influence of
    anyone; a total civilian board. And this legislation also gives
    the board explicit authority to delve into such areas as
    audits, collection, and procurement, which have been the
    subject of much of the abuse.
        Mr. Chairman, I thank you for holding the hearing and I
    look forward to working with you and, Mr. Secretary, also with
    you. I thank you.
        Senator Campbell. Thank you.
        Mr. Secretary, if you would like to proceed?

                          Statement of Secretary Rubin

        Secretary Rubin. Thank you very much, Mr. Chairman. Let me
    say that we are delighted to be here. Nancy Killefer is our
    Assistant Secretary for Management and Chief Financial Officer.
        As you said, we are requesting an appropriation of $12.3
    billion, which is an increase of 7.2 percent. But we have gone
    over this very carefully. It has been developed in a manner
    consistent with the administration's focus on fiscal discipline
    and getting to a surplus. Basically, the increase is necessary
    to maintain current operations by supporting mandatory cost
    increases as well as increased workload. We also feel it is
    extremely important to invest in critical capital improvements
    and important program enhancements.
        As you said, Mr. Chairman, Treasury plays a key role in an
    extraordinarily wide range of the core functions of Government,
    from tax collection, law enforcement, financial management, tax
    policy, banking policy, and very importantly, international
    economic policy, and domestic economic policy. We have focused
    very hard, with such a broad portfolio, on both the question of
    customer service and greater efficiency--that is to say,
    reducing the cost of what we do.
        Our budget was designed in a manner consistent with and
    pursuant to a Treasury strategic plan. We have performance
    plans for each of our missions. We have taken the GPRA, this
    planning requirement that had come from Congress, with great
    seriousness, and we have tried to conduct, and I believe have
    conducted it in a way that makes it not just a bureaucratic
    exercise but a living part of our thinking about Treasury today
    and in the years ahead.
        We have provided the committee with a detailed presentation
    of our 1999 request. I would like to, if I may, just focus on,
    or highlight I should say, four areas: departmental offices,
    the IRS, law enforcement, and then the area you mentioned, Mr.
    Chairman, the year 2000 issue.
        Let me start with departmental offices, if I may, because
    it is something that I think is very often overlooked in the
    budget discussion and yet is exceedingly important to the
    contribution the Treasury makes to the affairs of our country.
    Departmental offices contain policy groups that have
    experienced enormously increased challenges this year. Tax
    policy through regulation implementing the tax changes that
    were made last year in 1997--that is, the tax cuts, loophole
    closures, and simplifications. They have an enormously expanded
    workload as a consequence.
        International economic policy area is providing leadership
    not just for this country, but I think it would be fair to say
    in some fair measure for the world in dealing both with the
    immediate crisis in Asia, and I would say equally importantly
    with the question of modernizing the architecture of the global
    financial system.
        Economic policy, which is deeply involved in international
    areas as well, is very much focused on entitlement issues that
    the President raised, particularly Social Security, in the
    State of the Union Address.
        And law enforcement, which has both expanded policy
    objectives and also expanded oversight objectives.
        We also have in departmental offices our centralized
    management functions for the whole of Treasury, and we have had
    a very strongly enhanced focus on management at Treasury over
    the last few years. The consequence is an expanded workload
    focusing particularly on human resources and technology; this
    focus will not only maintain the excellence of Treasury now but
    create the Treasury of the future.
        In addition, our budget request has a 5-year restoration
    repair program for our historic building. The total cost is
    expected to be $130 million over 5 years. As you know from
    having visited our building, it is really a marvelous building.
    It is a historic gem. At the same time, it is one of those rare
    historic gems that is a good working building. But it is in
    desperate need of repair.
        Second, let me turn to the Internal Revenue Service which
    Senator Faircloth raised. I would say it was not longer than a
    month or two after I became Secretary of the Treasury that I
    became aware of--say 2, 3 months--of the serious problems at
    the IRS--in some measure, I might say, as a result of the work
    of this committee and your companion committee on the House
    side.

                                   IRS Reform

        Over the last 2\1/2\ years, Senator, we have been involved
    in a highly intensified focus on reform and change at the IRS.
    This has led to dramatic change in certain areas. Technology is
    on a different path, and I think now on a constructive path,
    though there is an enormous amount of work to do going forward.
    There has been increased electronic filing. There has been
    increased telephone access, and we have very substantially
    strengthened the taxpayer advocate.
        Perhaps as importantly as anything, we have brought in a
    new type of Commissioner, as you know. A man who instead of
    being a tax person, had been a CEO of a large private sector
    company and happens to also have very substantial computer
    expertise. You all have met with Charles Rossotti, who I must
    say, is off to an extremely good start.
        We have lost our Chief Information Officer, as you know,
    who made a tremendous contribution and we are very
    energetically involved in a search for a new CIO. Meanwhile,
    Charles Rossotti, who has great expertise in this area, is
    himself spending a lot of time on this.
        While a great deal, I believe, has been accomplished, there
    is also an enormous amount, far more to do I would say going
    forward than we have done in the past, although I do think this
    2\1/2\ years has been a period of really very substantial
    change and very important change. These problems took a long
    time to develop and they are going to take a long time to
    resolve.
        Our budget request includes a whole series of measures that
    we think will help move forward the reform of the IRS. Let me
    just mention a few, if I may. First, we asked for additional
    resources for customer service, including increasing and
    improving the quality of telephone access, the rewriting of
    notices and forms, expanding the taxpayer advocate staff, and
    implementing citizen advocacy panels.
        Second, our request would position the IRS to move forward
    with implementing the modernization blueprint. I do not think
    there is any question that modernizing technology is absolutely
    requisite to accomplishing improvements in customer service,
    efficiency, tax compliance, and financial reporting.
        On a broader front, as you all know, Commissioner Rossotti
    has a broad organizational concept for changing the structure
    of the IRS, and we requested funding to move forward with that.
    And I might add, it is a very constructive plan.
        Finally, our request includes important restoration funding
    for essential business line investments. What has basically
    happened is over the last couple of years we have deferred and
    reallocated what would have been our business line investment
    into the critical Y2K project. But the result is that our
    frontline people are using a tremendous amount of outmoded
    computer equipment. We believe that any good business that had
    diverted funds to these issues, they would provide money to
    replace that equipment. I will return to Y2K in just a moment.

                                Law Enforcement

        On the law enforcement side we have, as Mr. Chairman said,
    extensive and critical law enforcement responsibilities. We
    request an increase of 5.7 percent, or $172 million, to a total
    of $3.2 billion for law enforcement. That requested increase
    goes to meet mandatory cost increases and also to fund
    increased activities in dealing with narcotics trafficking,
    illegal firearms--including the youth crime gun interdiction
    initiative, a special program we have with respect to reducing
    trafficking of illegal firearms to young people--and then
    Presidential protection and improving White House security.
        There will also be increases with respect to fighting
    financial crime, particularly counterfeiting and money
    laundering, and for training law enforcement officers, which as
    you know, we do for most of the agencies in the Federal
    Government.
        Let me say, if I may, on law enforcement that we have
    enormous pride in both the quality and the esprit of our
    bureaus. I spend time on this on a regular basis, on an ongoing
    basis. We have been extremely supportive of our law enforcement
    bureaus at Treasury. For example, we have supported Secret
    Service's decision to enhance White House security, protected
    the ATF against strident attacks, and assisted all the bureaus
    in the securing of appropriate funding. At the present time, we
    are moving forward with initiatives on new threats with respect
    to counterfeiting.

                                   Year 2000

        Finally, let me say a word or two about the issue you
    raised, Mr. Chairman, and one that I do believe--I agree with
    you--is of pressing importance to our Nation, which is the
    question of Y2K. As you know, many computer systems only have
    two digits, the two zeroes, because that was the way of
    shortcutting with respect to programming, which was fine and
    dandy except we are now getting to the year 2000 and the two
    zeroes will come up as 1900, which is not optimal. The
    consequence is many computers will not be able to perform their
    functions.
        We are an agency with massive computer activities; the
    second most, I believe, in the Federal Government after the
    Department of Defense. Year 2000 compliance is an exceedingly
    high priority with us. I meet biweekly with our Assistant
    Secretary, and also with our highly respected Treasury CIO to
    track progress to try to identify problems.
        Our fiscal year 1999 budget includes $253 million to
    address the Y2K problem. We have also submitted a supplemental
    request for close to--I think the supplemental request is
    actually $250 million, and we have identified close to $200
    million, I think in the neighborhood of $175 million actually,
    that we currently see as needing for 1998, this year. We look
    forward to working with you very closely on the Y2K funding,
    and as I say it is absolutely critical that this get done, and
    tested, and implemented in time.
        In both the public sector and the private sector, the cost
    estimates and timelines on Y2K compliance have exceeded
    expectations. In order to make sure, or do everything we
    possibly can to make sure that we meet the challenges on time,
    what we are focusing on is our critical missions. It is an
    enormous challenge but we have made great progress. I think it
    would be fair to say that we are on schedule for almost
    everything. Not everything, but almost everything, with respect
    to our mission critical systems.
        Let me conclude on one personal note if I may, Mr.
    Chairman. When I became Secretary I went to dinner with a
    friend of mine who had been in two administrations at Treasury.
    What he said was that any Secretary will be faced with an
    enormous array of issues, including a multitude of policy
    issues and you have to decide what your priorities are. He said
    having served in the Treasury Department in two administrations
    that in his judgment your No. 1 priority should be continuing
    the excellence of a truly extraordinary institution.
        I think he was absolutely right. We have a terrific group
    of people at Treasury and we are trying to do everything that
    we can to make sure this continues to be an outstanding
    institution to serve the American people. We very much look
    forward to working with this committee, as we have had a very
    good working relationship with in the past, toward meeting this
    objective.
        Thank you very much. Ms. Killefer and I would be delighted
    to respond to anything you would like to ask us.

                               Prepared Statement

        Senator Campbell. Thank you very much, Mr. Secretary. We
    have your complete statement and it will be made part of the
    record.
        [The statement follows:]
                     Prepared Statement of Robert E. Rubin
        Mr. Chairman, members of the Committee, I appreciate the
    opportunity to testify on the Treasury Department's fiscal year 1999
    budget request. With me today is Nancy Killefer, our Assistant
    Secretary for Management and Chief Financial Officer.
        Treasury is requesting $12.3 billion in fiscal year 1999, an
    increase of 7.2 percent over fiscal year 1998. This increase is
    necessary to maintain current operations by supporting mandatory cost
    increases and meeting anticipated workload requirements in fiscal year
    1999; to invest in critical capital improvements for future
    efficiencies and program improvements and for addressing future
    workload growth; and to accomplish important program enhancements.
        Our request is critical to supporting Treasury's important and
    wide-ranging mission. The Treasury plays a key role in the core
    functions of government, including tax administration, revenue
    collection, law enforcement, financial management, tax policy, banking
    policy, international economic policy and domestic economic policy. As
    just a few examples, we fight narcotics trafficking and money
    laundering through Customs and other agencies, and manage the federal
    government's debt structure at the Bureau of Public Debt. We
    manufacture and protect the nation's currency, process the federal
    paychecks for millions of Americans, and help develop policies related
    to the budget, the nation's tax structure, international economic
    matters, and inner city economic development.
        With such a broad portfolio, we take very seriously the notion that
    we must continually seek new ways to improve services and lower costs.
    Towards meeting these purposes, our budget request supports Treasury's
    Strategic Plan and provides a performance plan for each of Treasury's
    primary missions and we, and I as Secretary, have worked to make GPRA
    not a required exercise, but rather a live, integral part of our
    thinking to improve how we fulfill our many missions. More broadly, we
    believe that we must not do anything that threatens the fiscal
    discipline so many have worked so hard to restore in this country, and
    which has been critical to the strong economic conditions of the past
    five years.
        We've already provided the Committee detailed presentation material
    on the extent of our fiscal year 1999 request. Let me now highlight
    four areas--Departmental offices, the IRS, law enforcement, and the
    year 2000 problem.
        First, let me discuss Departmental Offices. Departmental Offices
    contain the policy groups that are meeting greatly increased challenges
    in the current environment: tax policy, which is developing the
    regulations to implement the tax cuts, loophole closers and
    simplifications of last year's budget; international economic policy,
    which is providing leadership for the United States and the world in
    response to the short and long-term issues of financial instability in
    the global economy; economic policy, which is deeply involved in
    international economic issues, entitlement reform, and the economic
    initiatives in the President's budget; and law enforcement, which has
    expanded policy and oversight objectives. Departmental Offices also
    contain the central management functions for all of Treasury, and in
    furtherance of our very serious focus on management, human resources,
    and technology, these functions are being enhanced.
        In addition, our budget request includes funding for a five year
    restoration and repair program of the historic Treasury Department
    building. Part of this funding--which totals $130 million over five
    years--is needed for our ongoing restoration of areas damaged by the
    fire in 1994, and part is needed for general restoration. The Treasury
    building is one of the gems of our government, as well as being a
    workplace. It is important to maintain this historically significant
    and beautiful building for future generations.
        Second, let me turn to the Internal Revenue Service.
        Shortly after I first became Secretary, I became aware of serious
    problems at the IRS. In many cases, those problems came to my attention
    as a result of the work and diligence of this Committee. Over the last
    two and a half years we have been engaged in a highly intensified
    process of change and reform at the IRS that has led to dramatic change
    with respect to technology--though that is just the beginning of
    getting to where we need to go--increased electronic filing, improved
    telephone service and a greatly strengthened Taxpayer Advocate. Perhaps
    most importantly, and symbolizing our commitment to thoroughgoing
    change, we brought on board a new type of Commissioner, Charles
    Rossotti, who had extensive experience as a CEO in the private sector,
    with expertise in computer systems. And, let me just add, we are
    looking very hard to find a new CIO to replace Art Gross, who has done
    such an outstanding job in that position.
        However, while important steps have been taken, the great bulk of
    the challenges lie ahead. Just as these problems took a long time to
    develop, it is going to take a great deal of time and effort by all of
    us to build the kind of IRS that the taxpayers deserve. We are
    committed to working with you to accomplish that goal. Our budget
    request includes a series of items to advance this effort.
        First, our request includes additional resources to improve
    customer service, including increasing and improving the quality of
    telephone access, rewriting of notices and forms, expanding the
    Taxpayer Advocate staff, and implementing Citizen Advocacy Panels.
        Second, our request positions the IRS to move forward with
    implementing the Modernization Blueprint, which is absolutely a
    requisite to improvements in customer service, efficiency, tax
    compliance and financial reporting. On a broader front, the budget
    provides seed funding as the Service moves more fully to implement its
    new organizational concept.
        Finally, our request includes important restoration of funding for
    essential business-line investments. This funding has been deferred and
    reallocated over the past two years to address immediate Year 2000
    requirements, about which I will say a few words in a moment. However,
    significant needs still exist for these investments in order to replace
    critical items such as aging computer equipment for front-line
    examination personnel. This investment is essential to our goal of
    providing efficient compliance operations and effective service to
    taxpayers.
        Let me turn now to our budget request for Treasury's law
    enforcement activities.
        As this committee well knows, Treasury has extensive and critical
    law enforcement responsibilities executed by Customs, the Secret
    Service, Alcohol, Tobacco and Firearms, the IRS, FinCEN, and the
    Federal Law Enforcement Training Center. To strengthen these critical
    efforts, the President's fiscal year 1999 budget for Treasury law
    enforcement bureaus totals $3.204 billion, an increase of $172 million
    or 5.7 percent above last year. We need this increase to meet certain
    mandatory cost increases, and to enhance our activities in combating
    narcotics trafficking, reducing illegal firearms trafficking to young
    people, improving Presidential protection and White House security,
    investigating financial crimes, and training law enforcement officers.
        Mr. Chairman, we at Treasury have enormous pride in the quality and
    esprit of our law enforcement bureaus, and of the men and women who
    serve in them, often putting their lives on the line. I spend time on
    an on-going basis on law enforcement issues, and we at Treasury are
    committed to fully supporting the efforts by the law enforcement
    bureaus to do their jobs, as in the Secret Service decision to enhance
    White House security, ATF's reforms and its defense against strident
    attacks, and the securing of appropriate funding.
        Finally, Mr. Chairman, let me say a word about an issue of pressing
    importance to our nation and one on which we are keenly focused at
    Treasury: the Year 2000 date change problem. As you know, many computer
    systems rely on two digit dates as a result of a short cut computer
    programmers widely used until recently. The year 2000 would be entered
    as ``00'' but interpreted as ``1900.'' As a result, these computers
    will not be able to execute many required functions properly as of
    January 1, 2000. As an agency with massive computer system activities
    second only to the Defense Department in the Federal government, this
    issue is one of the highest priorities to us. I meet bi-weekly with
    Assistant Secretary Nancy Killefer and our highly respected Treasury
    CIO to track progress and focus on problems.
        Our fiscal year 1999 budget includes $253 million to address this
    problem at Treasury. Treasury's date change needs are also part of the
    Administration's fiscal year 1998 Supplemental Budget Request. We have
    identified close to $200 million in additional needs in the current
    year that must be funded if we are to complete the fixes in time, but
    the supplemental proposed by the Administration includes additional
    flexibility of up to $250 million in order to fund these requirements.
    To date, we have identified new requirements of approximately $175
    million that need to be addressed this fiscal year. We look forward to
    working together with the Committee in addressing these critical
    requirements.
        In both the private and public sectors, cost estimates and time
    lines on Y2K compliance have exceeded expectations. So that we can meet
    this challenge in time, Treasury is focussing on only those systems
    most critical to its mission. The challenge is enormous, but we have
    made significant progress thus far and continue to be on schedule for
    almost all our mission critical systems.
        Mr. Chairman, let me conclude on a personal note. Throughout my
    experience in government, which includes two years at the National
    Economic Council, and three years at Treasury, I have been continually
    impressed by the intelligence, professionalism and dedication of the
    people with whom I've had the opportunity to work.
        A Secretary of any Department faces a lot of challenges, including
    a multitude of policy issues, and has to make judgments about
    priorities. When I was first nominated to be Treasury Secretary I had
    dinner with a former Treasury official who had served with two
    administrations and who advised me that my highest priority should be
    to focus on maintaining and building on the excellence of this
    institution. He was absolutely right. We have been intensely focused on
    management issues in my tenure and it is in that spirit that I ask you
    to approve our budget request. Let me also say that I have been
    continually impressed by the capability, the professionalism, and the
    commitment of the people at Treasury and the Bureaus, and they deserve
    our support on their work to fulfill their wide range of
    responsibilities in serving the American people. I also feel that in my
    time at Treasury this Committee has made a major contribution to the
    management of Treasury through its constructive and knowledgeable
    analysis and review, and through its support for funding. Thank you
    very much and I look forward to working with all of you in the future
    as we face our challenges.

                                   Year 2000

        Senator Campbell. Ms. Killefer, do you have any additional
    comments?
        Ms. Killefer. No; I do not.
        Senator Campbell. Priorities, we have some around here too,
    as you know, Mr. Secretary. You talked at length about the Y2K
    problem. We are going to do our best, but clearly we have some
    limited resources too, as you know. I was going to ask you,
    between the Y2K and funding for the IRS modernization do you
    see the Y2K as a priority? I know they are somewhat hooked
    together.
        Secretary Rubin. That is a good question, Mr. Chairman. I
    think the problem that we have had is the problem that you are
    correctly raising. On the one hand, Y2K is imperative. We
    cannot come to the year 2000 and not have the IRS and FMS and
    the other parts of Treasury have computers that are
    ineffective. On the other hand, it is for exactly that reason
    that for the last 2 years we have not invested in upgrading
    equipment.
        I think what we have got to do, and we did--what the
    administration did--was to weigh all of our priorities and
    everything else. We did not request money for a lot of things
    we would love to do, but anything that you see in our request
    was a result of triage. It was a result of a lot of things
    dropping off the table.
        So I think we must have the Y2K money. But I also think we
    need to continue our modernization if we are going to have a
    modern IRS, and I think we have to replace this outmoded
    business equipment.
        Senator Campbell. What is the total estimated cost for the
    Y2K problem?
        Secretary Rubin. Overall? About $1.4 billion over 4 or 5
    years. And we have spent some of that already. We are expecting
    to spend about $600 million this year, if I remember correctly,
    and about $400 million next year.
        Senator Campbell. So is it your belief that we are on track
    to be able to complete all the necessary changes by January 1,
    2000?
        Secretary Rubin. Let me give you a first answer and let me
    ask Nancy Killefer to follow up, if I may. I think it is fair
    to say, though I think you really should get Nancy Killefer's
    comment on this, that we are on schedule with virtually
    everything. I think in FMS, the part of FMS that has to do with
    accounting--not payments, not Social Security checks or things
    of that sort, but intragovernmental accounting, I think that we
    are behind where we would like to be. Nancy.
        Ms. Killefer. That is correct. We do view ourselves on
    track for all our major mission critical systems, with the
    exception of the GOALS Program at FMS which deals with
    intragovernmental accounting. So it will not affect payments to
    the American citizen. Our concern in FMS, which is slightly
    behind where we would like them to be, is that we have
    prioritized the systems to deal first with those systems that
    affect the American citizen, to ensure that they get their
    Social Security payments on time, all of their payments. Those
    systems are actually well on track.
        Senator Campbell. It sounds like a really complicated
    system to me, so I assume you do not just turn on the switch on
    January 1, 2000. Is there a testing process that you have to go
    through?
        Ms. Killefer. Yes.
        Senator Campbell. And some way of measuring the mistakes,
    the normal discord you have from mistakes?
        Ms. Killefer. Absolutely. The systems are already being put
    in production and tested as we speak. Our desire for 1998 money
    is to ensure that we get all of the systems completed by the
    end of this fiscal year and are in a testing mode in 1999,
    correcting any problems before we go live in 2000. So we have
    test sites and contingency plans in place. You are exactly
    right, it is not an easy process.
        Senator Campbell. It is not an easy one to understand for
    me either. When you are testing--this is maybe off the subject
    a little bit--while you are testing you have the backup systems
    still in place that cross-check with the tests?
        Ms. Killefer. We actually have separate test sites, so that
    we are not testing on the production systems as they are
    working. We are testing in the same environment with which they
    work, but it does not affect our ongoing operations. One of the
    challenges will be bringing it all live so that we check every
    interface.

                         IRS Chief Information Officer

        Senator Campbell. Thank you. I am glad you did mention Mr.
    Rossotti. I met with him too, as Senator Kohl has, and Senator
    Faircloth has too, and I am impressed, to say the least, with
    his energy and his thoughtfulness and his determination to try
    and correct an awful lot of problems that we hear about from
    our own constituents. I just think he is a terrific addition to
    the IRS.
        In light of Arthur Gross' departure, I would think that the
    importance of not delaying the search for the prime contractor
    to fill his shoes is very important. How is that going?
        Secretary Rubin. There are two separate issues there I
    think, Mr. Chairman. One is getting his replacement, and we are
    very energetically involved in doing so. It is not an easy task
    but we are extremely focused. I can tell you that Commissioner
    Rossotti is extremely focused on it because right now he is
    doing a lot of that. He knows he wants to get the right person
    in there so he does not have to do it as much as he is doing
    it. So I can assure you we are focused on that.
        On the question of a prime contractor which is a slightly
    different question, I think our RFP has gone out--no, it is in
    draft form. Where do we stand on that?
        Ms. Killefer. It has gone out for comment. We have already
    received comments back from the two primes that they are able
    to respond, and we expect to have it out by the end of the
    month for them to then submit bids. So we are on track with
    that.
        Senator Campbell. My own personal view is that to get
    really top, qualified people in the IRS when they are taking
    such a beating nationwide is not an easy thing to do. I think a
    lot of people that would normally consider serving in a
    Government office would think twice about taking on that job.
        Secretary Rubin. You are right and yet I think there is--
    you are absolutely right on the one hand. On the other hand,
    this is a sort of two-sided coin. This is why Charles Rossotti
    came with us, because he saw something that had a lot of
    problems and he felt, and I think rightly felt, that he had a
    leadership at Treasury that was committed to change. And he
    said, here is an opportunity to really do something. We need to
    find somebody now to be CIO who has exactly the same feeling.
        Senator Campbell. If he makes the kind of changes and
    improvements that are necessary over there before he leaves we
    will have to talk to them about printing up a special medal for
    him.
        Secretary Rubin. We can put him on the dollar bill or
    something. [Laughter.]

                              IRS Customer Service

        Senator Campbell. The IRS is requesting $103 million for
    improved customer service based upon national performance
    review recommendations. Has the IRS begun implementation of any
    of those recommendations?
        Secretary Rubin. Yes, and I think with effect. The problem
    solving days have turned out to be very successful. I went to
    the first one, and it was very interesting. You see people
    there and they come and they meet with people from the IRS. It
    is really an opportunity to get access to people and get
    problems solved.
        Another thing that struck me about it, I think maybe that
    struck me most about it was the IRS people wanted to be of
    service. They felt good about being of service to the people
    who came. So I think that has been very successful. They have
    started now opening their offices, on March 6, for what 6 days
    a week now?
        Ms. Killefer. Actually, many of those things have been
    implemented. I had the opportunity to cochair that task force
    and we have implemented many of the changes. As you know,
    starting last Saturday, we opened the IRS offices on Saturdays.
    There are over 150 locations to help people prepare their
    forms, in order to get out in front of April 15. We have
    extended already the access to the telephone system to 6 days a
    week, 16 hours a day, and we are going to 24 hours a day
    beginning in 1999. We have started rewriting the notices. We
    have instituted problem solving days.
        We have banned measurements that we thought led to
    potentially unfair treatment of taxpayers.
        Senator Faircloth. I am sorry, you have banned what?
        Ms. Killefer. We have banned measurements that we thought
    were detrimental to our service to the taxpayers. We have and
    are launching this month a customer service survey that will be
    used as a measurement system to truly understand customer
    satisfaction.
        So there are an enormous number of the recommendations that
    are already being implemented. We do need additional funding to
    continue to support all of the many measures that I think will
    make a very meaningful difference to the American taxpayer.
        Secretary Rubin. Could I say one other thing, Mr. Chairman?
        Senator Campbell. Yes.
        Secretary Rubin. I think people are seeing the effect--we
    had dinner about 3 or 4 weeks ago with a group of Senators on a
    totally different subject; nothing to do with any of this. But
    we were sitting around having drinks before dinner--one drink
    each or something. But anyway, sitting around having drinks
    before dinner. [Laughter.]
        Senator Campbell. That is on the tape.
        Secretary Rubin. It was interesting. A number of them said
    that constituents had told them that there was a noticeable
    difference in the atmosphere at IRS offices. So I think this is
    not only doing exactly what Nancy just said, but I think it is
    starting to affect the culture and the way people behave.
        Senator Campbell. I commend you for that. I had an
    opportunity last year to visit the IRS office in Colorado
    Springs that had just been firebombed a few days before. I do
    not even know if they have caught that guy yet. He did leave
    some clues around there that the ATF got a hold of.
        Senator Faircloth. Was it a bad audit? [Laughter.]
        Senator Campbell. I do not know. To my knowledge, they have
    not caught him yet.
        Senator Faircloth. I thought you got an audit.
        Senator Campbell. I did get an audit, but I did not go to
    that extreme. I know that some people are just at their wits
    ends and literally take up arms against the IRS. If we can make
    an improvement to try to make sure people feel they are being
    treated fairly, I think that they would rather come to us and
    talk to us about it than just getting the fire out and going
    straight to the IRS at nighttime.

          Interface Between International Affairs and Law Enforcement

        Mr. Secretary, most, if not all the Treasury law
    enforcement bureaus are impacted by events that are really in
    an international arena. The counterfeiting of money is an
    example, and international drug trade and so on. Is there any
    overlap or formal cooperation internally of the Treasury law
    enforcement bureaus and the international affairs division of
    Treasury?
        Secretary Rubin. Yes; I would say it is both formal and
    informal. It is informal in the sense that everything reports
    into the Deputy Secretary and myself, so we will bring people
    together as needed on issues. But it has also been formalized
    in quite a number of areas. For example, there are very
    important issues with respect to the application of sanctions.
    OFAC applies sanctions against terrorist groups, narcotics
    groups, and the like. They now review their activities with
    people from the international area because there are
    overlapping concerns, as you correctly say.
        On sanctions policy for the administration there is now an
    interagency process. But within Treasury we have an intraoffice
    process, if you will, that meets on a regular basis. Areas like
    money laundering and counterfeiting, which are both law
    enforcement and international. There is a great deal of
    formalized interface. So the answer is yes.

                        Renovation of Treasury Building

        Senator Campbell. You talked about the importance of $16.5
    million for renovation and modernization of the main Treasury
    Building. Is that the total estimated cost, and what is the
    completion date if we can fund that?
        Secretary Rubin. The total estimated cost at this time is
    about $130 million. When is the completion?
        Ms. Killefer. It is a 5-year program.
        Senator Campbell. Thank you.
        Senator Kohl, do you have some comments or questions?
        Senator Kohl. Thank you, Mr. Chairman.

                                      IMF

        Secretary Rubin, as we understand it, the U.S.
    participation in the IMF does not increase the Federal budget.
    Our current core contribution to the IMF now totals
    approximately $36 billion and the administration is asking that
    we increase that contribution by approximately $15 billion
    more. That would be $50 billion committed to IMF's core
    funding.
        Now many people perceive this money to be another form of
    foreign aid. We may say it is still ours, but I and others say
    that we will probably never see that money again. So can you
    explain in simple terms how this works?
        Secretary Rubin. Sure. Let me start by saying, Senator,
    that I think it is imperative that we do it and we do it
    quickly. We live in a very dangerous world right now. Hopefully
    it is a world that will not--hopefully it is a world in which
    we will work our way through the Asia crisis, and other things
    will not ignite, and a reasonable degree of stability will
    remain. But there is a risk. I think a low probability risk,
    but a risk.
        Senator Faircloth has heard Chairman Greenspan and me
    address this in another committee. He said the exact same
    comment I have. Low probability, but nevertheless there is
    always risk that the kind of thing that we have seen happen in
    Asia could expand out and envelop developing countries around
    the world. If that happened, that could have severe impacts on
    us, on our economy, our workers, our businesses, and our
    farmers.
        The IMF is badly underfunded right now. So every day that
    it goes on being underfunded we do not have the capacity to
    deal with that problem, should it develop. The consequence is,
    we believe it is imperative to get funding and get it now.
        In terms of your direct question, what we do is we--we are
    asking for, as you correctly said, another $14.5 billion of
    what is called quota money. What happens is, it is a
    commitment. If the IMF draws it down, then without going
    through all the technicalities, the bottom line of it is that
    we put up cash at the IMF and we get back a claim against the
    IMF. And the IMF is a rock, solid credit.
        The Congressional Budget Office will score that at zero
    effect. So there is no effect on the deficit. It is a little
    bit like a credit union or a bank. When the IMF is finished
    using that money, our commitment remains. Think of it as a line
    of credit in a sense from a bank. Maybe that is the way to
    think about it. When the IMF is finished using it, they will
    give us the money back but they still have the right to take it
    down from us again.
        If we want to cancel that right, if we actually want the
    money back permanently, we have the right to say we need it for
    balance--we can get it back. We have the absolute right to get
    it back. But what we have to do is say we need it for balance
    of payments purposes, in which case it is then ours again, not
    theirs.
        Senator Kohl. I understand. But in reality, is it not fair
    to say that the money that we contribute to the IMF is money
    that we are not likely to ever see again?
        Secretary Rubin. No; I do not think I would agree with that
    actually. I think my reaction would be slightly different. I
    presume what we will do is make a practical judgment as time
    goes on what best serves our economic and national security
    interests. Unlike foreign aid, once you have given foreign aid
    to a country, it is gone.
        Senator Kohl. Legally gone.
        Secretary Rubin. You cannot get it back. You have not
    loaned it to them. You have given it to them.
        Senator Kohl. Right.
        Secretary Rubin. This is a situation where we, in effect,
    have loaned it to the IMF or put it on deposit, if you will,
    and we can get it back as long as we assert--and there is
    nobody who has a right to overrule our assertion--as long as we
    assert that we need it for balance of payment purposes. So 5
    years from now, or 10 years from now, or whatever, if the U.S.
    Government decides it wants the money back, unlike foreign aid,
    it just says we need it for balance of payments purposes and
    they get it back.
        Senator Campbell. Senator, would you yield just for one
    comment?
        Senator Kohl. Yes, go ahead.
        Senator Campbell. You talked about risk. Let me tell you,
    we face some risk too. When you go home and tell constituents
    that you want to increase America's share of the IMF and they
    read every day in the paper stories like the President of
    Indonesia, Suharto, who they say is worth $40 billion whose
    whole government is just rife with nepotism and cronyism and
    literally everything else, and they know many times in our past
    history, whether it was Bautista, or Rhee, or Peron or whoever,
    so much money has been siphoned off to put in Swiss bank
    accounts, believe me it is a hard sell at home. You should
    understand that.
        Secretary Rubin. Senator, I totally relate to that. I do
    understand it. Let me say, as far as I am concerned, I do
    understand that and I think that is what makes it such a
    difficult issue in this body. And our judgment is a judgment
    based on only one thing and one thing only, and it is what
    Chairman Greenspan and I have testified to now before a number
    of committees. That is our economic interest. That is the
    sole--and our national security interest. Our economic and
    national security interest.
        But this is one of those very difficult things, politically
    difficult, but I think economically imperative.
        Senator Campbell. Thank you, Senator.
        Secretary Rubin. Could I just add one other thing, if I
    may, Senator? What you said is absolutely right. On the other
    hand, it is interesting, we have had the Farm Bureau strongly
    supporting what we are doing and very actively supporting us.
    The Business Roundtable is very actively supporting us, the
    Chamber of Commerce is very actively supporting us, the
    National Association of Manufacturers is very actively
    supporting us. These are not groups that have automatically
    supported this administration on all of our initiatives. But
    they are all not only----
        Senator Campbell. I think they understand that the ripple
    effect of lost exports to that country could be in the long
    term more detrimental than putting the money in the IMF. I
    understand that, too. But to talk to the average person on the
    street in your hometowns, they have real problems.
        Secretary Rubin. You are right. It is a difficult issue.
        Senator Campbell. Senator Kohl.
        Senator Kohl. Just to go on in connection with that. We
    have heard that there is criticism that the IMF should focus
    more on being an effective force in working with countries that
    receive credit to ensure that they are aware of steps that they
    must take to demonstrate political and economic progress. Is
    this a role that you believe the IMF should focus more
    resources on?
        Secretary Rubin. Let me divide it in three pieces, if I
    may, Senator. It is obviously a very important question. I
    think that for all kinds of reasons, political pluralism, human
    rights, and similar kinds of issues are issues that we should
    pursue. They are our traditional values as a country.
        There was a little piece in the Washington Post today about
    Thailand. It was very interesting. They quoted the new Prime
    Minister of Thailand as saying that because he has a democracy
    it was easier, or they could more readily adopt the kind of
    reforms they need to come back. I do believe that democracy,
    over the long term at least, is a better form of government
    economically. That is in the interest of these countries and
    also in our interest. So I think that we should pursue these
    objectives in all possible fora.
        Now having said that, in the programs that are designed to
    deal with financial instability that take place in a time of
    crisis and where wrenching changes have to be made very
    quickly, there are practical limits on how much you can do--
    these are extremely difficult to get done. I have now lived
    through a few of them. They are very difficult to get done.
        I think that in those kinds of programs what you need to
    do, at least I think, is to limit yourself, or the IMF needs to
    limit itself I should say, to the reforms that will help
    reestablish financial stability and confidence, because that
    itself requires wrenching change and is extremely difficult to
    do. But I think we need to pursue these other objectives in all
    ways that are practical.
        Now in these reform programs there are very often measures
    that do address some of what you are talking about.
        Senator Kohl. All right. What do you think, Mr. Secretary,
    of establishing a formal IMF advisory committee that would
    oversee IMF lending decisions?
        Secretary Rubin. If you mean oversee them in the sense of
    before they are made, I think that that is probably not
    practical. These decisions tend to get made in a very short
    period of time. In the case of Korea I think it would be fair
    to say that there were three or four critical days, and if the
    IMF and the international community had not moved with
    dispatch, that there was a very realistic chance that the
    banking sector in Korea might have been in default with untold
    possible consequences for our country because of the possible
    ripple effects and so forth.
        If you are talking about some sort of a review process, I
    think those are the kind of things that are realistic and worth
    considering.

                                 Budget Surplus

        Senator Kohl. Mr. Secretary, there has been a lot of
    discussion on the budget surplus. It is my understanding that
    the Federal Government as we know will spend over $1.7 trillion
    in 1999 and yet our revenues will exceed the outlays. Do you
    believe we are entering into a new era of surplus which will be
    longlasting? Are you concerned about whether that, in fact, is
    a conversation that will not become reality? And if we do have
    surplus, what should we be doing with our surplus?
        Secretary Rubin. It is obviously a very important question
    you raise. The Office of Management and Budget and the CBO both
    project surpluses that go on for a long time. And I know in the
    case of OMB because I was involved in it, the assumptions are,
    I think it would be fair to say, quite conservative.
        Senator Kohl. Let me just ask this question.
        Secretary Rubin. But I must say, life----
        Senator Kohl. Just a couple years ago we were seeing
    deficits as far as the eye can see. What has changed?
        Secretary Rubin. One thing certainly changed. In 1993, you
    had a powerful debt reduction program put in place that had I
    think--not I think, it did have very dramatic effects. That in
    turn spurred a recovery. Then the recovery reduced the deficit
    further. You had a healthy interaction between deficit
    reduction policy and a strong economy. That I think has really
    dramatically changed the fiscal position of the United States
    and economic conditions in this country. And I think as a
    consequence we are for the first time in a long, long time a
    nation with its economic house in order.
        Having said that, going forward all that I said about these
    conservative assumptions notwithstanding, your point is also
    correct, or at least the implicit point, which is life
    sometimes has some surprises and can take turns one had not
    expected. So I think one needs to be very prudent about how one
    thinks about this surplus. I think the President had it exactly
    right. By addressing Social Security we are dealing with the
    long-term fiscal position of the country, and I think his idea
    of not doing anything with this surplus until we address Social
    Security is a fiscally sound thing to do in an uncertain world.

                                    Tax Code

        Senator Kohl. Mr. Secretary, some people say we should
    sunset the IRS, or that we should replace the income tax with a
    sales tax, or perhaps we should go to a simplified flat tax.
    Mr. Secretary, what do you think about these proposals? How do
    you respond when people say that we should eliminate the IRS or
    that we can eliminate income taxes?
        Secretary Rubin. You could eliminate income taxes but you
    are still going to have some expenditures. So I think you need
    some revenues. I did not go to business school, but I sort of
    picked this stuff up when I was on Wall Street. [Laughter.]
        Senator Kohl. I just want to make the point that some of
    those people who talk about eliminating the IRS, eliminating
    income taxes then do not say what you just said.
        Secretary Rubin. I will give you a more serious answer. I
    think that the idea of sunsetting--I have said this before and
    probably I will say it again--I think the idea of sunsetting
    the Tax Code without having a fully developed alternative that
    you can evaluate is a genuinely terrible idea. Because I think
    the problem is that if you ever enacted such a thing, you
    create an uncertainty that could undermine our economy.
        If you do not know what a house is worth because you do not
    know whether the mortgage interest is deductible--I know you
    are very involved with business, Senator. If you do not know
    how to evaluate investment because you do not know how
    depreciation is going to be treated, it seems to me the
    uncertainty could truly undermine our economy. So I think it is
    a genuinely terrible idea.
        Senator Kohl. So you would say some of the discussion I
    have heard in the House about taking a vote to sunset the IRS
    in and of itself, standing all by itself, is ludicrous?
        Secretary Rubin. Sunsetting the Tax Code I think is
    ludicrous. Not ludicrous, I just think that it--yes, it is in
    the neighborhood of ludicrous. It is in that neighborhood, I
    think. If you get rid of the IRS you are going to have to have
    somebody else perform that--if you are talking about the IRS as
    an administrative unit, then you have to eliminate that IRS and
    immediately create a new IRS to enforce the Tax Code. So I do
    not think that that is a particularly practical idea.

                                IRS Collections

        Senator Kohl. Mr. Secretary, it is my understanding that
    the IRS is losing the potential to collect hundreds of millions
    of dollars in overdue taxes due to the problems in determining
    which accounts are collectible and which are not collectible.
    What action is the IRS taking to develop information on
    written-off accounts to determine whether cost-effective
    collection measures can be developed and applied?
        Secretary Rubin. We have a 10-year writeoff rule if I
    remember correctly.
        Ms. Killefer. Yes; that is correct.
        Secretary Rubin. I am not quite sure what that question
    goes to. There are a lot of questions about collection. For
    example, Commissioner Rossotti feels that the IRS should move
    more quickly on collections than it does today, and that it
    will get a higher collection--a better result in terms of
    collections as a consequence. But beyond that--Nancy?
        Ms. Killefer. A couple of things. I am not quite sure of
    the ramifications of all your questions. In looking at business
    practices at the IRS I think it is very clear to the
    Commissioner, and I would agree with that, that many of them,
    in addition to our technology, need to be modernized.
    Collections is clearly an area--my background is all in the
    private sector--that suggests that we need to make some major
    changes.
        Private sector collection practices specialize in getting
    to the delinquent person very early in the process--literally
    within the first 60 days--and dealing with them. They tend to
    come in three groups: the people that want to pay that just
    have to figure it out and are able to pay, the people that also
    want to pay but are unable to financially and you work out a
    payment system with them, and the people that will not pay and
    those you use enforcement activities on.
        We believe very strongly that the IRS needs to modernize
    its collection processes today. We do not get tax debts until
    they are virtually 180 days old, which is not the time to be
    dealing with them. It is going to take systems modernization to
    get those records earlier in the process. So really it is a
    very long term change. But I do think collection practices need
    to be modernized.
        In addition, you may be referring to a couple of programs
    now that deal with taxpayers who want to pay but are
    financially unable. One is called the Offers in Compromise
    Program, and then there is an appeal program. We are actually
    looking at the Offers in Compromise Program now. There are two
    study groups working on improving it, and the Commissioner is
    part of that. The appeals process has actually been a very
    successful program at the IRS.
        Senator Kohl. That is good. Thank you.
        Thank you, Mr. Chairman.

                                      IMF

        Senator Campbell. Before I ask Senator Faircloth, there was
    one thing that came across my mind when you were talking about
    the IMF, and that is how much we actually pay into the IMF
    fund. What is our contribution to the IMF?
        Secretary Rubin. As a percentage?
        Senator Campbell. As a percentage and a dollar amount?
        Secretary Rubin. I think Senator Kohl had it right, we have
    $36 billion of commitment of which about $18 billion has been
    drawn down and $18 billion is----
        Senator Campbell. $36 billion commitment?
        Secretary Rubin. Yes; of which $18 billion has been drawn
    down.
        Senator Campbell. How often?
        Senator Kohl. That is total.
        Secretary Rubin. It gets drawn down as needed. The last
    time you actually increased the commitment, which may be what
    you are driving at, was in 1992. As was true then, so is true
    now, the rest of the world was ready to go. We were the only
    ones who were holding back. When Congress approved the increase
    in 1992, the rest of the world completed their approval
    process, I think, within 6 days.
        Senator Campbell. Is our commitment the largest of any of
    the contributors to the IMF?
        Secretary Rubin. Sure. We also have the largest economy. We
    have about 18 percent of the votes and we put up about 22
    percent of the money, which just so happens is about our
    percentage of world GDP.
        Senator Campbell. Thank you.
        Senator Faircloth.
        Secretary Rubin. Which does internationalize the burden,
    because it means the rest of the world has put up 78 percent or
    thereabouts. I may be off by a percent or two.
        Senator Faircloth. Thank you, Mr. Chairman.

                                    Tax Code

        Mr. Secretary, I do want to give praise in bringing Mr.
    Rossotti and being able to bring that type of man into the
    Internal Revenue Service. He is, as you mentioned or you
    alluded to, his expertise is running a major corporation. Not
    only he ran it, he put it together and made it run, and it is
    in electronic data processing. So he sounds like exactly what
    we need.
        Ms. Killefer, are you with the IRS?
        Ms. Killefer. No; I am not, sir. I am the Assistant
    Secretary for Management with Treasury, but I do work closely
    with Commissioner Rossotti.
        Senator Faircloth. We hear over and over, the biggest
    complaints we get in the office are private citizens and IRS
    problems. Some of them--I have held a couple of hearings and
    people come that are just appalling stuff. You could not
    believe it, but yet it proves to be true in many cases.
        I must say that I have been in business all of my life
    since I was 18 and have had many, many audits by the IRS and
    have all been very satisfactory. I have never felt abused or
    put upon or anything else. But I see these people come in. And
    the thing that really bothers me, they are usually very small
    taxpayers. In fact we have never had what I would consider a
    major taxpayer that had a competent auditing firm call us or
    bother us. It is always a mom-and-pop type thing, and usually
    the amounts involved are just not that much money.
        You said to sunset the code is a mistake. And we all know
    that income has ultimately got to meet outgo, so we have to
    collect the taxes. But what happens to the boondoggle of 17,000
    stacked up pages, the incomprehensible code that we have today?
        Now I think anybody would know that that is as bad as--what
    do you do? How do you get rid of 15,000 of those pages?
        Secretary Rubin. Let me try and take it in two pieces, if I
    may, because you said something that I think, Senator, we very
    strongly identify with. So let me, if I may just comment on
    that. I think you correctly have a concern about the people who
    have been abused or have not been treated properly by the IRS,
    something we very much agree with. I think as much as any of us
    agree, Commissioner Rossotti agrees even more, and his
    commitment is to try to change that.
        One of the things that he is doing is putting in place a
    program--his reorganization plan involves having a unit that
    will deal with small business. In addition, the NPR made some
    similar, or the NPR/Treasury/IRS Customer Service Task Force
    made some similar suggestions of having special capabilities to
    deal with the problems of small business. So I think your point
    is well taken.
        But the code is overcomplicated. We have tried to--not
    tried to, we have introduced and then had enacted a number of
    simplifications as we have gone along. But it is still too
    complicated and I think all of us need to focus on
    simplification every way we can. I think we can have good
    debates about different simplification measures, whether we
    should do them or not do them.
        But what I was saying was that having a debate on a
    simplification measure, or even debating the progressive tax
    system versus the flat tax--I do not happen to think flat tax
    is a good idea. But that is a legitimate debate it seems to me
    reasonable people can have, and Congress can decide one way or
    the other. All I was saying was that to simply do away with the
    code and not have a fully developed alternative seems to me to
    have enormously serious and negative implications.
        Senator Faircloth. We have to collect taxes, and if the
    code is called the law--there is nobody foolish enough to think
    that----
        But I am still saying that the 17,000 pages, how do we
    simplify it to a process that most citizens, or the intelligent
    people can understand it? As it is today even CPA's do not
    understand it.
        Secretary Rubin. You are right. It got complicated because
    an awful lot of people wanted to accomplish an awful lot of
    economic, social, and other purposes. I think that the only way
    it is going to get simplified is if Congress and the
    administration work together on trying to reduce its
    complexity. As I said, we had something like--I apologize for
    not remembering the number, Senator, but something like 40 or
    45 or 50 simplification measures that were enacted in 1997,
    some of which were quite meaningful. Some of them were
    relatively small. And we continue working along those lines.
        But we do have a complex economy and a complex society, and
    that is reflected in our Tax Code. But I totally agree with
    you. I think we should work toward simplification, but I think
    that, as I said a moment ago, I think sunsetting is, for the
    reasons I said, a very undesirable idea.
        Senator Faircloth. If the Congress simplifies anything, the
    leopard will have shed his spots.
        Secretary Rubin. The what?
        Senator Faircloth. If the Congress simplifies anything, the
    leopard will have shed his spots, because simplification is not
    what we usually do.
        Secretary Rubin. I think there is a bit of truth to that,
    but that is part of the problem. Both Congress and the
    administration have--not necessarily this administration, all
    administrations have a lot of problems as they try to simplify
    the Tax Code. But I agree with you, I think simplification is a
    very important objective.
        I might add, I do think, Senator, that there are measures
    that one could take that could make this Tax Code simpler for
    the great preponderance of people, the people of relatively
    simple economic situations, and I think that is something we
    can all work on. For example, last year we made profits on
    homes not subject to tax if they were under $500,000. That
    actually makes a difference for a lot of people.

                                      IMF

        Senator Faircloth. I was being a little flippant, but
    usually when we get into it it gets more complex rather than
    simpler.
        The IMF problem that bothers me, the core of the problem is
    this. In the new arrangement for borrowing, the use of the
    stabilization fund, is it not inevitable that we are
    encouraging high-risk loans, high-interest loans around the
    world? Now we have all seen the buildings that were built in
    Asia that were not needed, that were not financially feasible.
    They just built a building. No. 1, as a monument to the
    building or the financier, because his building was higher than
    somebody else's building. And the propensity of international
    bankers to lend pretty freely; very freely.
        We have seen all sorts of harebrained projects throughout
    the world, but now we are looking at them in Asia. The
    International Monetary Fund, by whatever method it does it, is
    bailing these banks out. It props up the country, it props up
    the economy. One way or another, the money is funneled back to
    stabilize a loan that should never have been made. That is what
    bothers me about the monetary fund.
        Would you comment on what I said, or is it totally wrong?
        Secretary Rubin. No; I do not think it is totally wrong.
    You and I have discussed this before. I think it is a
    legitimate and serious concern. It is one that, as you know, we
    share. I think the problem that we have, as we have discussed
    before, Senator, is that the kind of financial instability that
    we are now trying to deal with in Asia--and that is an
    extremely complicated, difficult situation that, although some
    countries are on better footing than they were, is still a very
    complex situation with a lot of work lying ahead and a fair bit
    of uncertainty.
        These situations create an enormous threat to our economic
    well-being. It is because of that that we have the view, and
    Chairman Greenspan and I have testified on a number of
    occasions that our view is that, while what you say is a
    serious concern and a byproduct of these programs, what we need
    to do is to work to restore financial stability, strengthen the
    IMF so that we can do that and at the same time, try to improve
    the architecture so that in the longer run we can deal with
    this problem. I think that is the answer.
        Now having said that, in Asia--and I think I take some
    comfort from this and I suggest you might as well--there have
    been and will be enormous losses by creditors. Creditors and
    investors have been very badly hurt in Asia, and I think that
    is actually a salutary effect. I also think, and I have spoken
    to a lot of people in the international banking world, and
    Chairman Greenspan said the same thing in an open hearing, I do
    not think that bankers have been influenced in their judgments
    by an expectation that the IMF would be available to provide
    support if trouble developed.
        I think there was overlending. But I think what happened is
    what you always see in markets, or virtually always, which is
    markets tend to go to extremes. I think as the years went on
    and people were doing well, they started to forget about risk.
        So do I think we need to deal with the problem that you
    have raised? Yes; but do I think that we have an overwhelming
    imperative to have a strong IMF that can protect our interests
    while we are trying to improve the architecture to deal with
    this problem better? The answer would also be yes.
        Senator Faircloth. What was that word that I know we
    discussed at one time, moral?
        Secretary Rubin. Moral hazard. That is precisely the issue.
    We agree.

                              IMF Proposed Reforms

        Senator Faircloth. There is much talk we are hearing in the
    Congress about reforming the--reforms, imposing reforms and
    constraints on the IMF. Has the Treasury come up with any
    proposed reforms of IMF?
        Secretary Rubin. We have not formally submitted proposed
    reforms. Let me say, there are two types of reforms that are
    being discussed. One are reforms of the IMF. We have been
    working with members in both parties and in both houses on----
        Senator Faircloth. I know Chuck Hagel is----
        Secretary Rubin. Exactly, precisely. We have been working
    with Senator Hagel. He has taken the lead in it. We have been
    trying to help as he has worked his way through this.
        There is another set of reforms which are, I think in a
    larger sense maybe even more significant. In fact, I do think
    they are more significant, which are the changes that need to
    be made in the architecture of the international financial
    system. Those are going to take longer to put in place.
        But they all revolve around the same kinds of things:
    greater transparency and disclosure, which can be helpful in
    preventing crises and can be helpful in terms of providing
    public awareness of how the IMF functions; mechanisms that
    relate to the problem you just mentioned, which is how do we
    bring the private sector in more so they bear as fully as
    possible the consequences of their actions; reforms that go to
    the question that Senator Kohl raised of what the content of
    these programs are, although I think we have to recognize the
    realistic limitations on that. Those are the kinds of things
    that we are talking about.
        Senator Faircloth. Thank you, Mr. Secretary.
        Secretary Rubin. Thank you, Senator.
        Senator Campbell. Do you have anything further?
        Senator Kohl. No.
        Senator Campbell. I think we are done grilling you for the
    morning, Mr. Secretary. We certainly appreciate you being here
    and wish you the best.
        Secretary Rubin. Thank you, Mr. Chairman. We look forward
    to working with you.

                              Submitted Questions

        Senator Campbell. Mr. Secretary, we have additional
    questions for the Department and we would ask that you respond
    as quickly as possible.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]
                    Questions Submitted by Senator Campbell
                        fiscal year 1999 budget request
        Question. Mr. Secretary, Treasury has two distinct functions--
    fiscal management and law enforcement. How do you balance the needs of
    these two functions?
        Answer. These functions are equally important within the Department
    as is demonstrated by the equal under secretary capacity they both hold
    within the Department. Treasury, in both its program direction and in
    resource allocation, looks carefully at the individual issues all
    across the Department in an effort to direct proper attention to all
    essential functions. At any particular time, it may appear that one
    area has more attention than another, however, over time, all areas are
    balanced as part of the senior policy deliberations in the Department.
        Mr. Secretary performance goals for the Department have been
    included with the budget request for the past three years. In some
    cases, the Department has done very well in reaching stated goals.
    Sometimes though the agency just doesn't quite make it.
        Question. Based on your experience of the past three years, what
    lessons has the Department learned about setting realistic goals? How
    does the Department develop performance goals for agencies who are
    totally dependent on others to reach those goals?
        Answer. As you point out, Treasury has made a serious and sustained
    effort to base its resource requests on quantitative performance goals,
    to manage to achieve those goals, and to report on achievements to
    Congress and the public. This has been a difficult process for our
    programs. In many cases, we have struggled to identify appropriate
    performance measures for programs where results are inherently
    difficult to measure. However, we are committed to continuing to use
    performance measures to manage our programs because of their great
    promise to help us achieve the best possible mission results.
        Once measures have been identified, goal achievement has often been
    impacted by unpredictable changes in external factors (e.g. shifts in
    demand, crises such as terrorist incidents which affect priorities). As
    we gain more experience with measurement, our ability to forecast and
    set realistic, but challenging, targets will continue to improve.
    However, there clearly will always be some limits to our ability to set
    the right goals.
        Question. Mr. Secretary, what is the status of the search for a new
    Treasury Inspector General? Are you looking for an auditing or law
    enforcement background in your search for a new I.G.?
        Answer. The IG is appointed by the President and confirmed by the
    Senate. We are looking for the best qualified candidate consistent with
    the statutory obligations of the office, particularly, as it relates to
    investigations and financial audits. We are moving on a expedited
    basis.
        Question. Although Secretary Albright's report is not due to
    Congress until later this month, I would be interested to know the
    current status of your participation in this task force. Are there any
    preliminary thoughts you wish to share on what the Justice Department
    can do to help countries reduce and prevent crime?
        Answer. Although The Department of Treasury cannot address
    Department of Justice efforts in the international crime realm,
    Treasury's law enforcement bureaus--including the Bureau of Alcohol,
    Tobacco, and Firearms (ATF); the Customs Service; the Internal Revenue
    Service (IRS); the Secret Service; the Financial Crimes Enforcement
    Network (FinCEN), and the Federal Law Enforcement Training Center
    (FLETC)--have numerous initiatives to help other nations prevent and
    combat crime in their societies that may impact U.S. citizens, our
    economy, and institutions.
        Treasury's law enforcement personnel stationed abroad work closely
    with their foreign counterparts to pursue violations involving trade;
    smuggling of contraband such as drugs, alcohol, tobacco, firearms,
    stolen vehicles, wildlife, and child pornography; and financial crimes
    including money laundering, counterfeiting, and electronic access
    device schemes. Treasury currently has 115 agents stationed in foreign
    countries. In fiscal years 1996-1997, the Customs Service handled more
    than 5,664 international cases, the Secret Service closed over 3,200
    cases abroad, and the Internal Revenue Service's Criminal Investigation
    Division (CID) handled more than 230 foreign cases.
        Treasury has implemented extensive bilateral training programs for
    foreign counterparts to improve their abilities to collect, analyze,
    and share financial and other law enforcement information. Treasury has
    taken the lead in creating a new International Law Enforcement Academy
    (ILEA) for Latin America. The ILEA promotes regional cooperation
    against crime and forges valuable working relationships between U.S.
    and overseas law enforcement officers. U.S. and foreign law enforcement
    officers utilize techniques learned at the academy and participate in
    investigations leading to the dismantling of organized crime
    syndicates. Treasury law enforcement bureaus are also active
    participants in the training provided to eastern European countries at
    the ILEA in Budapest, Hungary. For example, agents from the IRS's CID
    present instruction covering basic financial investigative techniques
    designed to provide the students with an understanding and appreciation
    of financial crimes.
        By strengthening its presence abroad and establishing domestic and
    foreign programs, the U.S. Secret Service is a forerunner in combating
    counterfeiting, advance fee and credit card fraud, and other financial
    crimes that cost consumers, financial institutions, and governments
    billions of dollars each year.
        IRS's CID continues to emphasize State Department initiatives under
    the Freedom Support Act (FSA) and the Support for Eastern European
    Democracies (SEED). Emphasis is also placed on South and Central
    American countries as well as Caribbean nations. These areas represent
    CID's primary international concern because they are areas that most
    impact the U.S. in financial crime matters, including money laundering
    and other financial crimes.
        Another example of the Treasury Department's strategic goal of
    fighting crime and violence internationally is the role ATF plays in
    support of the Office of National Drug Control Policy (ONDCP) in its
    international war on drugs. ATF participates in ONDCP projects such as
    Achilles and Gang Resistance Education and Training (GREAT) and with
    both the High Intensity Drug Trafficking Area (HIDTA) and Organized
    Crime Drug Enforcement Task Force (OCDETF) enforcement efforts. Beyond
    OCDETF support, ATF's International Response Team directly responds to
    international bombing incidents and provides training to international
    law enforcement officers on post-blast and improvised explosives
    investigative techniques. ATF's International Trafficking in Arms
    (ITAR) expertise is of interest in United Nations and Organization of
    American States negotiations to curb the illegal manufacture and
    trafficking of arms, as is ATF's training of international
    investigators on firearms identification and tracing. Additionally, in
    the strategy of prevention of criminal exploitation of international
    trade, ATF works with the Office of the United States Trade
    Representative and through oversight of the regulated industries to
    prevent illegal diversion of regulated commodities (e.g., beverage
    alcohol and firearms).
        Another component of prevention is coordination between federal
    agencies and private sector organizations that operate overseas. For
    example, the Customs Service has implemented two industry partnership
    programs--the Carrier Initiative Program (CIP) and the Business Anti-
    Smuggling Coalition (BASC) that involve foreign and domestic importing,
    manufacturing, distribution, and carrier communities in anti-drug
    efforts. These and other programs, such as the Americas Counter
    Smuggling Initiative, have strengthened cooperative efforts with the
    international trade community, increased awareness of contraband
    trafficking in the commercial environment, and disrupted internal
    conspiracies.
        Treasury is actively engaged in negotiating with other governments
    to eliminate financial safe havens. These cooperative efforts include
    providing assistance in drafting money laundering laws and regulations,
    assisting in the establishment of anti-money laundering institutions,
    and providing training in civil and criminal financial crimes
    enforcement.
        With Treasury's support, for instance, Mexico has enacted anti-
    money laundering regulations that impose large currency transaction and
    suspicious activity reporting requirements on Mexican financial
    institutions. Treasury has assisted Mexico in creating a Financial
    Intelligence Unit (FIU) to collect and analyze financial investigative
    information. FinCEN, the U.S. FIU, is recognized as a leader in the
    field and has supported the development of FIU's throughout the world.
    There are currently 28 FIU's worldwide.
        Treasury, in conjunction with our counterparts in the United
    States, works with other countries to develop and promote anti-money
    laundering standards through multilateral efforts such as the Summit of
    the Americas, the Financial Action Task Force, the Caribbean Financial
    Action Task Force, the Inter-American Drug Control Commission, the
    Egmont Group (of FIU's), and others. Through these processes, Treasury
    supports a system of common standards, the cooperation of FIU's, and
    asset forfeiture and sharing. It also participates in mutual
    evaluations of other countries' compliance with international anti-
    money laundering standards and recommended improvements.
        Multilateral efforts have contributed to the enactment of anti-
    money laundering laws and regulations in several countries. In Europe,
    for example, since January 1994, Austria, Finland, Greece, Ireland,
    Monaco, the Netherlands, and Spain have implemented new money
    laundering legislation ranging from the criminalization of money
    laundering to the creation of monetary transaction reporting systems.
        The Treasury Department has worked with more than a dozen countries
    especially vulnerable to money laundering to encourage them to address
    their deficiencies through a two-pronged approach of assistance with
    anti-money laundering programs and warnings about the consequences of
    inaction. In cooperation with our counterparts in the Departments of
    Justice and State, Treasury has contributed to maximizing the efforts
    of foreign police forces, prosecutors, and judges through training and
    technical assistance programs.
        Treasury has also actively participated in the negotiation of
    bilateral treaties and other arrangements with other nations. One
    example has been to effect the recovery and return of stolen vehicles
    taken abroad by criminal gangs operating in the U.S.
        Additionally, through Presidential Executive Order 12978 issued
    under the International Emergency Economic Powers Act (IEEPA), the
    Treasury Department has identified businesses and individuals acting as
    fronts and middlemen for significant narcotics traffickers centered in
    Colombia. Through the IEEPA economic sanctions that the Executive Order
    imposed against the Colombian narcotics cartels, those fronts and
    middlemen known collectively as Specially Designated Narcotics
    Traffickers (SDNT's), are prevented from doing business with U.S.
    persons anywhere in the world and are denied access to the U.S.
    financial system.
        These SDNT's have been denied access to banking services not only
    in the U.S., but also in Colombia by Colombian financial institutions.
    For example, the Treasury agency that administers the IEEPA sanctions,
    the Office of Foreign Assets Control (OFAC), has identified nearly 400
    closed Colombian bank accounts affecting nearly 200 SDNT's; and
    anecdotal evidence points to hundreds more closed accounts affecting
    SDNT's. In addition, SDNT's have been forced out of business or are
    suffering financially. Over 40 SDNT companies, with estimated combined
    annual sales of over $200 million, were liquidated or were in the
    process of liquidation by February 1998. These effects are in addition
    to the as yet unquantified, but very real, costs to the SDNT companies
    and individuals of being denied access to the U.S. financial and
    commercial systems.
        Economic sanctions under IEEPA directed against non-state foreign
    national security threats are a powerful weapon that is being used
    against not only drug traffickers but also certain Middle East
    terrorists.
        As outlined above, the Treasury Department and its bureaus are
    taking a proactive approach to help other countries reduce and prevent
    crime. We plan to continue sharing our knowledge and experience with
    foreign law enforcement officials and believe that we will continue to
    reap many benefits from doing so, both domestically and abroad.
                              the performance plan
        On September 30 of last year, agencies submitted their first
    strategic plans as required by the Government Performance and Results
    Act, popularly known as the Results Act. With this year's budget
    justifications, agencies are submitting their first annual performance
    plans under the Results Act. To its credit, the Treasury Department has
    voluntarily done performance plans and reports at its own initiative
    for several years. Therefore, Treasury already has some experience
    under its belt.
        Question. In general, how satisfied are you with Treasury's
    performance goals and measures in the law enforcement area? For
    example, are they as results-oriented as they could be? Do they target
    and measure the right outcomes? Do they set the bar neither too low nor
    too high?
        Answer. I am pleased with the progress Treasury has made to date in
    developing performance measures for its many and varied programs, but I
    also recognize that much more work is needed--particularly in the law
    enforcement arena--to institute an effective performance management
    system throughout the Department.
        Over the last several years we have moved from limited reporting of
    traditional workload statistics to a planning and reporting process
    based on a mixture of workload, quality, customer service, and outcome
    measures. But, as you know, measuring the true impact of government
    programs is rarely a straight-forward exercise. We cannot normally use
    established private sector measures like return-on-investment.
    Measuring results is especially challenging for our law enforcement
    programs. We are working within the Department to address this issue
    and we have begun discussions with Justice on creating a performance
    measures working group. Treasury personnel are rising to this
    challenge, and with their continued hard work combined with feedback
    from our stakeholders (Congress, customers, partners, etc.) we will
    continue to improve our capacity to define and measure program success.
        Question. Are you confident that the law enforcement components
    have reliable data sources, information and financial management
    systems, and other resources needed to set realistic performance goals
    and measure actual accomplishments under these performance goals?
        Answer. The Department--including our law enforcement bureaus--has
    made substantial progress in the last several years in improving the
    data systems which support our financial and performance reporting. You
    can see this progress in the dramatic improvements in our audit
    results. As our measurement systems evolve and change over the next
    several years, we will continue to focus on data validity and
    reliability. In addition, in our performance plans and reports we will
    seek to provide the reader with a full description of each performance
    measure, including its definition, data sources, and the reliability of
    the data (e.g., confidence intervals for statistical data).
        Question. Does your plan include any performance measures for which
    reliable data are not likely to be available in time for your first
    Results Act performance report in March 2000? If so, what steps are you
    taking to improve the reliability of these measures?
        Answer. We recognize that improving the reliability and validity of
    performance data is a major challenge to the efforts by both Congress
    and this Administration to successfully use performance management to
    maximize our program results. We are working with Departmental, bureau,
    and Inspector General staff to improve the quality of our data. As
    noted above, we believe in ``truth-in-reporting'' and will seek to
    provide the reader with a full description of each performance measure,
    including its definition, data sources, and the reliability of the data
    (e.g., confidence intervals for statistical data).
        Question. Based on your fiscal year 1999 performance plan, do you
    see a need for revisions to the strategic plan you issued on September
    30, 1997? If so, what revisions are needed and when do you plan to make
    them?
        Answer. No. We currently do not plan to engage in an early revision
    of the Department-wide strategic plan. We want to make use of the
    strategic thinking and direction that evolved during last year's
    planning process to craft our fiscal year 2000 budget request and to
    improve our performance measures. Some Treasury bureaus may revise
    their individual strategic plans during 1998. If so, they will consult
    with Congress and other stakeholders during their plan revision
    processes as required under the Results Act.
        Question. The IRS hearings last Fall highlighted the familiar
    principle that you get what you measure, and demonstrated how the wrong
    performance measures can give the wrong incentives to federal
    employees. Balanced performance measures that take into account to
    citizens as well as other objectives are particularly important in law
    enforcement. What are you doing to ensure that your performance
    measures do not cause unintended consequences or undesirable effects on
    employee behavior?
        Answer. Feedback from the National Performance Review/IRS/Treasury
    Customer Service Task Force, recent congressional hearings, and
    Internal Audit reports indicated that the IRS performance measures used
    in fiscal year 1997 did not strike a proper balance between customer
    service and fair enforcement of tax laws. As a result, the IRS has
    designated a task force to develop a balanced scorecard of performance
    measures. During fiscal year 1998, the IRS will be working with OMB,
    Treasury, and the National Treasury Employees Union and a contractor to
    develop this balanced scorecard that will evaluate the IRS on: customer
    satisfaction, employee satisfaction, and business results. A primary
    goal of this balanced scorecard measurement system will be to ensure
    that IRS treats all taxpayers fairly, while emphasizing quality
    customer service and respect for their rights.
        More generally, the Department is very sensitive to the fact that
    inadequate measures--for law enforcement and other programs--can result
    in undesirable behavior. Our common challenge is to continue to refine
    and improve our measures for all of our programs, making certain that a
    proper balance is maintained and that unintended consequences are
    avoided. Congress is encouraged to help us in this effort by giving us
    feedback on our recently submitted performance plan, especially where
    there is a sense that the current set of measures may lead to improper
    results.
        Question. What have you done to ensure accountability within your
    agency for achieving performance goals? Is achieving performance goals
    tied directly to your systems for evaluating and rewarding agency
    managers?
        Answer. I have designated a senior Treasury policy official as the
    lead official responsible for implementing each objective in the
    Treasury-wide strategic plan. These objectives are supported by bureau
    strategic goals and objectives. The bureau goals and objectives in turn
    are supported by the individual annual performance targets in our
    performance plan. I intend to hold these lead officials responsible for
    achieving their objectives. I expect them to manage their subordinates
    accordingly.
        Our current performance evaluation process for evaluating agency
    managers is not tied directly to the Department's strategic and
    performance plans. However, we are currently studying how to strengthen
    the connection between these evaluations and our plans.
        Question. How were your performance measures chosen? How did the
    agency balance the cost of data collection and verification with the
    need for reliable and valid performance data?
        Answer. Treasury's current performance plan has evolved over the
    last several years. Measures are prosed by individual programs which
    make changes in response to their own experiences in using their
    measures to manage, and in response to feedback Treasury, OMB, Congress
    and other stakeholders. Our measures are in the process of being
    evolved from traditional output indicators to a balanced set of
    customer satisfaction, employee satisfaction and business results
    measures. For each new measure which involves new data collection
    efforts, program managers need to balance the cost of collection
    against the usefulness of the measure. In many cases, significant
    investments in data collection are justified by the ability of managers
    to run their programs more efficiently using the new data.
                              management problems
        GAO has identified 25 ``high-risk'' areas within the federal
    government that are particularly vulnerable to fraud, waste and error.
    Two of these areas are specific to Treasury law enforcement operations:
    Customs Service financial management and Treasury forfeited asset
    management. Based on an initial reading, your performance plans don't
    appear to significantly address these problems. The only reference I
    found was a goal to ``focus on internal controls of the asset
    forfeiture program to eliminate weaknesses in the program that can
    result in lost revenue.'' However, this goal is very general and is not
    accompanied by any performance measures.
        Question. Your performance plans include specific goals, measures,
    and timetables to resolve your two high-risk areas? If not, why not?
        Answer. The ways in which these GAO high risk issues are addressed
    in the fiscal year 1999 Treasury performance plan are detailed below.
        Forfeited Assets Management.--The Forfeiture Fund chapter of the
    performance plan addresses this issue and the GAO's concerns (page TFF-
    17) but does not include a specific performance target on the subject.
        Customs Service Financial Management.--Treasury's performance plan
    includes a goal to achieve an unqualified audit opinion on the
    Department-wide consolidated financial statement for fiscal year 1999
    (page DO SE-43). Achieving this goal will require an unqualified
    opinion on the Customs financial statement. Customs achieved an
    unqualified opinion for fiscal year 1997 on its financial statement.
    However, despite this opinion, Customs continues to have material
    weaknesses which the Department is committed to correcting. Customs has
    specific action plans and timetables in place to address its material
    weaknesses.
        Question. Are you willing to amend the performance plans to do
    this?
        Answer. My staff would be happy to work with Congressional staff on
    how we can refine the performance plan to make it more useful to
    Congress. They are available to discuss how these management issues are
    addressed and any other areas where Congress believes improvements can
    be made.
        GAO has indicated that a key factor in resolving high-risk areas is
    a real sense of commitment and accountability on the part of agency
    managers. At least one agency has adopted a specific performance
    measure of getting off the GAO high-risk list by a date certain.
        Question. Are you prepared to revise your plans to include
    performance measures making such a commitment for your high-risk areas
    and establishing such accountability for you and your managers?
        Answer. The ways in which the GAO's high risk list is addressed in
    the fiscal year 1999 Treasury performance plan are detailed below.
        Forfeited Assets Management.--The Forfeiture Fund chapter of the
    performance plan addresses this issue and the GAO's concerns (page TFF-
    17) but does not include a specific performance target on the subject.
        Customs Service and IRS Financial Management.--Treasury's
    performance plan includes a goal to achieve an unqualified audit
    opinion on the Department-wide consolidated financial statement for
    fiscal year 1999 (page DO SE-43). Achieving this goal will require
    unqualified opinions on the Customs and IRS financial statements. Both
    of these bureaus achieved unqualified opinions for fiscal year 1997 on
    their financial statements. However, despite these opinions, they
    continue to have material weaknesses which the Department is committed
    to correcting. Both Customs and the IRS have specific action plans and
    timetables in place to address their material weaknesses.
        Collection of IRS Tax Receivables and IRS Filing Fraud
    (Particularly Earned Income Credit (EIC) Claims).--The IRS chapter of
    the performance plan addresses accounts receivables (page IRS, SD-11)
    and includes a number of performance measures related to its compliance
    activities. However, as noted in other answers, feedback from the
    National Performance Review/IRS/Treasury Customer Service Task Force,
    recent congressional hearings, and Internal Audit reports indicated
    that the IRS performance measures used in fiscal year 1997 did not
    strike a proper balance between customer service and fair enforcement
    of tax laws. As a result, the IRS has designated a task force to
    develop a balanced scorecard of performance measures. During fiscal
    year 1998, the IRS will be working with OMB, Treasury, and the National
    Treasury Employees Union and a contractor to develop this balanced
    scorecard that will evaluate the IRS on: customer satisfaction,
    employee satisfaction, and business results. Consequently, the current
    plan for the IRS is an interim plan, and may be changed as the balanced
    scorecard measurement system is developed.
        IRS Tax Systems Modernization.--The IRS's plans to ensure the
    effective use of its information technology investment resources are
    discussed in the IRS chapter of the plan on pages IRS, IS-1-25 and IRS,
    IT-1-8.
        Year 2000.--Treasury's performance plan includes a goal to have all
    ``Mission Critical'' information technology systems Year 2000 compliant
    in fiscal year 1999 (page DO SE-43).
        Information Security.--GAO's information security concerns and
    IRS's security plan are discussed in the IRS chapter of the fiscal year
    1999 Treasury Performance Plan (page IRS SD-11). In addition,
    information security for the Department as a whole is addressed with
    the goal ``Regularly review those Treasury bureau security programs,
    for compliance with national and departmental policy, that have been
    established to ensure security of Treasury's vital assets.'' In fiscal
    year 1999, the goal is to review four of these programs (page DO SE-
    41).
        My staff would be happy to work with Congressional staff on how we
    can refine the performance plan to make it more useful to Congress.
    They are available to discuss how these management issues are addressed
    and any other areas where Congress believes improvements can be made.
        With respect to the forfeited assets fund, GAO recommended that
    Treasury and Justice achieve greater efficiency by working together on
    the management and disposition of property from their parallel but
    separate forfeited asset inventories. Yet, neither agency appears
    willing to do so.
        Question. This seems like an easy thing to do. Why can't the two
    agencies cooperate here?
        Answer. The two agencies are working together. Last fall, the
    Director of Treasury's Executive Office for Asset Forfeiture and the
    head of the Marshals Service's asset forfeiture office met with GAO
    representatives to explore the best way to help get federal seized
    property programs off GAO's high risk list. Following that meeting,
    Treasury and marshals have taken practical steps to achieve greater
    efficiencies through cooperation. In December and January, real
    property auctions conducted by Treasury's seized property management
    contractor, EG&G Services, for the first time included properties in
    the forfeited inventory of the Marshals Service. Not only did the
    auction results far exceed the expectations of the Marshals property
    managers but the January sale in Puerto Rico brought in 112 percent of
    fair market value.
        Our cooperation and search for greater efficiencies has not stopped
    with this one initiative. Treasury and Marshals are also underwriting a
    series of joint conferences as part of an extensive training initiative
    to focus attention on the management of the forfeiture program and,
    particularly, its seized property component. These conferences are
    geared toward mid-level managers from Treasury and Justice law
    enforcement bureaus as well as U.S. Attorneys' Offices. Our first
    conference was held in early April in Miami with several more planed
    for the balance of the year in those districts with the greatest
    volumes of seized property.
        Question. If Treasury and Justice are unwilling or unable to
    cooperate on something as straightforward as this, what does it say
    about their ability to work together on more complex law enforcement
    activities?
        Answer. Seized property management issues are but one segment of
    the very broad area in which Treasury and Justice law enforcement
    organizations cooperate every day. Reverse asset sharings are those
    monies deposited in the Treasury Forfeiture Fund as a result of
    equitable sharing with Treasury law enforcement bureaus based on their
    contributions to other federal, mostly Department of Justice,
    investigations. Such reverse asset sharings have gone from just under
    $3 million in fiscal year 1995, to almost $10 million in fiscal year
    1996 and to over $11 million in fiscal year 1997. Clearly, Treasury and
    Justice law enforcement organizations are cooperating not only in the
    seized property arena, but also on operational matters of increasing
    scope, complexity and value.
        Question. Can we have your commitment to follow up on this issue
    and report back to the Subcommittee?
        Answer. We appreciate the Subcommittee's concern with this matter
    as it reflects our own desire to make seized property management as
    efficient as possible so that savings realized there will be available
    to directly strengthen law enforcement through the other payment
    authorities of the federal forfeiture funds. We will be glad to keep
    you apprised of our progress in this area.
        In addition to the agency-specific high-risk areas, two other
    government-wide high-risk areas are particularly serious at Customs:
    the Year 2000 computer conversion problem and information security.
    Treasury's Inspector General also has identified these areas as among
    the Department's 10 most serious management problems.
        Question. Do your plans contain specific goals, measures, and
    timetables to resolve these problems? If not, why not? If so, what are
    they? Are you confident that these goals and measures are sufficient to
    resolve the problems? If not, what more can you add to get the job be
    done?
        Answer.
    High-Risk Area--Year 2000:
        The Year 2000 problem is the most important information technology
    issue facing the Department of the Treasury today. If not addressed and
    resolved, this issue could have a substantial impact on our critical
    mission systems and the delivery of essential government services.
    Continuous executive level involvement in this matter is essential to
    our success. The high priority of this issue is reflected in the
    Treasury Strategic Business Plan for fiscal years 1997-2002 in which
    Ensuring Year 2000 compliance is a major objective to achieve the goal
    of improving management operations. The specific Year 2000 goal is to
    accomplish the century date change to ensure that Treasury systems will
    operate properly in the Year 2000. Treasury has an aggressive overall
    Year 2000 program in place that actively involves senior executives
    across the Department and bureaus, and incorporates metrics reported at
    least monthly to ensure that sufficient resources and efforts are
    applied to resolve the problem. For those mission critical systems
    requiring repair or replacement, the milestones are completion of
    renovation or development by October 1998 and implementation by
    December 1998. Treasury is on target to complete the conversion,
    testing, validation, and implementation of all mission critical systems
    to ensure continuous operation in the year 2000 and beyond.
    High-Risk Areas--Information Security:
        Information security for the Department as a whole is addressed
    with the goal, ``Regularly review those Treasury bureau security
    programs, for compliance with national and departmental policy, that
    have been established to ensure security of Treasury's vital assets. In
    Fiscal 1999, the goal is to review four of these programs (page DO SE-
    41).
        Reviews of these programs highlight areas for program improvement.
    We are confident that the compliance review program is sufficient to
    resolve the problems.
    Customs Service problems with ACE:
        Customs' new Automated Commercial Environment (ACE) system for
    handling import data has been under development for some time and has
    experienced many problems. This Subcommittee, other Congressional
    committees, GAO, and the Treasury Inspector General all have pointed
    out the problems with this troubled system.
        Question. Do your plans contain specific goals, measures, and
    timetables to resolve the problems with the ACE System? If not, why
    not? If so, what are they?
        Answer. The development of ACE is being monitored on an ongoing
    basis under the auspices of the Department's Chief Information Officer
    (CIO) and the Treasury Investment Review Board (TIRB). The development
    of ACE is underway in phases and the CIO, with the concurrence of the
    TIRB, has instituted a review process of weekly progress reports from
    the ACE Team, monthly reports to the TIRB, and quarterly reports to the
    Congressional appropriation committees. These reports include tracking
    of expenditures, milestones, and identification of project problems.
    Customs is reporting specific performance measures on the development
    phase of ACE, while operational performance results await the outcome
    of the operation of the upcoming NCAP prototype, a major part of ACE.
        The GAO concerns related to ACE are primarily associated with
    problems regarding the establishment of Customs information systems
    architecture. The architecture has been reviewed recently by the
    Private Sector Council, composed of CIO's from major private sector
    companies, and an independent review of that architecture has been
    completed as well. Based on these reviews, plans and a schedule are in
    place to refine the IT architecture to make it a ``best practice'' in
    conformance with the Treasury Information Systems Architecture
    Framework.
        Question. Are you confident that these goals and measures are
    sufficient to resolve the problems? If not, what more needs to be done?
        Answer. We are confident that the processes in place at the Customs
    Service and at the Department to manage ACE development, and to resolve
    the architecture issues as they affect ACE, are sufficient to ensure
    success of the ACE project. Customs has made significant improvements
    in its development approach with respect to major projects such as ACE
    and in the establishment of its information architecture. The attention
    being devoted to ACE and the Customs architecture efforts by the
    Treasury CIO office and the TIRB will provide that assurance. The
    Treasury CIO office will continue to keep the Congressional staff
    informed as to the progress and problem resolutions with respect to
    ACE, and will ensure that the concerns of GAO and the Congressional
    committees are addressed.
        In a letter to Majority Leader Armey dated January 16, 1998, the
    Treasury Office of Inspector General described what they consider to be
    the 10 most serious management problems within the Department.
        Question. I would like to submit this letter for the record, and I
    request that you submit for the record a response that describes what
    specific goals and measures in your performance plan, if any, address
    each of these 10 areas.
        Answer. The ways in which these issues are addressed in the fiscal
    year 1999 Treasury performance plan are detailed below.
        Information Technology Investment Management.--Treasury's
    performance plan includes a goal to have Clinger-Cohen compliant
    investment controls in place in all bureaus in fiscal year 1998 (page
    DO SEE-42).
        Year 2000 Compliance.--Treasury's performance plan includes a goal
    to have all ``Mission Critical'' information technology systems Year
    2000 compliant in fiscal year 1999 (page DO SEE-43).
        Data Security at IRS, FMS, and USCS.--GAO's information security
    concerns and IRS's security plan are discussed in the IRS chapter of
    the fiscal year 1999 Treasury Performance Plan (page IRS SD-11). In
    addition, information security for the Department as a whole is
    addressed with the goal ``Regularly review those Treasury bureau
    security programs, for compliance with national and departmental
    policy, that have been established to ensure security of Treasury's
    vital assets.'' In fiscal year 1999, the goal is to review four of
    these programs (page DO SEE-41).
        FMS's Ability to Produce Government-Wide Financial Statements.--The
    FMS section of the Treasury Performance Plan contains a preliminary
    statement ``To comply with the Government Management Reform Act (GMRA),
    FMS will prepare a Government-wide Audited Consolidated Financial
    Statement in Spring 1998.'' Specific performance measures address the
    percentage of agency reports for the consolidated financial statement
    (CFS) processed by FMS within the established standard accuracy range,
    and the decrease in unresolved prior year recommendations and audit
    findings that prevent a clean opinion on the audit of the Consolidated
    Financial Statement (page FMS-34). To enhance the systems to collect
    data, it also has a measure regarding enhancement to the Government On-
    line Accounting Link System (GOALS) (page FMS-34 and 35).
        Treasury's Ability to Produce Consolidated Financial Statements.--
    Treasury's performance plan includes a goal to achieve an unqualified
    audit opinion on the Department-wide consolidated financial statement
    for fiscal year 1999 (page DO SEE-43).
        Financial Management at IRS.--As noted above, Treasury's
    performance plan includes a goal to achieve an unqualified audit
    opinion on the Department-wide consolidated financial statement for
    fiscal year 1999 (page DO SEE-43). Achieving this goal will require an
    unqualified opinion on the IRS financial statement. The IRS achieved an
    unqualified opinion for fiscal year 1997 on its financial statement.
    However, despite this opinion, the IRS continues to have material
    weaknesses which the Department is committed to correcting. The IRS has
    specific action plans and timetables in place to address their material
    weaknesses.
        Department's Debt Collection Initiatives.--The FMS chapter of the
    performance plan contains the following Performance Goal: ``By fiscal
    year 2002, FMS manages a consolidated debt management function that
    will concentrate all Federal delinquent debt collection efforts and
    produce improved results.'' Specific measures monitoring achievement
    include the percentage increase over fiscal year 1997 baseline of FMS-
    managed Government-wide collected delinquent debt, percentage of
    current market share of Federal Program Agencies (FPA's) with debt
    servicing requirements which have referred their debts in compliance
    with the Debt Collection Improvement Act (DCIA) of 1996, and increased
    Government-wide delinquent non-tax debt collections over fiscal year
    1995 baseline (page FMS-31 and 32).
        Electronic Fund Transfer (EFT)/Electronic Benefits Transfer
    (EBT).--The FMS section of the performance plan dealing with payments
    contains the following performance goal: ``By fiscal year 2000, there
    is a world-class delivery of all Federal government payments and
    associated information to their ultimate destination.'' Success
    indicators of this goal include the dollar savings by reducing the
    number of check payments, the percentage of transmissions of value
    (payments) and associated information made electronically, the number
    of states in which direct Federal EBT is available, and the percentage
    of planned EBT systems implemented (page FMS-23 and 24).
        The FMS section dealing with collections contains the Performance
    Goal: ``By fiscal year 2002, the Federal Government's cash management
    environment has integrity, meets customer requirements and results in a
    lower cost of Federal Government.'' This goal is supported with
    measures of electronic collections as a percentage of total
    collections, the percentage of corporate withholding taxes collected
    electronically, the percentage increase over prior year in
    transmissions of value (collections) and associated information made
    using financial Electronic Data Interchange (page FMS-28).
        Protecting Taxpayer Rights and Compliance Activities and Revenue
    Protection.--The IRS chapter of the performance plan addresses accounts
    receivables (page IRS, SD-11) and includes a number of performance
    measures related to its compliance activities. However, as noted in
    other answers, feedback from the National Performance Review/IRS/
    Treasury Customer Service Task Force, recent congressional hearings,
    and Internal Audit reports indicated that the IRS performance measures
    used in fiscal year 1997 did not strike a proper balance between
    customer service and fair enforcement of tax laws. As a result, the IRS
    has designated a task force to develop a balanced scorecard of
    performance measures. During fiscal year 1998, the IRS will be working
    with OMB, Treasury, and the National Treasury Employees Union and a
    contractor to develop this balanced scorecard that will evaluate the
    IRS on: customer satisfaction, employee satisfaction, and business
    results. Consequently, the current plan for IRS is an interim plan and
    may be changed as the balanced scorecard measurement system is
    developed.
        Implementing the Government Performance and Results Act.--
    Treasury's performance plan includes a goal to achieve full compliance
    with GPRA for the Department and its bureaus in fiscal year 1998 (page
    DO SEE-43).
                    specific performance goals and measures
        Customs' goals and measures for its drug interdiction efforts focus
    on activities and outputs, such as quantities of illegal drugs seized.
    While these may be useful, they do not measure the effectiveness of
    drug interdiction efforts in achieving their ultimate objective:
    reducing the supply of illegal drugs in the United States.
        Question. In order to better comply with the Results Act, have you
    considered more outcome-oriented goals and measures?
        Answer. Yes we have. In fact, we have adopted outcome measures for
    narcotics and money laundering in our fiscal year 1999 Annual
    Performance Plan. They are:
        1. Drug Smuggling Organizations' transportation costs,
        2. Changes in smuggling behavior,
        3. Costs for Criminal Organizations to launder money, and
        4. Money laundering systems disrupted.
        Initial feedback on the use of these measures as outcomes has been
    very favorable. fiscal year 1998 will be the year baseline data is
    developed for these measures.
        Although we have adopted these new measures, we will continue to
    monitor and report traditional enforcement measures, i.e. seizures,
    arrests, and indictments, because they help in the analysis of our
    overall impact on the supply reduction problem. In addition, they along
    with other performance measures complement the ONDCP measurement
    approach.
        Question. For example, aren't there indicators that do reflect the
    availability of illegal drugs in the community.
        Answer. Unfortunately, indicators such as ``street price'' are used
    solely, at times, to provide an assessment. That is why the ONDCP
    measurement approach complemented by our internal measures may be more
    useful. It recognizes that a number of indicators common to several
    agencies taken in combination have the potential to provide more
    meaningful information than attempting to look solely at individual
    agency performance.
        In the ONDCP measurement scheme, Customs, along with other federal,
    state and local interdiction (supply reduction) agencies reports its
    performance on a variety of measure, including number of incidents and
    seized quantities of both drugs and currency. We believe that this
    comprehensive approach, once fully refined and accepted, will provide
    more meaningful information to assess individual agency performance in
    the context of overall performance.
        In the area of Reducing Violent Crime, ATF includes as performance
    measures: ``Crime related costs avoided'' and ``Future crimes
    avoided.'' Specifically, its proposed measures for fiscal year 1999 are
    $1 billion in future crime related costs avoided and 450,000 future
    crimes avoided. These certainly are outcome-oriented measures, but I
    wonder how reliable they are.
        Question. How did you arrive at these goals and measure?
        Answer. This performance measure was designed to show the program's
    beneficial financial impact to the public as required by the Government
    Performance and Results Act (GPRA). The average number of crimes
    committed by an armed career criminal in one year ( x ) the average of
    years an armed career criminal is sentenced (in other words, the number
    of crimes which will not be committed while the armed career criminal
    is incarcerated) ( x ) the average cost of a crime (-) the cost of
    incarceration over the length of sentence (=) the total cost savings to
    the public in firearms related crime costs avoided. (See Attachments)
        [The information follows:]
     Federal Firearms License (FFL) Inspection Program Performance Measure
        This Performance Measure focuses on the crimes and crime-related
    cost prevented due to the effective regulation of the firearms industry
    through compliance inspections. This measure encourages RE to focus
    their inspections on Federal firearms licensees with the highest volume
    of crime gun traces attributed to them because this is where the
    problems are and this is where the most impact can be achieved. This
    measure is currently under development.
        During a study recently performed for ATF by Northeastern
    University, the researchers did some preliminary work to determine the
    effect that a little attention from ATF had on an FFL who had a high
    frequency of crime gun traces. They found that an FFL who had a large
    number of crime guns traced back to them would go into a lull after
    having received added attention in the form of trace request contacts
    from the NTC.
        Along those lines, it is presumed that if attention in the form of
    a compliance inspection were focused on an FFL with high mime gun trace
    requests, there would be an even larger lull/impact in the deterring
    this situation. To measure this, Program Officials would identify high
    crime gun trace request FFL's for inspection and compare the number of
    crime gun trace requests for a one year period before the inspection to
    the number of crime gun trace requests on firearms sold during a one
    year period after the inspection to show the impact/reduction. The
    total number of crime gun trace requests not received is the total
    number of crimes prevented in that year due to effective compliance
    producing a deterrent effect. The crime costs could be figured in the
    same manner as they are under the Achilles program and Trafficking
    Program. The crimes and crime-related costs prevented by the RE
    inspection program could then be rolled forward with all the other
    programs which report their impact in the same manner.
                    Bureau of Alcohol, Tobacco and Firearms
                                achilles program
    Achilles Program/Protecting America Performance Measure
        Average number of crimes committed by an armed career criminal in
    one year ( x ) the average number of years an armed career criminal is
    sentenced (in other words, the number of crimes which will not be
    committed while the armed career criminal is incarcerated) ( x ) the
    average cost of a crime (-) the cost of incarceration over the length
    of sentence (=) the total cost savings to the public in firearms
    related crime costs avoided.
    Beneficial Financial Impact
        This performance measure is designed to show the program's
    beneficial financial impact to the public as required by the Government
    Performance Results Act (GPRA).
                    ATF Achilles Program Performance Measure
        ATF believes the Achilles Program, with its task forces and Violent
    Offender Program elements, are focused in the right areas. According to
    the Protecting America study completed by ATF, long-term incarceration,
    and thus the removal of the violent habitual offender from society, is
    a realistic and cost effective approach to reducing violent crime.
    Long-term incarceration is, in its truest sense, the best deterrent to
    crime. This study showed that the average career criminal commits about
    three criminal acts a week, or about 160 crimes a year.
        The National Institute of Justice conducted a study that estimated
    the cost per crime in the United States to be, on average, $2,600. This
    equates to at least $432,000 in crime-related costs per year for
    allowing a career criminal to remain at large, not including the
    physical and psychological damages and associated medical costs
    inflicted on the victims of these crimes. When comparing this to the
    National Institute of Justice's estimate of $45,000 per year to house
    an inmate, mandatory minimum penalties, and, in kind, ATF's Achilles
    Program strategy are on target for reducing crime and its related
    economic costs.
        Using the above-developed statistics, and the fact that the average
    sentence under 18 U.S.C. Sec. 924(e) is 18 years' imprisonment, the
    Achilles Program's beneficial financial impact to the public can be
    measured. This performance measure meets the performance measure
    standards required by the Government Performance Results Act of 1993.
    The following is a breakdown of the financial aspects of this
    incarceration:

                          Cost Analysis--Per Defendant

    Average sentence (years)......................................        18
    Incarceration cost per year...................................   $45,000
    Total cost for incarceration..................................  $810,000
    Cost per crime................................................    $2,600
    Crimes avoided per year.......................................       160
    Savings for crimes avoided (1 year)...........................  $416,000
    Crimes avoided over 18 years..................................     2,880
    Savings for crimes avoided....................................$7,488,000
    Total savings from a 1 year incarceration.....................  $371,000
    Total savings from an 18 year incarceration...................$6,678,000

                                BUREAU OF ALCOHOL, TOBACCO AND FIREARMS--ACHILLES PROGRAM
                Armed Career Criminal Annual and Cumulative Benefits (Cost Savings and Crimes Prevented)
    ----------------------------------------------------------------------------------------------------------------
                                           Defendants           Crimes prevented             Savings to public
                                          incarcerated     ---------------------------------------------------------
              Fiscal year           -----------------------
                                       Fiscal               Fiscal year   Cumulative    Fiscal year     Cumulative
                                        year    Cumulative
    ----------------------------------------------------------------------------------------------------------------
    1988...........................         92          92       14,720       14,720     $34,132,000     $34,132,000
    1989...........................        122         214       19,520       34,240      45,262,000      79,394,000
    1990...........................        157         371       25,120       59,360      58,247,000     137,641,000
    1991...........................        217         588       34,720       94,080      80,507,000     218,148,000
    1992...........................        367         955       58,720      152,800     136,157,000     354,305,000
    1993...........................        305       1,260       48,800      201,600     113,155,000     467,460,000
    1994...........................        265       1,525       42,400      244,000      98,315,000     565,775,000
    1995...........................        205       1,730       32,800      276,800      76,055,000     641,830,000
    1996...........................        160       1,890       25,600      302,400      59,360,000     701,190,000
    1997...........................        119       2,009       19,040      321,440      44,129,000     745,339,000
    1998...........................  .........  ..........  ...........  ...........  ..............  ..............
    ----------------------------------------------------------------------------------------------------------------
    Note:
    Number of Crimes committed prevented per defendant, per year is 160. This figure was developed through ATF's
      Protecting America research project which involved a sampling of incarcerated armed career criminals.
    In determining the cost savings to the public, a figure of $2,600 is used as the average cost per crime. This
      figure was developed through research by the National Institute of Justice (NIJ) and does not include victim
      hospitalization costs. An annual cost savings per defendant is realized by multiplying 160 (the average annual
      number of crimes committed by a career criminal left free in society) times the $2,600 cost per crime figure
      and then subtracting the annual cost of Federal incarceration which NIJ reports to be $45,000.
    Each defendant is sentenced to an average of 18 years in Federal prison as an armed career criminal. The annual
      cost savings produced by this program will grow each year until the 18th year of the program when the
      program's first year defendants will begin to be released. In the 18th year the program's cost savings will
      reach their highest level and remain fairly constant throughout the future life of the program.

        Question. Are they premised on baseline or trend data of past
    performance, or on bench marking against other organizations that
    perform similar activities?
        Answer. No. The performance measures are based upon studies
    performed by the Federal Government relating to incarceration and cost
    of crimes; National Institute of Justice (NIJ) study; Cost and Benefits
    of Sanctions: A Synthesis of Recent Research, June 1992.
        Question. What experiences do you have in applying these measures?
        Answer. ATF has been using these measures in the Achilles Program
    area since 1991, and we are also incorporating this methodology to
    other firearms strategy areas.
        Question. Are you confident that reliable data exist to support
    these measures?
        Answer. Yes. ATF has drawn upon independent research, National
    Institute of Justice (NIJ). ATF has also conducted its own study,
    Protecting America study. Additionally, ATF has developed computer
    systems to capture/track this data.
                performance measures for cross-cutting functions
        Treasury is, of course, engaged in law enforcement activities that
    involve many other federal agencies as well. Some obvious examples are
    drug interdiction, border security, intelligence, border security,
    intelligence and other investigative activities, and anti-terrorism
    efforts.
        Question. How has Treasury coordinated with other federal agencies
    in developing the law enforcement portions of its strategic and
    performance plans?
        Answer. Treasury coordinates on a day-to-day basis with a great
    variety of Federal and non-Federal entities in accomplishing our
    mission. In addition, in the development of our strategic plan we
    sought input from Congress, Treasury's unions, more than 600 non-
    Federal stakeholders, the general public (through the Internet), and
    other Federal agencies. Our strategic plan was influenced by input--
    received formally through the planning process and informally through
    years of coordination--from these stakeholders and partners. Our
    performance plan reflects out strategic plan.
        Question. In particular, how have you worked with ONDCP on drug
    control strategies, goals and measures, and with what results?
        Answer. Treasury worked closely with ONDCP on all cross cutting
    issues that affect the Department. For example, Treasury participated
    in the development and review process on ONDCP's 1998 Ten Year National
    Drug Control Strategy. Specifically, Treasury provided input to Goal 4
    in the strategy, ``Shield America's Air, Land, and Sea Frontiers from
    the Drug Threat,'' and the four objectives that support the goal. In
    addition, Treasury participated in the development and review of
    ONDCP's recently released Performance Measures of Effectiveness
    document. This document will serve as the tool for evaluating the
    progress of the Nation's drug control efforts. As a result of working
    with ONDCP in the development of these documents a very useful and
    important step was taken in what will be a long term, iterative process
    of developing improved cooperation and measurement capabilities across
    the government.
        Question. What efforts have you taken to make your strategic
    objectives, performance goals, and performance measures complement
    those of other agencies carrying out similar programs and activities?
        Answer. Treasury coordinates on a day-to-day basis with a great
    variety of Federal and non-Federal entities in accomplishing our
    mission. In addition, in the development of our strategic plan we
    sought input from Congress, Treasury's unions, more than 600 non-
    Federal stakeholders, the general public (through the Internet), and
    other Federal agencies. Our strategic plan was influenced by input--
    received formally through the planning process and informally through
    years of coordination--from these stakeholders and partners. Our
    performance plan reflects our strategic plan.
        Question. Do the objectives, goals and measures for your programs
    and activities in fact complement those of other federal agencies with
    similar functions?
        Answer. We recognize the necessity to make certain that our goals,
    objectives and performance measures complement those of related
    agencies, and we are working to make certain that they do. The
    following are some examples of efforts to-date in this area. First, as
    detailed in other questions, Treasury has coordinated extensively with
    ONDCP. In addition, Treasury's Office of International Affairs worked
    in conjunction with the State Department to develop the ``U.S.
    International Affairs Strategic Plan.'' Treasury's international goals
    and measures correspond to this common plan. Also, Treasury, Justice,
    and Agriculture share a common goal in the Government-Wide performance
    plan to reduce passenger wait times at land and air ports (page 243).
    Finally, Treasury participates in the Results Act Banking Regulatory
    Working Group which is seeking to increase coordination between banking
    regulators on GPRA implementation. As we continue to evolve in the
    Results Act implementation process, cross-government coordination will
    be strengthened through efforts like the various inter-agency groups
    mentioned above.
        Question. Can more be done to promote consistency among cross-
    cutting law enforcement programs and activities? What more do you plan
    to do?
        Answer. Treasury and other agencies are in the process of learning
    how to use Results Act to help improve our program results. We have
    dedicated our efforts to-date largely to crafting useful strategic
    plans and performance measurement systems. We see improvements in
    interagency coordination as the next step in this implementation
    process. As part of this next step, Treasury and Justice have begun
    discussions on creating a performance measures working group to explore
    developing even more effective cross-cutting performance measures.
        Question. In your efforts to coordinate and reconcile cross-cutting
    programs and activities, did you identify any unnecessary duplication
    or redundancy? If so, what? Did you identify a need for legislative
    changes to deal prim any unnecessary duplication or redundancy?
        Answer. To-date in our Results Act implementation efforts, we have
    not identified any unnecessary duplication or redundancy.
        Question. There have been past indications of serious duplication
    and fragmentation among federal law enforcement agencies in
    intelligence activities, particularly in the area of drug interdiction.
    Do you believe this is a problem today? If so, what can be done about
    it?
        Answer. The Office of Enforcement plays an important role in
    coordinating and facilitating communications, and in providing a focal
    point for information, analysis and policy determinations. Cooperation
    between the Departments of Justice and the Treasury has improved
    dramatically over the last few years. While there is always room for
    additional improvement, I believe that cooperation is currently at an
    all-time high. This is a result of the frequent communication and close
    coordination between the two Departments.
        The Office of Enforcement works with the Department of Justice on a
    daily basis. The Under Secretary for Enforcement speaks to and attends
    meetings with the Attorney General, Deputy Attorney General, and Heads
    of the Justice law enforcement bureaus regularly. Members of the staff
    speak to their counterparts at Justice on a daily basis.
        A variety of working groups meet regularly on important issues,
    such as the Southwest border, white collar crime, money laundering, and
    terrorism. The Federal law enforcement agencies each have unique areas
    of expertise and jurisdiction. When an investigation involves a matter
    that is clearly within the jurisdiction of one agency, that agency will
    take the lead and work with other agencies as needed. In those
    circumstances where there is overlapping jurisdiction, memorandums of
    understanding have been developed which detail the responsibilities of
    the respective agencies. Despite these efforts to ensure clear lines of
    authority, situations do develop where two agencies may claim
    jurisdiction over an investigation. In those instances, the Special
    Agents in Charge of the field office of the respective agencies attempt
    to resolve the question. If this is not possible, further discussions
    between the senior managers of the agencies will occur in Washington.
    The Departments of Justice and the Treasury become involved in these
    discussions, as necessary.
        Treasury law enforcement bureaus have unique areas of expertise
    which complement those of other law enforcement agencies. For example,
    INS and Customs work together on cases and task forces involving
    illegal narcotics and other contraband smuggling. Since INS and Border
    Patrol staffing continues to increase, we anticipate that we will be
    called upon to participate in even more joint investigations. The
    current budget request for Treasury law enforcement for fiscal Year
    1999 includes funds for increasing Customs capabilities both through
    human resources and technology so that Customs personnel can more
    efficiently and intelligently carry-out their responsibilities.
    Additional Customs funding and resources would enhance Treasury's
    ability to respond to growing workloads at our nation's ports of entry.
                                     ______

                      Questions Submitted by Senator Kohl
                            banking and regulations
        Question. What kind of regulations is Treasury proposing to ensure
    that the taxpayers will be treated fairly while conducting business in
    the next millennium?
        Answer. Treasury maintains and manages regulations governing the
    Government's use of electronic funds transfer, in particular the use of
    the Automated Clearing House. These regulations address liabilities and
    responsibilities of the Government and financial institutions in
    processing electronic transactions, and they would apply to the use of
    EBT to deliver Federal benefit payments. Currently, the Government's
    processing of electronic funds transfer transactions is conducted in a
    highly secure environment using the Federal Reserve as Treasury's
    processor for most of these transactions. New technologies, such as
    smart cards and e-money, present questions and challenges that are
    currently under review. The Comptroller of the Currency has led a task
    force within Treasury to look at these issues, and is expected to issue
    a report shortly that will address security, privacy, and cost
    regarding new approaches to doing business.
        At present, Treasury's Financial Management Service relies on a
    comprehensive security architecture covering systems, personnel, and
    physical security in its Electronic Funds Transfer disbursement
    operations. This security architecture includes protections for data
    networks and host systems, disbursing officers and systems
    administrators, and regional disbursing centers. This network security
    architecture is probably the most robust and secure among the civilian
    agencies.
        FMS does not use the Internet in any way as part of its disbursing
    infrastructure. FMS has a small pilot planned for late 1998 to use
    cryptographic Internet e-mail in support of vendor payments, but it
    will likely be at least several years before the Internet is relied on
    to deliver Federal payments.
        FMS currently relies on two private networks to generate and
    deliver Federal payments. First, it administers its own network,
    FMSnet, which connects FMS with the over 600 Federal agencies, bureaus,
    and offices for whom it disburses payments. This is a protected network
    which is not connected to the Internet. Federal agencies use this
    network to deliver payment instructions files to FMS using a secure
    hardware-based messaging system designed in conjunction with and
    approved by the General Accounting Office.
        Second, FMS relies on FedNet, the Federal Reserve's network, to
    deliver Government payments to the banking system. This network is also
    a private, access controlled network which has no direct gateways to
    the Internet. In addition to relying on network access controls and
    physical security of network sites, all data transmissions on both
    networks are generated out of tamper resistant hardware encryption
    devices, in accordance with Federal Information Processing Standard
    Publication 140-1, ``Security Requirements for Cryptographic Modules.''
        The Administration and Congress have been working on legislative
    plans as part of the financial modernization legislation. One plan is
    to limit housing related government sponsored enterprises to a single
    regulator.
        Question. Can you explain the pros and cons of having a single
    regulator and share with us your views on this plan?
        Answer. We are not aware of any Administration proposal to merge
    the housing government-sponsored enterprise (GSE) regulators. In recent
    years, Congress has held hearings on this issue.
        Both the Office of Federal Housing Enterprise Oversight (OFHEO) and
    the Federal Housing Finance Board (FHFB) regulate GSE's that are in
    basically the same line of business. Therefore, from the narrow
    perspective of safety and soundness merging regulatory responsibility
    under one entity might result in a more efficient use resources through
    a reduction in duplicative functions.
        However, the current regulatory responsibilities of OFHEO and the
    FHFB are not equal. OFHEO is the safety and soundness regulator of
    Fannie Mae and Freddie Mac, while HUD is the mission related regulator.
    The FHFB, is both the safety and soundness and the mission related
    regulator of the FHL Bank System.
        Any merging of OFHEO and the FHFB would likely have to address
    these institutions' different regulatory responsibilities. Under a
    framework of equal regulatory responsibility either: (1) OFHEO would
    have to become responsible for Fannie Mae's and Freddie Mac's mission
    regulation--making the new merged regulator a joint safety and
    soundness and mission regulator; or (2) the mission regulation of the
    FHL Bank System would have to be transferred to HUD--making the new
    merged regulator only a safety and soundness regulator.
        The Treasury Department has taken no position on merging the two
    housing GSE regulators.
            management personnel and department of treasury repairs
        Question. The Committee understands you have requested the first
    increment of funding needed to restore the Historic Department of
    Treasury Building. What is the total cost of the restoration and is
    this restoration going to renew and restore the systems and physical
    structure to meet the 21st century requirements?
        Answer. The total cost of renovating the Main Treasury building is
    estimated at $132,246,000. All systems will be replaced with energy
    efficient, state-of-the art equipment. The external physical structure
    will be weatherproofed and windows replaced with energy saving glass.
    The internal structure will be restored to provide a balance between
    the historic fabric of the facility and the needs of a modern office
    building.
        There have been discussions in the past about the Inspector's
    General's oversight and supervisory authority as it relates to the Law
    Enforcement agencies. The IG has responsibility for internal audit,
    however, the law enforcement units retain their internal investigative
    units.
        Question. Is this something you are considering changing under a
    new IG?
        Answer. While the law enforcement units retain their internal
    investigative units, the OIG has the authority to perform any
    investigations in these bureaus. Under current policy the OIG
    investigates allegations against high-level officials (grade 15 and
    higher). Also, the OIG has oversight authority over the operations of
    bureau internal investigative units.
        At this time, there are no changes being considered. We are in the
    process of identifying appropriate candidates for possible nomination
    by the President, for the Department and, at that time, there may be
    some review of current operations.
        Question. What about the IRS where are the audit and investigative
    functions retained by the IRS Chief Inspector?
        Answer. IRS Inspectors are law enforcement officers who investigate
    allegations of illegal and improper acts which include violations of
    the privacy provisions of the Internal Revenue Code. Inspection Service
    inspectors derive their law enforcement authority from the Internal
    Revenue Code section 7608(b). This section authorizes Inspection
    Service personnel whom the Secretary of Treasury has charged with the
    duty of enforcing criminal laws related to tax administration to
    execute and serve search warrants, make arrests, and make seizures of
    property. These authorities are essential in the protection of IRS
    employees in the investigation of individuals who attempt to bribe,
    intimidate or impede IRS employees in the performance of their duties.
    Without law enforcement authority, inspectors can not provide the
    necessary protection to cooperating employees during bribery, and
    threat and assault investigations. Treasury's I.G. does not have this
    law enforcement authority and, absent an additional change to the
    Internal Revenue Code and the Inspector General Act, the Treasury I.G.
    could not assume some of the functions currently performed by the IRS's
    Inspection Service.
        An understanding of the mission of the Inspection Service can be
    seen within the framework of the overall operation of the IRS. The IRS
    is a large, complex and geographically dispersed organization which
    employs over 100,000 people to collect over $1.4 trillion in tax
    revenues and to fairly enforce the tax laws. Considering the
    significant amount of the money involved, the discretionary authority
    of enforcement personnel, the size of the staff, the massive processing
    operations, and the scope of taxpayer contacts taking place daily
    throughout the country, it is easy to see the inherent risks associated
    with IRS operations and the need for a continuous audit and
    investigative presence.
        The Inspection Service provides this necessary presence and
    emphasizes coverage of IRS activities that most directly relate to the
    collection of tax revenues, enforcement of tax laws, processing of
    returns and other information, and the protection of IRS employees.
    Using their knowledge and expertise of these operations, their
    unrestricted access to IRS personnel, tax information and IRS computer
    systems, and their law enforcement authorities, Inspection Service
    personnel can act promptly and decisively to mitigate concerns by
    concentrating coverage on national and local IRS operations with the
    highest degree of risk. IRS Inspection Service auditors and
    investigators, who are deployed throughout the country and work under
    the supervision of the Chief Inspector, can initiate independent audits
    and investigations based on their professional assessment of the risk
    or allegation.
        The placement of the Inspection Service within the IRS also
    provides the Commissioner the opportunity to direct internal audit and
    investigative coverage to vital areas such as evaluating the
    implementation of tax laws or investigating sensitive allegations. For
    example, the Inspection Service's reporting of concerns directly to the
    Commissioner related to computer security resulted in the agency taking
    prompt and definitive actions to strengthen operations.
        I do not feel that my ability to manage the internal audit
    resources in the Treasury is compromised by the current arrangement. I
    have a good working relationship with the IRS Chief Inspector and value
    the expertise that is regularly exhibited by IRS Inspection Service
    auditors. The Chief Inspector and I discuss audit and investigative
    matters almost daily and meet frequently to review the status of
    significant audits and investigations. Our staffs are in constant
    contact and freely exchange information.
        As specified by Section 8C of the Inspector General Act, I can
    initiate, conduct and supervise internal audits of the IRS. In fact, my
    audit staff has conducted audits of IRS activities that did not involve
    the IRS Inspection Service auditors. My authority to conduct any review
    in the IRS that I deem appropriate has never been challenged. IRS
    Inspection Service auditors continually coordinate their work with my
    staff on audits that involve multiple Treasury bureaus. Further,
    Treasury Order 114-01 gives me the authority, if a need arises, to
    detail personnel from the IRS Inspection Service to conduct audits or
    investigations under my direct supervision.
                              restructure the irs
        Last year the Commission to Restructure the IRS recommended placing
    certain IRS management decisions under the control of an independent
    board. Recently, the CIO of the IRS, Art Gross announced he was
    leaving. And, there has been talk that the Modernization procurement
    and the architecture requirements may change.
        As a result, I'm wondering if the Commission's recommendation to
    create an independent board doesn't have some validity.
        Question. Isn't it true that having a board oversee the development
    and implementation of long range procurement could provide greater
    stability?
        Answer. As you know, this has been a hotly debated topic. We have
    always supported the notion that the IRS receive outside advice.
        The proposed Oversight Board would have specific responsibilities
    for IRS strategic plans, and reorganization plans. It has the right to
    let the Congress have its views on the IRS budget request. And,
    Treasury would retain responsibility for tax policy and for general
    budget and management supervision. We think this relationship can and
    will work.
        The idea of establishing a full-time Board of Governors, as some
    have suggested, raises a different set of questions. Our response would
    depend on the specifics of the proposal. If such a Board had a proper
    organic connection with the Treasury and satisfied the overall
    objective of making tax administration fairer and more efficient, we
    would be happy to discuss it.
        Question. It is my understanding that the IRS is losing the
    potential to collect hundreds of millions of dollars in overdue taxes
    due to problems in determining which accounts are collectible and which
    are not. What action is the IRS taking to develop information on
    written-off accounts to determine whether cost-effective collection
    measures can be developed and applied?
        Answer. The Inventory Delivery System, a system under development,
    will centralize collection case processing and use automated methods to
    evaluate delinquent accounts for collectibility so that the most
    productive accounts receive priority attention. The system has three
    releases planned. The first release containing Financial Analysis
    Profile and basic core functions to support case assignments and data
    base updates is scheduled for pilot in February 1999. The second
    release with Telephone Number Research is scheduled for August 1999
    with a third release containing Address Research in 2000.
                        year 2000 (century date change)
        We are currently reviewing your request to reprogram funds within
    the Department to meet Year 2000 requirements. Of course having the
    Department Year 2000 compliant is only one part of the equation.
        Question. First are you confident that all Treasury systems
    including the IRS and the Financial Management Service will be
    compliant?
        Answer. Yes, I am confident that Treasury has a strong program in
    place to address this challenge and has made significant progress to
    date. For our mission critical systems, Treasury is on schedule to meet
    the implementation milestone date of December 1998 with the exception
    of the IRS phase system applications and Financial Management Services
    Government On-Line Accounting Link System (GOALS). The IRS systems will
    be completed by January 1999 in accordance with the IRS Year 2000
    program plan, which calls for implementing renovated systems in 6 month
    phases, each January and July, through January 1999. This
    implementation strategy was created to accommodate tax processing
    season considerations. The Department is working closely with Financial
    Management Service to determine actions that can be taken to accelerate
    the GOALS schedule.
        Question. What do you know about the other financial institutions
    such as banks, money management firms and credit card companies?
        Answer. The Office of the Comptroller of the Currency (OCC) and the
    Office of Thrift Supervision (OTS), with regulatory oversight of the
    banks and thrift institutions respectively, have been working in
    concert with the Federal Financial Institutions Examination Council
    (FFIEC), in issuing guidelines and advisory letters for addressing the
    Year 2000 issue. Year 2000 compliance has been incorporated as a
    priority within the examination procedures for financial institutions
    by all FFIEC regulatory agencies, including OCC and OTS.
                               general management
        Question. Last year GAO identified Customs Financial Management and
    IRS financial management as high risk areas. What actions have you
    taken to ensure that systems are in place and that we will see
    improvements?
        Answer. As noted above, Treasury's performance plan for Customs
    Service and IRS Financial Management includes a goal to achieve an
    unqualified audit opinion on the Department-wide consolidated financial
    statement for fiscal year 1999 (page DO SE-43). Both of these bureaus
    achieved unqualified opinions for fiscal year 1997 on their financial
    statements. However, despite these opinions, they continue to have
    material weaknesses which the Department is committed to correcting.
    The IRS is aggressively pursuing the closure of its 7 GAO financial
    management recommendations. Customs has successfully closed two of 11
    material weaknesses during fiscal year 1997 . Both Customs and the IRS
    have specific action plans and timetables in place to address their
    remaining material weaknesses.
        This past December I received a copy of the January 1997 report on
    the Department's Personnel System. The Report included three
    recommendations: Train and hold managers accountable; revitalize the
    Personnel Resources Division; and reform the personnel structure and
    strategy to support a high performing organization.
        Question. What steps have you taken to implement these
    recommendations?
        Answer. Some of the highlights of actions taken include:
    Managers
        We issued to managers and supervisors a Managers' Handbook on Human
    Resources. The Handbook also is available through the Department's
    intranet.
        Most managers in Departmental Offices attended two days of training
    in 1997 on performance management and conflict resolution.
        We required all managers and supervisors to complete the
    performance evaluation process and tracked and reported on their
    progress in doing so.
    Personnel Resources Division
        We are investing in the professional development of the Personnel
    Resources staff through on-site workshops, off-site seminars, and
    college course work.
        We have filled critical vacancies with experienced and talented
    personnel specialists.
        We have instituted a client service director concept to improve
    customer service and strategic focus on critical problems.
    High Performing Organization
        A Performance Management Advisory Panel, composed of key
    Departmental Office (DO) executives, has worked with the human
    resources staff to revise the performance management system for DO. The
    new system will focus on setting clear and challenging expectations,
    providing ongoing feedback, recognizing excellent performance, dealing
    with poor performance, and providing appropriate development.
        This year all employees in DO will receive training on the new
    performance management system.
        The new DAS(HR) has formed a Human Resource Advisory Council, which
    will develop this year a Treasury strategic plan for human resource
    management.
        Question. Could you highlight for the committee the background
    behind your request for additional personnel for Departmental Offices?
        Answer. The Office of the Deputy Assistance Secretary for Human
    Resources (DAS(HR)) requires 3 FTE to meet performance goals and
    statutory requirements within prescribed time frames. Specifically,
    additional resources are required to improve our capacity to recruit,
    develop, and retain high caliber employees; improve performance
    management; and reengineer human resource systems to provide better
    support to Treasury missions.
        Last year the Assistant Secretary (Management) and Chief Financial
    Officer conducted a reorganization and established new positions of
    DAS(HR) to implement a new vision for Human Resource Management in the
    Department. All human resource functions were placed under the DAS(HR),
    who is responsible for leading, directing, and managing an innovative
    and comprehensive human resource program that serves to frame and
    advance the Department's missions.
        The three critical positions will be focused on continuing to
    implement the recommendations of the January 1997 report on the
    Department's personnel system by providing leadership in the
    Departmental Office operating personnel office and in emerging human
    resource initiatives across the Department, e.g., reengineering human
    resource systems and dealing with critical staff shortages such as in
    information technology. If not funded the DAS(HR) would be seriously
    limited in her ability to carry out in a timely manner Treasury's
    strategic goals of recruiting, developing, and retaining a high
    caliber, diverse work force, and to reengineer the human resource
    systems to more effectively and efficiently support Treasury's
    missions.
                           state trading enterprises
        One of President Clinton's major campaign issues was to step up
    enforcement actions against foreign companies doing business in the
    United States. The President estimated during his initial campaign that
    an additional 50 billion dollars could be collected by the enforcement
    of the tax laws against foreign companies operating in the United
    States.
        Question. How do the monopoly subsidiaries of the State Trade
    enterprises operate? How do they affect competition in the importing
    countries?
        Answer. These questions do not touch on issues under the Treasury
    Department's purview. They should probably be directed to the
    Department of Commerce or the Office of the U.S. Trade Representative.
        Question. What is Treasury doing to monitor and collect taxes in
    regards to ``State Trading Enterprises'' and their subsidiaries
    operating in the United States?
        Answer. State trading companies and their subsidiaries operating in
    the United States are subject to the same tax statutes and regulations
    as any other foreign companies operating in the United States. The are
    subject to IRS audit to see if their transactions with related parties
    abroad are in accordance with the very comprehensive and newly revised
    transfer pricing rules. They must file a Form 5472 that gives
    information on transactions with any related party offshore. Section
    6038A of the Internal Revenue Code requires foreign-controlled U.S.
    companies to furnish data to the Treasury that is necessary for the IRS
    to verify the proper treatment of transactions with parties offshore.
    Failure to comply results in severe penalties.
        Foreign-controlled companies are also subject to ``earning-
    stripping'' rules that may reduce their allowable deductions for
    interest expense if they have high debt-asset ratios and pay interest
    to related parties offshore.
        Question. How does the New Zealand Dairy Board (NZDB) or any other
    State Trading Enterprise do business and must each be profitable?
        Answer. The operation of foreign state trading enterprises are not
    under the Treasury Department's purview. This issue should probably be
    directed to the Department of Commerce, The Department of Agriculture
    or the Office of the U.S. Trade Representative.
        Question. Do export monopolies benefit their own farmers? How does
    the return to the New Zealand dairy farmer compare to the return to the
    U.S., EU, and Australian dairy farmer? What is the operating cost of
    the New Zealand Dairy board? How much do the farmers pay to maintain
    it? Would they be better off without it?
        Answer. These questions do not touch on issues under the Treasury
    Department's purview. They should probably be directed to the
    Department of Commerce or the Department of Agriculture.
        Question. What are the advantages of a State Trading Enterprise
    being able to totally control supply and price? How do the STE's pay
    taxes in the countries in which they operate?
        Answer. These questions do not touch on issues under the Treasury
    Department's purview. They should probably be directed to the
    Department of Commerce or the Office of the U.S. Trade Representative.
        Question. Does the monopoly structure allow them to avoid taxes
    around the world?
        Answer. It is difficult to determine whether their monopoly
    structure provides State Trading Enterprises with a greater opportunity
    to avoid taxes around the world. As noted above, they are subject to
    the same relatively stringent tax rules that apply to all foreign-
    controlled companies operating in the United States. If they have
    exclusive control over all transactions with their home country, it may
    be difficult to find an ideal comparable uncontrolled price as a basis
    for determining the appropriate transfer price. But the Section 482
    regulations specify various other methods and adjustments that can be
    used to establish the arm's length price in the many cases when an
    ideal comparable uncontrolled price is not available.
        Question. Does this give STE's additional funds which are then used
    to cross-subsidize?
        Answer. The operation of foreign state trading enterprises are not
    under the Treasury Department's purview. This issue should probably be
    directed to the Department of Commerce, The Department of Agriculture
    or the Office of the U.S. Trade Representative.
                        youth crime prevention programs
        Question. Can you provide additional information about Treasury's
    programs to combat gang and youth violence programs?
        Answer. The Gang Resistance Education and Training (GREAT) Program
    has had tremendous results in teaching the nation's children the
    dangers of gangs, guns and drugs. While most of the nation experiences
    a decrease in violent crimes, there are some areas of the United States
    that are, unfortunately, bucking this trend.
        The GREAT Program currently provides training in over 1,400
    communities throughout the United States. Of these, only 74 communities
    receive federal funding through the GREAT Program. At the beginning of
    the 1994-95 school year, a national evaluation of the GREAT Program was
    launched by the University of Nebraska at Omaha in conjunction with the
    National Institute of Justice (NIJ) and ATF. The five-year longitudinal
    part of the study will be completed in the year 2000. In November of
    1997, results of the cross-sectional part of the study were published
    by NIJ after an intensive peer review process. The study found that
    students completing the GREAT Program reported lower levels of
    delinquency, impulse behavior, risk-taking behavior and approval of
    fighting, as well as higher levels of self-esteem, parental monitoring,
    parental attachment, commitment to positive peers, anti-gang attitudes,
    perceived educational opportunities and positive school environment.
        Dr. Finn-Aage Esbensen wrote that these results are promising, and
    that the longitudinal study will also provide a better assessment of
    the program's effectiveness, as well as allowing for an examination of
    the long-term effects of the program. He also wrote in his study that
    gang members reported living in single parent homes more frequently (40
    percent) than non-gang youths (30 percent). Gang members' mothers,
    fathers, or both were more likely not to have finished high school (20
    percent for gang members, 11 percent for non-gang youths). Dr. Esbensen
    wrote that these demographic characteristics suggest there may be
    qualitative differences in the living situations between gang and non-
    gang youths. If the GREAT Program continues to have a positive effect/
    impact, over the long term the communities that are teaching GREAT
    should continue to benefit from the program. One of these benefits,
    again, would be a lower level of delinquency and violence.
                  earned income tax credit compliance account
        Question. What is the status of IRS efforts funded through the new
    Earned Income Credit Compliance Account?
        Answer. This year, the IRS has taken a number of proactive efforts
    as part of the Earned Income Credit Initiative, including:
      --Sent notices to over 6 million EITC recipients informing them of
            the advance EIC payment option.
      --Sent an informational letter to the top 100 employers most likely
            to employ taxpayers who would be eligible for the credit.
      --Sent notices to approximately 2.5 million taxpayers who did not
            claim the credit but appear eligible for the credit.
      --We are providing toll-free assistance for EITC questions 24 hours
            per day 7 days a week.
      --We expanded outreach efforts to service EITC eligible low income
            and elderly taxpayers by providing tax information and return
            preparation during the last three Saturdays beginning March 28.
      --We designated March 28, as EITC Awareness Day, where walk-in sites
            provided taxpayers with up-to-date information regarding the
            new tax laws and the penalties associated with intentional
            noncompliance, and assisted EITC eligible taxpayers with return
            preparation.
      --Informational products such as stuffers, posters, employee and
            employer brochures were provided to local offices to use in
            partnering efforts with groups and agencies.
      --As of March 19, 1998 we have issued 47,730 EIC Math Error Notices
            for Invalid/Missing Social Security Numbers.
                              non-bank regulation
        Question. The Money Laundering Suppression Act of 1994 requires the
    registration of Non-Bank Financial Institutions that includes a
    methodology for reporting suspicious financial activity. Where is
    Treasury in registering non-banks and what regulations are in place to
    control non-bank reporting of suspicious activity?
        Answer. Proposed rules were announced in May 1997 to respond to
    vulnerabilities in the money services business (MSB) industry as well
    as to implement the requirement of the Money Laundering Suppression Act
    of 1994 that the Treasury register this group of businesses.
        The first proposed rule would require that MSB's--which include
    money transmitters or remitters, money order issuers and sellers,
    travelers check issuers and sellers, retail currency exchangers and
    check cashers--register with the Department of the Treasury. A second
    proposal would extend suspicious activity requirements to money
    transmitters and issuers, sellers and redeemers of traveler's checks or
    money orders. The third proposal would require money transmitters to
    report currency transactions of $750 or more that involve the
    transmission of funds to any person outside the United States.
        FinCEN held five public meetings last summer to elicit comments on
    the proposed rules. The written comment period ended on September 30.
    FinCEN has reviewed the comments and is finalizing the proposed rules
    based on industry concerns, where appropriate.
        Treasury has indicated it will allocate $2.5 million from Treasury
    Super Surplus balances in the Treasury Forfeiture Fund to FinCEN for
    MSB implementation fiscal year 1999. This amount would be used for
    administration of the new programs, including guidance, interpretive
    advice, oversight, coordination and data analysis. FinCEN projects
    publication of the final rules by early-mid summer, with full
    implementation of all three new requirements no sooner that year's end.
    These rules will impose new requirements on a very diverse set of
    businesses, including convenience stores, travel agencies, groceries
    and other small retail businesses that offer these services as a
    convenience to their customers. We anticipate providing the MSB
    community with ample time for implementation of the rules.
        It should be noted that while there are currently no federal
    regulations requiring MSB's to set up programs to detect and report
    suspicious activity, virtually all of the national MSB businesses, such
    as Western Union, American Express, and the U.S. Postal Service, have
    already begun to establish such programs and are voluntarily filing
    suspicious activity reports today.

                              Subcommittee Recess

        Senator Campbell. This hearing is recessed. The
    subcommittee is recessed until Thursday, March 26.
        [Whereupon, at 10:35 a.m., Thursday, March 12, the
    subcommittee was recessed, to reconvene at 9:35 a.m., Thursday,
    March 26.]

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 1999

                                  ----------

                            THURSDAY, MARCH 26, 1998

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:35 a.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Lauch Faircloth, presiding.
        Present: Senators Campbell, Faircloth, and Kohl.

                       EXECUTIVE OFFICE OF THE PRESIDENT

                     Office of National Drug Control Policy

    STATEMENT OF GEN. BARRY R. McCAFFREY, DIRECTOR

                                Opening Remarks

        Senator Faircloth. The subcommittee will come to order. The
    chairman of the subcommittee, Senator Campbell, has been
    detained briefly this morning but will be joining us in a very
    short while. I would like to begin with a few brief remarks and
    then turn to the ranking member, Senator Kohl, for any opening
    statement he may wish to make.
        First, I want to welcome General McCaffrey, the White House
    National Drug Policy Director, or more simply, the drug czar.
    He is here to present the administration's budget for the
    Office of National Drug Control Policy for fiscal year 1999. We
    welcome you, General.
        General McCaffrey. Yes, sir.
        Senator Faircloth. General, I must say, from our
    perspective, the Nation is losing the war on drugs. It
    certainly seems so. Now I know that you have been working hard
    and diligently to fight the current trends of increasing drug
    use, but frankly this seems to be a lone voice crying out in
    the wilderness. It appears to be getting worse.
        But I think you are commended for your efforts, but I do
    think it is disingenuous for this administration to continually
    compare current drug use rates with the year 1979, perhaps the
    worst period ever we had. A much better comparison, and one I
    hope you will focus on or elaborate on is comparing current
    drug use statistics with the year 1992, when President Clinton
    was first elected. I realize that that is not the most
    comfortable situation or question for the administration, but
    the news is almost entirely bad.
        General, according to your testimony, cocaine initiation
    rates, or the number of people trying cocaine for the first
    time are increasing. Heroin initiation rates are up markedly.
    Drug use trends among young people, to quote you, remain
    especially troubling. General, I saw that your winter 1997
    pulse check recently made the disturbing announcement that
    heroin and methamphetamine drug usage is increasing.
        General, I have introduced a bill to transfer up to one-
    third of the IRS enforcement positions to the Department of
    Drug Enforcement because I believe the IRS is waging a war on
    the American taxpayers that is unnecessary while we are losing
    the war on drugs. My view is that we must change the priorities
    of this administration and put the necessary resources behind
    an effort to get drugs out of the schools and the life of our
    young people certainly.
        With that, I turn to Senator Kohl for any statement he
    wishes to make.

                           Statement of Senator Kohl

        Senator Kohl. Thank you, Senator Faircloth.
        General McCaffrey, we welcome you to the subcommittee today
    and we very much appreciate having another opportunity to
    discuss our concerns about drugs and their impact on our
    society. As we discussed last year, we have invested some $150
    billion in drug control activities since 1987. However, drug
    abuse costs the taxpayers an additional $70 billion a year by
    fueling such things as domestic abuse, accidents, the spread of
    disease, and crime.
        We have seen some improvements, we are not seeing the
    steady decrease in drug abuse and drug trafficking that we were
    anticipating, given that level of funding. In 1997, you told
    this subcommittee that you were going to provide results and
    not rhetoric. That is what we need, concrete examples of
    successes.
        We cannot continue to provide funds without proof that the
    programs that you advocate are working. We need to show some
    evidence of success. We need to show some incremental
    improvements. We need to show something that will indicate that
    taxpayer dollars are making a difference in what our citizens
    describe as the most serious problem facing our children in
    America today. As a result, we should at least continue to fund
    prevention programs with proven successes such as the GREAT
    Program and the high-intensity drug trafficking programs.
        We also need to make sure that we are providing treatment
    to incarcerated individuals who test positive for drugs. And we
    need to make sure that communities have programs available to
    those that want a better way of life; namely, a drug-free life.
        Thank you, Mr. Chairman.
        Senator Faircloth. Thank you.
        General McCaffrey, we are delighted to hear your statement.

                        Statement of General Mc Caffrey

        General McCaffrey. Thank you very much, Senator. Let me
    thank you and your colleagues, those who will come later,
    particularly Chairman Campbell, and all of you----
        Senator Faircloth. General, if you do not mind, would you
    move the microphone a little closer to you there?
        General McCaffrey. Yes, indeed. Let me again say I thank
    you for your opening comments and for Chairman Campbell and the
    rest of your support during the past year. I probably ought to
    congratulate you specifically for having been named one of the
    top five zealots in the war on pot smokers by NORML. I think it
    is a title you ought to be proud of.
        Senator Faircloth. I did not know I had been named.
        General McCaffrey. We are very pleased with you taking that
    visible role.
        Let me, if I may, Senator, tell you straight-out that I
    share your uneasiness and your concern on the magnitude of this
    problem. It is simply atrocious, and I will try and sketch that
    out very quickly.

                             Introduction of Guests

        With your permission, let me call to your attention that I
    am really honored to have here in the room with me several
    people who are enormously important to us. Many of our HIDTA
    directors were able to come in--the ones that are close enough
    to drive--Joe Peters from Philadelphia HIDTA, Dave Knight from
    Gulf Coast, and Tom Carr from Washington-Baltimore HIDTA.
        We also have Nelson Cooney, the acting president of the
    Community Antidrug Coalitions of America, arguably the most
    important group I work with; more than 4,000 community
    coalitions all over the country. And this Portman-Grassley bill
    will assist us, as you know, in building we hope 14,000
    coalitions in the next 5 years.
        We have Linda Wolf Jones here from Therapeutic Communities
    of America, Sue Thau who is with the Community Antidrug
    Coalitions of America, Kathleen Sheehan with the National
    Association of State Alcohol and Substance Abuse Directors. And
    two very important people that I think are known to both of
    you, Dick Bonnet and Mike Townsend from Partnership for a Drug-
    Free America. They have done really the bulk of the creative
    work on this national youth media strategy that we will talk
    about some more.
        So I thank all of them because their participation has
    helped us outline our strategy and what we are doing.

                      1998 National Drug Control Strategy

        Let me run through some charts very quickly. First of all,
    to again reiterate that we are working off a strategy. Senator,
    let me just note that there are four documents that are in this
    strategy, all of them by law something that I must submit each
    year. The first is the document, ``A 10-Year Perspective,''
    that was created with the assistance of more than 4,000
    individuals and entities who wrote me advice on how to go about
    this problem. We think this is extremely well received
    throughout the country. It makes sense. It is a way to organize
    it.
        Senator, for the first time in history we submitted a 5-
    year drug budget. Frank Raines and I worked with the nine
    appropriations bills that form the more than $17 billion in the
    1999 budget request, and it is now in a document. I do not
    think it is all that good, but it is our first shot at it and
    we are now looking for congressional oversight on how should we
    shape the coming 5 years. I really welcome your attention to
    this effort. We are proud that we got it on the table and we
    are listening for your ideas.

                              Performance Measures

        A very controversial document and I think an important one,
    Dr. John Carnevale out of my shop has been leading a yearlong
    effort to create the ``Performance Measures of Effectiveness.''
    It is 141 pages. We have a modest estimate on how good it will
    be, but we said 10 years from now what are the 12 outcomes we
    want to achieve. Then we describe 82 targets we have to achieve
    to get to those 12 outcomes. I will show you a chart that
    summarizes it.
        Now in the coming year I have to develop annual targets so
    that you can hold us accountable every year when we come down
    here, not only for explaining the 5-year budget we are arguing
    for, but what did we accomplish in the last year. That is what
    this is intended to do.
        The numbers we can change. If you have other studies or
    experts or a different viewpoint, I will, of course, be
    respectful of your thinking. But I would like us to embrace the
    idea of accountability, and that it will be a 10-year program
    to get a new generation of America drug free.

                              Classified Strategy

        Finally, this is a classified document. It is classified
    secret, limited distribution. It is available, of course, for
    you to look at. It is the ``Strategic Annex to the Strategy.''
    It gives guidance to our intelligence services, et cetera.
        Good morning, Mr. Chairman. Mr. Chairman, I just began to
    make comments and I outlined the four documents that comprise
    the totality of the strategy.

                                 Drug Use Data

        Let me quickly run through some other charts. This is where
    we are going. This is our target. It is a little bit hard to
    read, but let me just tell you that currently drug use is at 6
    percent in this country, and when you look at the young kids 12
    to 17 it is about 9 percent use. That went down last year for
    the first time in 6 years. It was 10.6 percent. It dropped to 9
    percent.
        Donna Shalala, whose study gives us this data, and I say
    that is statistically not significant. But what is significant
    is for the first time in 6 years it went down, not up. Now down
    below is where we say we are going. The 10-year goals are 3
    percent of the population using drugs, and when you look at the
    kids, 4.5 percent.
        We can get there over the coming decade--we believe this is
    achievable. Many think it is too ambitious. If we can get
    there, they will be the lowest rates of drug use in our society
    since we began keeping data. That would be before my two shiny,
    new grandsons hit the eighth grade. And that is our commitment.
        Now we can get more ambitious. We can achieve more of it
    earlier. I am listening to your own viewpoints. But that is
    what 200-some-odd experts and the Federal agencies involved
    have come up with. I respectfully submit that to you as a
    pretty decent unifying goal. I think next year when you get me
    back here, instead of saying the decrease in drug use was
    statistically insignificant, I believe next year I am going to
    come back and tell you we had a definite drop in drug use rates
    among children.
        Now here is the cost. Senator, this is why I essentially
    buy your entire statement. One hundred thousand dead in the
    1990's alone. Look at the cost: a $70 billion hit on our
    society and 1.5 million Americans arrested a year. The dominant
    cause of problems in our hospital emergency rooms, if you talk
    to a doctor, relates to drugs. And you can go on down the list.
        We have now revised our estimates on who is addicted to
    heroin; 810,000 Americans. Only 2 percent of the world's demand
    for heroin is in this country, but 810,000 Americans are
    compulsive heroin users. We say probably a little under 4
    million Americans are chronically addicted to some illegal
    drug, primarily cocaine, then heroin, then other drugs. So this
    is a pretty big challenge to us.
        Now, are we making any progress? Absolutely--if you look at
    1979, the worst time in modern America. Although that was
    probably not as bad as just prior to 1916, when we passed these
    modern laws and it was worse with both cocaine and opiates. But
    if you go back to 1979, we have come down by one-half. Cocaine
    use has come down by 75 percent.
        We hit the low probably around 1992, but around 1990 we saw
    values among kids start going bad on us. The disapproval rate
    of drugs and the fear of drugs personally went the wrong way in
    1990 and 1991. In 1992, drug use rates went up and they
    increased every year until last year when they went down.
        Meth use, which is one of the worst drugs that we ever have
    encountered in this Nation----
        Senator Faircloth. What drug did you say?
        General McCaffrey. Methamphetamine. Chemically produced. Go
    get a $100 bill, the recipe off the Internet, get a high school
    laboratory level of equipment and you can make the poor man's
    cocaine. Six to sixteen hours of dangerous drug-induced highs.
    It is destructive physically, mentally, and spiritually. It is
    horrendously dangerous to our law enforcement personnel.
        Yet as that thing has spread, maybe--maybe Attorney General
    Janet Reno and I, with a new strategy, and you having given us
    new legislation, maybe last year we got in front of this. This
    should not become the crack cocaine epidemic of the 1990's. As
    you remember, in 1985 that almost killed American cities. And
    meth is out there, and it is not just in the cities either. It
    is in rural Georgia, Kansas, Missouri, Arizona, Idaho, Hawaii,
    and southern California. But we think we may be in front of it.
        Cocaine production is down. The facts are we finally have
    started to bite into it. Except for poor Colombia where it is a
    disaster. In Peru the production of coca is down 40 percent in
    2 years. It is down 9 percent in Bolivia. It is astonishing the
    progress we have made. That is just the beginning, but at least
    we are starting to turn the corner.
        United States spending on drugs is down and some aspects of
    drug-related crime are down. It is hard to tell that to a
    police officer, dealing with the impact of drug-related
    violence. We have a man in the room whose son was almost
    murdered as a Maryland State police officer by drug dealing. So
    the violence is still out there. But if you look at the gross
    numbers, it has come down--thank God--dramatically.
        This is another, I find, bit of encouraging news. One of
    the four major studies we do every year, federally funded, is
    Monitoring the Future, by Dr. Lloyd Johnson up at the
    University of Michigan. Since the 1960's they have been
    watching what kids say about their values, including drugs.
    Last year, his data showed 12th graders' drug use still going
    up. But if you look at the eighth graders and their values
    relating to cigarettes, alcohol, pot, and other drugs,
    apparently they have started to turn around. Let us watch that.
    That is our goal: to take eighth grade drug use rates and run
    them down.
        Our kids now are drug free when they finish the DARE
    program in the fifth and sixth grade. In the 8th, 9th, 10th,
    11th, and 12th grade they encounter drugs, so by the time they
    are seniors one out of five are regularly using an illegal
    drug. Ten years from now, those kids will produce the next
    generation of compulsive drug users. That is why we have to
    focus on middle school kids, and high school kids, and keep
    them from smoking pot and abusing alcohol and using cigarettes.

                         National Youth Media Campaign

        The National Youth Media Strategy that you funded as part
    of the ONDCP budget is starting to pay off. We are so proud of
    what not only the Partnership for a Drug-Free America, but also
    the Quad A, the Annenberg School of Journalism, the Advertising
    Council of America, and the entertainment industry. I have a
    report which hopefully is in your packet that gives you our
    initial feedback on the 12 pilot cities. In June we will go
    nationwide. By the fall, PDFA will have our new generation of
    ads coming out.
        Our key is that by the time December rolls around, we will
    have messages on radio, local billboards, and local TV, as well
    as national programs that sound like your district, your State:
    Native American, Hispanic-American, African-American, Southern,
    Northeast corridor. The work we are doing right now has
    produced a wave of phone calls to coalitions that we find very
    encouraging.
        Finally, I would just sort of show you this. Here is the
    next step to all of this. Although paid advertising is the
    heart and soul of it, and the Partnership for a Drug-Free
    America is really our dominant partner in that area, there's
    also partnerships with private industry. We are working with
    the industry council. We are going to get on the Internet.
    Right now it is dominated by prodrug forces. We are going to
    make sure we have interactive capacity to deal with young kids
    as well as high school kids.

                               Drugs and Prisons

        Yesterday we finished a 2-day conference cochaired by
    Attorney General Janet Reno and Secretary Donna Shalala. We
    brought in a couple hundred experts from all over the country
    on drugs and prisons. I do not need to tell this committee, we
    have 1.7 million people behind bars; more than any other nation
    on the face of the Earth. It is probably going to go up 25
    percent in the coming years. It is a national nightmare.
        It helps to keep the violent criminals off the streets.
    Somewhere between 50 and 80 percent of those incarcerated are
    compulsive drug users. So we know--and we have learned this
    from Attorney General Reno and Secretary Shalala's studies and
    their experience--that we have to provide effective drug
    treatment, and then we have to put people back in the halfway
    houses with drug testing. And when they predictably fall off
    the wagon, we have to have a tough love approach where we
    reincarcerate them for 21 days or 14 days--and we have a judge
    running this system--instead of allowing them to go back to a
    life of addiction.
        We are going to work on that. By next December we are going
    to bring in the country's law enforcement and correction
    specialists and try and give them some solutions on all of
    this. But I think it is a very encouraging situation, and some
    of those in the room are helping us design that.

                                     HIDTA

        Final one, let me just mention the HIDTA program which I am
    very grateful for your support on that. We now have 20 HIDTA's,
    three of which have funds appropriated and are pending
    obligation. Those are moving along the right way. The 20
    HIDTA's include five Southwest border partnerships. All along
    that border now, 2,000 miles with Mexico, we have a high-
    intensity drug trafficking area with Federal funding allowing
    State, local, Federal cooperation on this drug issue.
        We are getting a tremendous amount of good out of this.
    There are probably more HIDTA's that deserve consideration. By
    this summer I will have a study done and we will come back to
    Congress and to this committee and recommend an expansion of
    that program. But I think there is every reason to be very
    proud of the way prosecutors and law enforcement have come
    together on this issue.

                                     Budget

        Mr. Chairman, with that, let me, if I may, just say that I
    think we have an aggressive, balanced fiscal year 1999 budget
    proposal in front of you, for the ONDCP element of the drug
    control effort, which is really the smallest piece of it. It is
    a $17 billion overall program in nine different bills of which
    our ONDCP salaries and budget are a pretty small piece of it: a
    little over $19 million. There is $162 million in the HIDTA
    program, $1 million in there for ONDCP research, and then $251
    in the so-called special forfeiture fund.
        The big ticket items are the media campaign, the drug-free
    communities program, and then also a hardcore user study and
    some other assorted activities that I would be honored to talk
    you through.

                               Prepared Statement

        With your permission, Mr. Chairman, I would submit for the
    record a written statement that we have pulled together which
    includes the best judgments we have in response to your own
    interests.
        Senator Campbell. Without objection, it will be included in
    the record.
        General McCaffrey. Sir, I look forward to answering your
    own questions and listening to your own ideas.
        [The statement follows:]
                    Prepared Statement of Barry R. McCaffrey
        Chairman Nighthorse Campbell, Senator Kohl and members of the
    Committee, thank you for the opportunity to testify on the Office of
    National Drug Control Policy's budget. The Office of National Drug
    Control Policy (ONDCP) appreciates your longstanding support, as well
    as the guidance and leadership of the Committee. The Strategy we have
    presented to the Congress, developed in close consultation with the
    members of this Committee and the Congress as a whole, reflects the
    strength of our enduring bipartisan commitment to focus our efforts to
    diminish America's drug problem on realistic results. We appreciate
    your good counsel on setting our sights on aggressive, but plausible,
    targets.
        Much of our current progress results from the fact that you have
    enabled us to reinvigorate the Office of National Drug Control Policy.
    Mr. Chairman and Senator Kohl, I want to particularly thank each of you
    for your wise judgments and tireless efforts in this regard. Through
    the support of this Committee, we now have an ONDCP that is ready for
    the task ahead.
        The importance of your bipartisan support in the success of this
    effort is evident from one of the most significant programs we are now
    undertaking: the National Anti-Drug Youth Media Campaign. Mr. Chairman
    and Senator Kohl, your efforts to ensure the success of the National
    Youth Media Campaign are now paying off; in twelve pilot cities we are
    reaching out to our young people with a simple, yet vital message:
    ``drugs are wrong, and they can kill you and your dreams.'' Absent the
    support of you and this committee, this program would not exist today.
    The other efforts of Committee members, such as Senator Mikulski's
    support of the Baltimore HIDTA and Senator Shelby's efforts on the
    intelligence review, are also vital to our success. Let me congratulate
    Senator Faircloth on being designated one of the ``Top Five Zealots in
    the War on Pot Smokers'' by NORML.
        Our common efforts have had a direct and substantial impact on the
    success America has enjoyed in reducing drug use. Over the past
    seventeen years, this bipartisan partnership has contributed to a 50
    percent overall reduction in the number of Americans using drugs and a
    70 percent reduction in the number of Americans using cocaine. But we
    can and must do more. If unchecked, America's drug abuse problem will
    kill 140,000 Americans and cost our society $700 billion over the
    coming decade. Our progress must be steady; we cannot afford to lose a
    moment's time or spare any effort in significantly reducing the threats
    of drug use in America.
        We welcome the opportunity at this hearing is to put forward the
    fiscal year 1999 budget for ONDCP. However, to provide a framework for
    understanding this budget, this testimony must begin with an analysis
    of current drug use trends in America, and an overview of the 1998
    National Drug Control Strategy.
        When you considered my appointment as Director of ONDCP in February
    1996, I pledged to forge a coherent counter-drug strategy that would
    substantially reduce illegal drug use and protect our youth and our
    society. The 1998 National Drug Control Strategy reflects ONDCP's
    ongoing commitment to this goal. This Strategy is a ten-year plan to
    reduce drug use in America by half--to the lowest levels in the past
    thirty years. The following table offers examples of the progress that
    will be attained if this plan is fully implemented by all sectors of
    American society:

    ----------------------------------------------------------------------------------------------------------------
                  Measure                     Current figure           10-year goals           30-year lows/highs
    ----------------------------------------------------------------------------------------------------------------
    Current drug use (all ages)........  6.1 percent............  3 percent..............  5.8 percent (low).
    Marijuana initiates................  2.37 million...........  1.18 million...........  1.37 million (low).
    Age of initiation (marijuana)......  16.7 years.............  20 years...............  20.1 years (high).
    Current use of illicit drugs (among  9.0 percent............  4.5 percent............  5.3 percent (low).
     12-17 year olds).
    ----------------------------------------------------------------------------------------------------------------

        Let us be clear on this: never before has America had so solid a
    commitment to a long-term counter-drug strategy, which is determined to
    achieve such an ambitious a goal in fighting drugs. The Strategy is
    backed by a system of Performance Measures of Effectiveness by which
    this Congress and the American people can hold us accountable to
    achieve these ends. However, whether the issue was balancing the
    budget, defeating Nazi Germany, or ensuring civil rights to our
    citizens, we have triumphed as a nation only when we have worked
    together without regard to party or politics. If we lose the bipartisan
    anti-drug cooperation and momentum we currently have, it could take us
    up to three additional years to begin to meet our goals. We need a
    partnership among the Administration, members of Congress, community
    coalitions, and state and local governments to achieve our purpose. The
    National Drug Control Strategy is sound; our task is to work together
    to successfully achieve the defined outcomes for all five of our goals
    with their 32 supporting objectives.
       i. drug use trends--the threat is great, but we are making solid
                                    progress
        Illegal Drug Use Places a Tremendous Burden on America.--The social
    costs of drug use in America total over $67 billion per year, including
    $46 billion in crime, $6.3 billion in AIDs-related costs and $8 billion
    in illness-related costs. Cocaine initiation rates--the number of
    people trying the drug for the first time--have begun to increase.
    Heroin initiation rates are up markedly. Drug use trends among young
    people remain especially troubling. Drug-use rates among youth, while
    still well below the 1979 peak of 16.3 percent, remain substantially
    higher than the 1992 low of 5.3 percent. One in four twelfth graders is
    a current illegal drug user, while for eighth graders, the figure is
    approximately one in eight. Elevated drug-use rates are a reflection of
    pro-drug pressures and drug availability. Almost one in four twelfth
    graders say that ``most or all'' of their friends use illegal drugs. A
    Columbia University Center on Addiction and Substance Abuse survey
    reported that 41 percent of teens had attended parties where marijuana
    was available, and 30 percent had seen drugs sold at school.
        Illegal Drug Use Rates are 50 Percent Lower Than 1979's Historic
    High Level.--In 1996, an estimated thirteen million Americans (6.1
    percent of the U.S. household population aged twelve and over) were
    current drug users. This figure is roughly half the number in 1979 when
    twenty-five million (or 14.1 percent of the population) were current
    users.
        Illegal Drug Use Has Begun to Level off Among Youth.--The
    University of Michigan's 1997 Monitoring the Future (MTF) study and
    SAMHSA's 1996 National Household Survey on Drug Abuse (NHSDA) indicate
    that youth drug use rates seem to be leveling off, and in some cases
    are declining. The MTF found that, for the first time in six years, the
    use of marijuana and other illegal drugs stabilized among eighth
    graders. Use of marijuana and other illegal drugs among tenth and
    twelfth graders also appears to have leveled off. The NHSDA reported
    that current drug use among twelve to seventeen-year-olds declined
    between 1995 and 1996 from 10.9 percent to 9 percent. The MTF study
    also reported that attitudes regarding drugs, which are key predictors
    of use, began to reverse in 1997 after seven years of erosion.
        Crack Use is Declining.--The most recent data from the Drug Use
    Forecasting Program, which monitors arrestees, show a coast-to-coast
    decline in crack use (from a 29 percent decline in Washington, D.C.,
    from 1988 to 1996, to 15 percent decline in San Jose, from 1989 to
    1996)--a good indication that the crack epidemic that began in 1987
    continues to abate.
        Good News on Methamphetamine.--Meth use, as reflected by the Drug
    Use Forecasting Program's testing of arrestees, is down in the eight
    cities that had been suffering the highest increases in use: 52 percent
    drop in Dallas; 20 percent drop in San Jose; 19 percent in San Diego;
    34 percent in Portland; and over 40 percent in Denver, Omaha and
    Phoenix.
        Cocaine Production Down Sharply.--Indications are that cocaine
    production in the Andean region--the primary producing area--may be
    down as much as 100 tons from last year.
        Spending on Drug Consumption is Down.--The most recent data shows
    the amount Americans spend buying illegal drugs is down roughly 37
    percent from 1988 to 1995--a total per annum decline of $34.1 billion
    reinvested in American society.
        Drug-Related Crime is in Decline.--In 1989, according to the FBI,
    there were 1,402 murders related to narcotic drug laws. In 1992, that
    number dropped to 1,302. By 1996, that number hit a low of 819.
        Drug-Related Medical Emergencies May Have Peaked but Remain Near
    Historic Highs.--SAMHSA's Drug Abuse Warning Network (DAWN) reported
    that drug-related episodes dropped 6 percent between 1995 and 1996,
    from 518,000 to 488,000. Heroin-related episodes declined slightly, the
    first decline since 1990. Methamphetamine-related incidents decreased
    33 percent to 10,787, the second year of decline since the 1994 peak of
    17,665.
        Drug Offenders Crowd Our Prisons and Jails.--In June 1997, the
    nation's prisons and jails held 1,725,842 men and women--an increase of
    more than 96,000 over the prior year. More Americans were behind bars
    than on active duty in the Armed Forces. The increase in drug offenders
    accounts for nearly three-quarters of the growth in the federal prison
    population between 1985 and 1995, while the number of inmates in state
    prisons for drug-law violations increased by 478 percent over the same
    period.
        Public Awareness About the Dangers of Drugs is Increasing.--A 1997
    Harvard University poll found that adults believe the number one
    problem facing America's children is drug abuse. A 1997 study by the
    Center on Addiction and Substance Abuse found that over half of our
    young people support drug testing in their schools and say they are
    willing to report a drug user to school officials.
                  ii. the 1998 national drug control strategy
    A. Highlights of the Strategy
        The 1998 Strategy focuses on expanding programs that work and
    building targeted new initiatives designed to directly attack the
    problem of drug use. Highlights of this comprehensive, balanced, ten-
    year plan include:
    A Ten-Year Strategy to Reduce Drug Use and its Consequences by Half
      --First-ever, comprehensive ten-year plan to reduce drug use and its
            consequences by half.
      --This ten-year plan is backed by a five-year budget projections, and
            Performance Measures of Effectiveness to improve accountability
            and efficacy.
      --Supported by the largest counter-drug budget ever presented: $17.1
            billion.
      --Dynamic and comprehensive: focuses on results not programs; each
            element supports all the other initiatives.
    Providing the Resources Necessary to Make a Difference
      --The $17.1 billion recommended drug control budget for fiscal year
            1999 represents a $1.1 billion increase (6.8 percent) over the
            fiscal year 1998 enacted level.
      --The fiscal year 1999 budget includes an increase of $491 million
            for treatment and prevention programs and $602 million for
            supply reduction programs.
      --The fiscal year 1999 recommended drug budget is 43 percent larger
            than the fiscal year 1992 enacted budget.
      --Prevention efforts in the fiscal year 1999 budget are provided $.7
            billion more than in fiscal year 1992; treatment programs are
            provided $3.5 billion more than in fiscal year 1992; domestic
            law enforcement efforts are provided $3.7 billion more than in
            fiscal year 1992.
    Protecting America's Young People
      --The Strategy's first goal is educate children and adolescents to
            enable them to reject drugs.
      --This Strategy builds on programs that work and launches new
            initiatives:
        National Youth Anti-Drug Media Campaign ($195 million)--will ``go
                national'' in June.
        School Drug-Prevention Coordinators Initiative ($50 million)--
                providing prevention professionals to 6,500 middle schools
                nationwide.
        President's Youth Tobacco Initiative ($146 million)--preventing
                behavior with a relation to future drug use.
        The Civic Alliance--helping 33 national civic and service groups,
                representing 55 million people, to fight youth drug use.
        Youth Drug Research--expanding understanding of youth drug use and
                addiction.
      --Largest percentage budget increases--15 percent or $256 million--
            for youth programs.
    Strengthening Communities and Workplaces
      --Launches the Drug-Free Communities Program, a five-year, $140
            million effort that will strengthen the existing 4,000
            community-based anti-drug coalitions, and build 10,000 new
            coalitions across the nation.
      --Works with 22 million small businesses to initiate drug-free
            workplaces.
    Reinforcing Our Borders
      --Launches a $105 million Port and Border Security Initiative.
      --Puts 1,000 new Border Patrol agents, and increases barriers along
            the Southwest Border.
      --Deploys new technologies, such as advanced X-rays and remote video
            surveillance, along the Southwest Border--including $41 million
            for nonintrusive inspection technologies.
      --Strengthens oversight over federal Southwest Border drug control
            efforts.
    Strengthening Law Enforcement
      --Focuses on full implementation of the Community Oriented Policing
            Services (COPS) program.
      --Expands DEA's counter-heroin initiative: $12.9 million and 95 new
            agents.
      --Expands anti-methamphetamine initiative: $24.5 million including
            100 new DEA agents.
      --Expands DEA's Caribbean Corridor Initiative: $9.8 million and 56
            new agents.
    Breaking the Cycle of Drugs and Crime
      --Provides treatment to nonviolent first-time offenders in the
            criminal justice system to free them from the addictions that
            drive their actions. Punishment alone cannot diminish drug-
            related crime; it is necessary to break the cycle of drugs,
            crime and prisons.
      --Provides $85 million in funding and other support to help state and
            local governments implement drug testing, treatment, and
            graduated sanctions for drug offenders.
    Reducing the Supply of Drugs and Enhancing Multinational Cooperation
      --In 1997, Andean cocaine production dropped by as much as 100 tons
            less than the prior year.
      --Despite this overall progress, Colombian coca production is up 56
            percent over the last two years, with much of the expanded
            capacity occurring in guerrilla or paramilitary held
            territories.
      --The Strategy adds $75.4 million in Department of Defense support to
            U.S., Andean, Caribbean and Mexican interdiction efforts.
      --Adds $45 million to support Andean nation counter-drug efforts,
            including interdiction, crop replacement, and support to law
            enforcement.
      --Continues to build multinational cooperation against drugs,
            focusing on US-Mexico bilateral efforts, the Caribbean
            Initiative, and the upcoming Santiago Summit and U.N. General
            Assembly Special Session.
    Closing the Treatment Gap
      --The number of people who require drug treatment but who are not in
            treatment--the ``gap''--is estimated at 1.7 million.
      --Provides an added $200 million in Substance Abuse Block Grants to
            States to assist in closing the gap, increasing the total
            funding to $1.5 billion.
    B. Goals and Objectives of the 1998 Strategy
        The goals of the 1998 Strategy remain unchanged from the 1997
    Strategy; reflecting both the need for consistency and the importance
    of sticking to those programs that make sense and are working. The
    thirty-two drug control objectives are aligned with the Performance
    Measures of Effectiveness and outline the specific accomplishments this
    Strategy is designed to achieve. The objectives are aggressive. The
    Administration is committed to meeting these goals, as well as to
    continually examining and refining the targets set forth in the
    performance measures system. There will be an annual review during the
    budget process to determine the relationship between the goals and the
    level of available federal and nonfederal resources.
    Goal 1: Educate and enable America's youth to reject illegal drugs as
            well as alcohol and tobacco.
        Drug abuse is preventable. If boys and girls reach adulthood
    without using illegal drugs, alcohol, or tobacco, they probably will
    never develop a chemical-dependency problem. To this end, the Strategy
    focuses on educating children about the real dangers associated with
    drugs. ONDCP seeks to involve parents, coaches, mentors, teachers,
    clergy, and other role models in a broad prevention campaign. The
    Strategy encourages businesses, communities, schools, the entertainment
    industry, and coaches to join these anti-drug efforts. In addition, we
    must limit drug availability and treat young substance abusers.
        Objectives.--The Strategy's mid-term objectives are to reduce the
    prevalence of past-month drug use among youth by 20 percent and
    increase the average age of first use by twelve months before the year
    2002. The long-term objectives are a 50 percent reduction in current
    drug use and an increase of thirty-six months in the average age of
    first use by the year 2007.
    Goal 2: Increase the safety of America's citizens by substantially
            reducing drug-related crime and violence.
        The social ruin caused by drug-related crime and violence mirrors
    the tragedy that substance abuse wreaks on individuals. A large number
    of the twelve million property crimes committed each year are drug-
    related as is a significant proportion of nearly two million violent
    crimes. The nation's 3.6 million chronic drug users contribute
    disproportionally to this problem, consuming the majority of cocaine
    and heroin on our streets.
        Drug-related crime can be reduced through community-oriented
    policing, which has been demonstrated by police departments in New York
    and numerous other cities where crime rates are plunging. Cooperation
    among federal, state, and local law-enforcement agencies and operations
    targeting gangs, trafficking organizations, and violent drug dealers
    are making a difference. Equitable enforcement of fair laws is a must.
    Punishment must be perceived as commensurate with the offense. Finally,
    the criminal justice system must do more than punish. It should use its
    coercive powers to break the cycle of drugs and crime through linkage
    of the criminal justice system to effective treatment programs.
        Objectives.--The Strategy's mid-term objective is to reduce drug-
    related crime and violence by 15 percent by the year 2002. The long-
    term objective is a 30 percent reduction by the year 2007.
    Goal 3: Reduce health and social costs to the public of illegal drug
            use.
        Drug dependence is a chronic, relapsing disorder that exacts
    enormous costs on individuals, families, businesses, communities, and
    the nation. Addicted individuals have lost their ability to resist
    drugs, which results in self-destructive and criminal behavior.
    Effective treatment can manage addiction and lower the cost of chronic
    drug use to society.
        Providing effective drug treatment for America's 3.6 million
    chronic drug users is both prudent public policy and a sound
    investment. For example, a recent study by the National Institute on
    Drug Abuse found that outpatient methadone treatment reduced heroin use
    by 70 percent, cocaine use by 48 percent, and criminal activity by 57
    percent. It also increased employment by 24 percent. Long-term
    residential treatment had similar success.
        Objectives.--The Strategy's mid-term objectives are to reduce use
    by 25 percent and health and social consequences by 10 percent by the
    year 2002. The long-term objectives are a 50 percent reduction in drug
    use and 25 percent reduction in consequences by the year 2007.
    Goal 4: Shield America's air, land, and sea frontiers from the drug
            threat.
        The United States is obligated to protect its citizens from the
    threats posed by illegal drugs crossing our borders. Interdiction in
    the transit and arrival zones disrupts drug flow, increases risks to
    traffickers, drives them to less efficient routes and methods, and
    prevents significant amounts of drugs from reaching the United States.
    Interdiction operations also produce intelligence that can be used
    domestically against trafficking organizations.
        Each year, more than sixty-eight million passengers arrive in the
    United States aboard 830,000 commercial and private aircraft. Another
    eight million individuals arrive by sea, and a staggering 365 million
    cross our land borders each year driving more than 115 million
    vehicles. More than ten million trucks and cargo containers and ninety
    thousand merchant and passenger ships also enter the United States
    annually, carrying some four hundred million metric tons of cargo. Amid
    this voluminous trade, traffickers seek to hide more than 300 metric
    tons of cocaine, thirteen metric tons of heroin, vast quantities of
    marijuana, and smaller amounts of other illegal substances.
        Objectives.--The Strategy's mid-term objective is to reduce the
    amount of illegal drugs entering the United States by reducing
    trafficker success rates through the transit and arrival zones 10
    percent by the year 2002. The long-term objective is a 20 percent
    reduction in trafficker success rates by the year 2007.
    Goal 5: Break foreign and domestic drug sources of supply.
        The rule of law, human rights, and democratic institutions are
    threatened by drug trafficking and consumption. International supply
    reduction programs not only reduce the volume of illegal drugs reaching
    our shores, they also attack international criminal organizations,
    strengthen democratic institutions, and honor our international drug-
    control commitments. The U.S. supply reduction strategy seeks to: (1)
    eliminate illegal drug cultivation and production; (2) dismantle drug-
    trafficking organizations; (3) interdict drug shipments; (4) encourage
    international cooperation; and (5) safeguard democracy and human
    rights. Additional information about international drug-control
    programs is contained in a classified annex to this Strategy.
        Objectives.--The Strategy's mid-term objectives are a 15 percent
    reduction in the flow of illegal drugs from source countries and a 20
    percent reduction in domestic marijuana cultivation and methamphetamine
    production by the year 2002. Long-term objectives include a 30 percent
    reduction in the flow of drugs from source countries and a 50 percent
    reduction in domestic marijuana cultivation and methamphetamine
    production by 2007.
    C. Assessing Performance
        The Strategy's supporting performance-measurement system
    establishes the interrelationship between outcomes, programs, and
    resources. The performance measurements detailed in a companion volume
    to the Strategy--Performance Measures of Effectiveness: A System for
    Assessing the Performance of the National Drug Control Strategy--will
    gauge progress toward that end using five and ten-year targets. The
    heart of the system consists of twelve impact targets that define
    strategic end-states for the Strategy's five goals. Eighty-two
    supporting performance targets establish outcomes for the Strategy's
    thirty-two objectives. These targets were developed by federal drug-
    control agencies working with ONDCP and were reviewed by state and
    local agencies and drug-control experts.
        While the drug-control performance measurement system can offer
    valuable information on program effectiveness, it will not determine
    federal budgets. No responsible level of federal spending alone can
    bring about a 50 percent reduction in America's illegal drug use
    problems. State and local governments, the private sector, communities,
    and individuals must all embrace the commitment to reduce demand by 50
    percent over the next ten years. However, by providing clear benchmarks
    of our progress, the performance measures will assist policy makers,
    legislators, and managers in considering the adequacy of specific drug-
    control programs and increase accountability; these measures will
    assist in a considered review of whether we are achieving the maximum
    impact for the resources being used . In turn, we will gauge whether
    the performance targets need to be adjusted to reflect new or changing
    circumstances.
        Progress will be measured using both existing and new survey
    instruments. The Monitoring the Future survey and the National
    Household Survey on Drug Abuse, for example, estimate risk perception,
    current use rates, age of initiation, and life-time use for most
    illegal drugs, alcohol, and tobacco. The Arrestee Drug Abuse Monitoring
    system and Drug Abuse Warning Network provide indirect measures of
    consequences. The principal measuring device for international progress
    is the International Narcotics Control Strategy Report. This annual
    State Department document provides country-by-country assessments of
    initiatives and accomplishments. It summarizes drug cultivation,
    eradication, production, seizures, arrests, destruction of
    laboratories, drug flow and transit, and criminal justice efforts. The
    Office of National Drug Control Policy's Advisory Committee on
    Research, Data, and Evaluation will consider additional instruments and
    measurement processes needed to address the demographics of chronic
    users, domestic cannabis cultivation, drug availability, and other
    drug-policy data shortfalls. (Because our performance assessments
    depend on the quality of the data developed, improved and expanded
    research will contribute greatly to this effort.) Annual progress
    reports will be submitted to Congress.
                             iii. the ondcp budget
        ONDCP's fiscal year 1999 budget request of $449.449 million
    includes:
      --$19.442 million for salaries and expenses to support ONDCP's 154
            positions (124 full time employees and 30 detailees)
      --$162.007 million for the High Intensity Drug Trafficking Area
            (HIDTA) program.
      --$251 million for the Special Forfeiture Fund to support a National
            Youth Anti-Drug Media Campaign ($195 million); a Drug-Free
            Communities Program ($20 million); a Hardcore Users Study ($10
            million); and discretionary funding to enhance drug control
            activities and address emerging drug threats ($26 million).
      --$16 million for the Counterdrug Technology Assessment Center
            (CTAC).
      --$1 million for ONDCP-coordinated policy research.
    A. The Capacity to Lead the Fight Against Illegal Drugs: $19.442
            Million for ONDCP Salaries and Expenses.
        The $19.442 million for ONDCP salaries and expenses is the smallest
    programmatic component of the ONDCP budget. However, this funding is
    the linchpin for all the other programs funded through the ONDCP
    budget. Without a fully staffed and funded ONDCP, none of these other
    initiatives can be carried out.
        ONDCP serves as the President's primary Executive Branch support
    for drug policy development and program oversight. ONDCP advises the
    President on national and international drug control policies and
    strategies, and works to ensure the effective coordination of drug
    programs within the Federal Agencies and Departments. ONDCP
    responsibilities include:
      --Developing an annual National Drug Control Strategy.
      --Developing a consolidated National Drug Control Budget for
            presentation to the President and the Congress (including
            budget certifications and quarterly reprogramming reports).
      --Certifying the budgets of programs, bureaus, agencies and
            departments.
      --Issuing Funds Control Notices--ONDCP may direct that all or part of
            an amount appropriated to a national drug control agency be
            obligated by months, fiscal year quarters, or other time
            periods, as well as activities, functions, projects, or object
            classes. This authority is discretionary.
      --Evaluating Program Effectiveness--ONDCP is required to include in
            each National Drug Control Strategy an evaluation of the
            effectiveness of Federal drug control during the preceding
            year. This assessment must include the following elements: (1)
            changes in drug use, including estimates of drug prevalence and
            frequency of use in Federal, state, and local surveys, as well
            as special studies of high-risk populations and drug use in the
            workplace; (2) changes in drug availability as measured by the
            quantities of illicit drugs available and the amounts entering
            the United States, in addition to the interdiction efforts and
            their effectiveness; (3) changes in drug use consequences,
            which must encompass ONDCP's estimation of the burdens drug
            users place on national and other social services, including
            the resulting drug-related crimes and criminal activity, in
            addition to the contribution of drugs to the underground
            economy; and (4) drug treatment capacity by assessing total
            public and private treatment slots' efficiency and
            effectiveness within each state.
      --Coordinating and overseeing Federal anti-drug policies and programs
            involving approximately 50 Federal agencies and the programs
            they administer.
      --Encouraging private-sector, state, and local drug prevention and
            control programs.
      --Conducting policy analysis and research to determine the
            effectiveness of drug programs and policies in addressing the
            Strategy's goals, priorities, and objectives.
      --Designating High Intensity Drug Trafficking Areas (HIDTA's) and
            providing overall policy guidance and oversight for the award
            of resources to Federal, state, and local law enforcement
            partnerships in these areas.
      --Developing and overseeing a National Youth Anti-Drug Media Campaign
            that will be a multi-faceted communications campaign that
            harnesses the energies of parents, mass media, corporate
            America, and community anti-drug coalitions. This campaign will
            emphasize that prevention can work and will seek to empower
            parents to discuss this critical subject with their children.
      --Operating CTAC to serve as the central counterdrug enforcement
            research and development center for the Federal Government.
      --Overseeing the Drug-Free Communities Program, which will serve as a
            catalyst for increased citizen participation in our efforts to
            reduce substance abuse among our youth and provide community
            anti-drug coalitions with much needed funds to carry out their
            important missions.
        ONDCP is an organization of 154 committed professional men and
    women. It will have 124 full-time employees (FTE's) and 30 detailees
    once hiring has been completed. The fiscal year 1999 request for
    $19.442 million represents a $1.426 million increase over the enacted
    fiscal year 1998 total of $18.061 million. Major expenses include:
      --$9.180 million for compensation of 124 FTE's. This represents an
            increase of $457,000 over the fiscal year 1998 enacted total of
            $8.723 million.
      --$2.020 million for total personnel benefits.
      --$4.218 million for guard services, professional services contracts,
            maintenance services, and related costs. Combating the threat
            of drugs is not without its risks. For example, in 1997, 152
            law enforcement officers were killed in the line of duty. Over
            the last year, we have taken prudent steps to increase the
            security of both our personnel and sensitive information within
            the office's purview.
      --$2.170 million for rental payments to GSA.
      --$734,000 for travel and transportation costs. The bully pulpit is
            one of the most valuable tools ONDCP has at its disposal in the
            fight against drugs. Since taking office, I have traveled to 33
            of the 50 United States, touching over 60 cities, countless
            towns and communities--ranging from New York City to Las
            Cruces, New Mexico--and meeting with hundreds of thousands of
            people. These efforts are vital to helping Americans of all
            ages hear the message that drugs are wrong and can kill you.
            Additionally, by getting out into the field and walking the
            frontlines of our struggle against drugs, we ensure that our
            policies and programs respond effectively to the realities of
            life beyond the Beltway.
        Similarly, through foreign travel to 13 nations, I have personally
            pressed the vital counter-drug foreign policy objectives of the
            United States. By building face-to-face understandings and
            common strategies we are making real progress internationally.
            For example, coca production in the Andean region is down as
            much as 100 tons below last year's production level.
      --$821,000 for communications, utilities, printing, reproduction, and
            related miscellaneous costs.
      --$299,000 for equipment, supplies and materials, and
            representational funds.
    B. Educating America's Young People, Empowering Communities, and
            Advancing Our Understanding of America's Drug Problem: $251
            Million for the Special Forfeiture Fund
    ($195 million) National Youth Anti-Drug Media Campaign
        ONDCP, with the assistance of the Partnership for a Drug-Free
    America (PDFA) and the Ad Council, is implementing a multifaceted
    communications campaign involving parents, mass media, corporate
    America, and anti-drug coalitions. The National Youth Anti-Drug Media
    Campaign will counteract media messages and images that glamorize,
    legitimize, normalize, or otherwise condone drug use. Youth aged nine
    to seventeen, and the adults who influence them, will be targeted by
    the campaign. Campaign messages will accurately depict drug use and its
    consequences and encourage parents to discuss drug abuse with children.
        Congress appropriated $195 million for the campaign last year,
    making it one of the largest paid advertising efforts ever undertaken
    by government. Over the past year, ONDCP has consulted with hundreds of
    communications and marketing professionals, educators, prevention and
    treatment experts, public health specialists, and public officials to
    design the campaign's development process. Anti-drug ads for phase I of
    a pilot program began airing in Atlanta, Baltimore, Boise, Denver,
    Hartford, Houston, Milwaukee, Portland (OR), San Diego, Sioux City,
    Tucson, and Washington, D.C. in January.
        This summer, in phase II, ONDCP will expand the anti-drug
    advertising component nationwide, using national and local television
    (both broadcast and cable), radio, the Internet, and print media. In
    the fall, during phase III, a fully-integrated campaign will reach
    target audiences through TV, radio, print, Internet, and other media
    outlets. The campaign's advertising component is currently estimated at
    $150 million. (The remaining monies will be used to support the
    campaign through corporate sponsorships, interactive media, evaluation
    processes, and other appropriate efforts.) This figure was determined
    based on ONDCP's goal of reaching on average 90 percent of the target
    audiences at an average frequency of four exposures per week. ONDCP
    contracted with experts in the fields of media planning and buying, and
    held consultations with a wide range of other experts, to develop a
    prototype national media plan that meets these goals. The projected
    breakout of expenditures by media category for the national advertising
    component of the overall media campaign is as follows:
      --television and radio: 72 percent
      --print (magazines and newspapers): 11 percent
      --other (e.g., in-school, cinema, online, billboards): 17 percent
        The campaign's reach will be extended through corporate
    sponsorship, cooperation with the entertainment- industry, programming
    changes, and media matches (for example, contributions to cover public-
    service time and space). Prevention experts believe this public-private
    campaign will influence attitudes of youths towards drugs within two to
    three years.
    ($20 million) Drug-Free Communities Program
        Whether the challenge is to prevent young people from using drugs,
    or to take our nation's streets back from drug dealers, strong
    communities are vital to fighting drugs in America. Presently, there
    are an estimated 4,000 community anti-drug coalitions in America. The
    Drug-Free Communities Act of 1997 recognizes that the problem of
    illegal drugs must be addressed at the community level. The Drug-Free
    Communities Act authorizes $143.5 million in matching grants over the
    next five years to support these existing coalitions and expand the
    number of coalitions by ten thousand. The Act authorizes the President
    to establish a Commission on Drug- Free Communities to advise ONDCP
    concerning matters related to the program. We expect the President to
    name the members of this Commission this Spring.
        ONDCP will award grants to community coalitions of representatives
    of youth, parents, businesses, the media, schools, youth organizations,
    law enforcement, religious or fraternal organizations, civic groups,
    health care professionals, State, local, or tribal government agencies,
    and other organizations.
        In carrying out the Program, the Director of ONDCP will: (1) make
    and track grants to grant recipients; (2) provide for technical
    assistance and training, data collection and dissemination of
    information on state-of-the- art practices that the Director determines
    to be effective in reducing substance abuse; and, (3) provide for the
    general administration of the Program.
    ($10 million) Hardcore Users Study
        This amount will assist with the research and development of a
    national estimates of the size and composition of the hardcore dug user
    population. A pilot project for this research conducted in Cook County,
    Illinois, concluded that hardcore users are significantly under-counted
    in current surveys.
    ($26 million) Director's Discretion
        This amount would be available at the discretion of the Director of
    ONDCP to use to enhance drug control activities and address emerging
    drug threats.
    C. Strengthening Law Enforcement: $162.007 Million for the High
            Intensity Drug Trafficking Area Program
        The HIDTA program facilitates coordination of anti-drug activities
    and investigations of federal, state, and local law enforcement
    agencies. The HIDTA program designates geographic areas to which
    federal resources are allocated to link local, state, and federal drug
    enforcement efforts. Properly targeted, HIDTA's offer greater
    efficiency in countering illegal drug trade in local areas. HIDTA
    programs are based on a logical, comprehensive methodology for
    prioritizing needs and working with other initiatives.
        Specific counties in 20 areas have been designated as HIDTA's:
    Southwest Border (which contains the five partnerships of the
    California Border, Arizona, New Mexico, West Texas, and South Texas),
    Los Angeles, Houston, Miami, and New York (designated in 1990);
    Washington D.C./Baltimore and Puerto Rico/U.S. Virgin Islands
    (designated in 1994); Atlanta, Chicago, Philadelphia/Camden (designated
    in 1995); Rocky Mountain, Northwest, Lake County (Indiana), Midwest,
    and Gulf Coast (designated in 1996); Southeast Michigan and San
    Francisco Bay (designated in 1997); and, counties in three areas have
    received official designation by the Director of ONDCP in fiscal year
    1998: Central Florida; Kentucky/West Virginia/Tennessee; and Milwaukee.
        This fiscal year 1999 request for $162,007,000 for the HIDTA
    program is the same as the fiscal year 1998 enacted HIDTA budget. At
    least half of the resources will go to state and local participants to
    support more than 250 task forces and initiatives. HIDTA funding is
    primarily used for intelligence, investigation, and enforcement
    activities. A small percentage of HIDTA funding supports prevention and
    treatment initiatives. Included in the fiscal year 1998 enacted budget
    was $8.8 for methamphetamine funding, of which $1.5 million is for the
    Rocky Mountain HIDTA and the remaining $7.3 million is for a national
    methamphetamine reduction program.
        Decisions regarding the allocation of the discretionary fiscal year
    1999 HIDTA funds have not yet been made. However, as in fiscal year
    1998, at least half of the resources will go to state and local
    participants.
    D. Deploying Advanced Technologies to Fight Drugs: $16 Million for the
            Counterdrug Technology Assessment Center
        The development and deployment of advanced technologies is vital to
    the Strategy's primary objective of reducing drug use in America by
    half over the next ten years. For example, new nonintrusive detection
    technologies are needed along the Southwest Border to ferret out
    illicit drugs from the steady and growing exchange of commerce that
    greatly benefits both the United States and Mexico. Similarly,
    technological advances in understanding the process of addiction offer
    the promise of new treatments to free people from the grip of illegal
    drugs.
        The Counterdrug Technology Assessment Center was created to serve
    as the central counterdrug research and development center for the
    federal government. The CTAC budget provides minimum, but crucial,
    funding for special research not covered by other agencies. This budget
    also provides significant support for infrastructure needed to
    demonstrate technical feasibility and measure the effectiveness of
    proposed innovations of emerging technology in realistic environments.
    CTAC funding also supports an outreach program to: assess the
    technology available, identify the best research from all sources, and
    assist law enforcement and demand reduction agencies in bringing these
    advanced technologies into their operations.
        The CTAC supply reduction development program consists of: (1)
    cargo inspection technology; (2) information technology research; and,
    (3) tactical technologies. CTAC will continue outreach to the community
    through technology conferences and symposia, benchmark testing, and
    technical assessments of competing technologies and systems under
    consideration for development or procurement. CTAC has worked with the
    Science and Technology Committee to prepare a fiscal year 1999 budget
    which conforms with the five-year technology research and development
    strategy.
        In the non-intrusive cargo inspection initiative, CTAC will work
    with Customs, the Federal Aviation Administration, and the Navy to
    develop an operational test-bed for testing transportable and fixed
    systems for non-intrusive inspection of cargo containers along the
    Southwest border. The program will address operational constraints and
    cost factors associated with customs inspection.
        The CTAC demand reduction initiatives are focused on the crucial
    national problems of finding therapeutic drugs to counteract or block
    the effects of cocaine abuse, developing more effective treatment
    modalities with a special emphasis upon youth between the ages of 15-
    17, and developing a national scoreboard to monitor the effectiveness
    of all substance abuse treatment. CTAC's demand reduction technology
    program has been coordinated with NIDA.
        The goals of CTAC's therapeutic cocaine medications development and
    facility support program are to have an effective treatment for cocaine
    addiction by the year 2000 and to fully develop a family of therapeutic
    drugs by 2003. The programs' goals fall within the ten-year time
    horizon established by the National Drug Control Strategy to reduce the
    harm of drug abuse in America.
    E. Expanding Our Understanding of the Problem: $1 Million for ONDCP-
            Coordinated Policy Research
        ONDCP conducts research to inform the policy process, identify and
    detail changing trends in the supply of and demand for illegal drugs,
    monitor trends in drug use, identify emerging drug problems, assess
    program effectiveness, and improve the sources of data and information
    about the drug problem. This $1 million will support the activities,
    such as:
        Pulse Check.--This is a report on current drug use and emerging
    trends, based on qualitative information from the police,
    ethnographers, and epidemiologists working in the drug field, and
    providers of drug treatment services across the country. This project
    is one of the most important sources of current intelligence and data
    on drug use.
        Retail Value of Drugs Sold in the United States.--This is an annual
    project to determine how much Americans spend on illegal drugs. The
    report focuses on the retail sales value of cocaine, heroin, marijuana,
    and other illegal drugs. It provides ONDCP's estimates of the size of
    the hardcore user population.
        Drug Market Analysis.--Working with the National Institute on
    Justice, ONDCP is using the Drug Use Forecasting system as a research
    platform to analyze drug markets. This project will provide information
    on drug dealing and the drug/crime connection.
        Price of Illicit Drugs.--This yearly project generates quarterly
    and annual illicit drug prices and purities for the United States and
    selected cities. Results of the project are used to monitor market
    trends and support other research projects related to the illicit drug
    market. Statistical models based on data from the DEA are used to
    estimate typical prices for standardized purchases of heroin, cocaine,
    and marijuana. The paper includes price trends for these standardized
    purchases over time.
        Federal Grant Directory.--The Directory assists state and local
    governments, community coalitions, researchers, and others in
    identifying and applying for Federal grants by cataloging Federal
    programs that award drug-related grants. It also provides information
    on how to identify and contact private foundations that also may
    provide valuable resources in the field. The third edition of the
    Directory is currently being prepared.
                    iv. a common effort toward real progress
        The Office of National Drug Control Policy's budget request of
    $449.449 million is a small component of the requested $17.1 billion
    federal drug control budget. However, the importance of this funding
    cannot be overstated. This support will provide ONDCP the resources
    necessary to ensure the successful implementation of the 1998 National
    Drug Control Strategy, which will have broad reaching, positive impacts
    on this nation and its citizens.
        The 1998 Strategy provides this nation with a ten-year plan to
    reduce drug use and its consequences in America by half--to the lowest
    levels in the past thirty years. The Strategy is: backed by a $17.1
    billion budget. This is the largest counter-drug budget ever presented
    to ensure that the federal government can do its part in meeting this
    goal. The budget is accompanied by a set of well-defined performance
    measures to improve efficacy and ensure accountability. The Strategy is
    a plan for victory in the fight against drugs.
        However, we can only defeat drugs if we are united in our efforts.
    The bipartisan support this Committee and Congress has provided to
    ONDCP has been vital to our successes over the past decade in reducing
    overall drug use, stabilizing use among our young people, and building
    at home and abroad the institutions and advancing the policies needed
    for progress. Your continued support as we move ahead in implementing
    this Strategy is critical. By providing ONDCP the funding necessary to
    move ahead, and by uniting our efforts behind this Strategy we can
    forge a safer, healthier and more productive nation. America deserves
    no less.
        Thank you for this opportunity to lay out ONDCP's fiscal year 1999
    budget request. We solicit your feedback and guidance in the coming
    months.

                         Statement of Senator Campbell

        Senator Campbell. I apologize for being late. I had to be
    on the Senate floor, so I do not know what has already
    transpired. Had you already asked some questions?
        Senator Faircloth. No; we have not asked--we have both had
    opening statements.

                               Prepared Statement

        Senator Campbell. I see. I am going to submit mine for the
    record and get right to a few questions.
        [The statement follows:]

                     Prepared Statement of Senator Campbell

        This morning the Subcommittee on Treasury and General
    Government will be reviewing the fiscal year 1999 budget
    request for the Office of National Drug Control Policy. I would
    like to welcome Mr. Barry McCaffrey, Director of ONDCP.
        Mr. McCaffrey, your office has the responsibility of
    coordinating anti-drug policies and programs of approximately
    50 Federal agencies, assessing the drug situation in this
    country, supporting promising anti-drug research and technology
    and developing the National Drug Control strategy which is the
    Administration's response to the drug problem.
        Drugs do not choose a specific race or financial background
    and they impact every part of our society, a fact we all too
    often overlook. The current estimated number of children, from
    ages 12 to 17, that claim to have ever used drugs is almost 5
    million.
        Our responsibility here, along with Mr. McCaffrey, is to be
    able to reach each and every one of these children to
    discourage them from using drugs. These are children with a
    wide variety of backgrounds and an even wider variety of
    values. We have to reach out to them by trying a wide variety
    of approaches through television ads, in school programs, in
    movies, with parents and peers. When you look at it this way,
    attacking the drug problem in this country seems overwhelming.
        However, I think that we can and must work to make a
    difference. I am a true believer that if we can save one child
    from drugs, there should be no question about the need for the
    investment. Unfortunately, we have limited resources and I also
    think we cannot buy our way out of the problem. What we have to
    do is empower our parents, teachers, communities, and most
    importantly our children with the skills to make the right
    decisions when confronted with drugs.
        We have to equip not only children with the right skills,
    but anyone who may be faced with the choice of whether or not
    to use drugs.
        So, Mr. McCaffrey, you are the Subcommittee's means to
    determine whether or not what we're doing is working and how
    well, not only through your own budget but through the budgets
    of the other federal agencies that you certify, including the
    recently released drug strategy. You are also our means to
    finding out what is or is not working so we can make
    improvements.
        Within these limitations, we have to find the right mix of
    resources, programs and initiatives to enable us to reach out
    to each of the user populations and give them an alternative to
    drug use.
        Mr. McCaffrey, I know you wrestle with these concerns, and
    I look forward to your testimony on your Office's efforts in
    addressing these problems and the progress we've made.

                                 Media Campaign

        Senator Faircloth. Excuse me, Mr. Chairman. I have to go to
    a savings and loan meeting. I will look forward to following up
    on what we do.
        Senator Campbell. Thanks for opening the hearing.
        I am personally very encouraged by your charts, General. I
    think that you are right, maybe we have turned the corner. I
    wanted to ask you a few questions dealing with them. First of
    all, do you have those in eight-by-tens so I could have a set
    of those?
        General McCaffrey. Yes, sir; they should be in your packet.
        Senator Campbell. I appreciate that. I believed, as you
    have, I am sure, that if we can do such wondrous things in this
    Nation as fly to the Moon, certainly we can convince our
    youngsters to leave drugs alone. The collective wisdom, the
    energy, and the determination that seem to be pulling together
    now through ONDCP is welcome, at least from this Senator's
    standpoint.
        I wanted to ask a couple of questions. First of all, the
    media campaign that we funded, there were some concerns on the
    part of the committee, as you remember, that if we put that
    much paid advertising into a media that perhaps the public
    service announcements dealing with the same thing would go down
    and they would kind of look at it as a cash cow. Have you
    noticed any reduction in voluntary public service announcements
    dealing with drugs since you initiated your media campaign?
        General McCaffrey. We are really delighted with the way
    this has worked out. We have a very skillful group, Zenith. We
    borrowed the DOD advertising contract until we put out our own
    request for proposal. They are out negotiating in each market.
    And part of their guidance, since I am responding to the law,
    is that they have to sustain the public service component. We
    are at least achieving match, and in some market areas more
    than achieving it.
        In addition, we are finding some places, Congressman
    Latham's district jumps out, and also Boise, ID, where the
    money we are paying for the funded component, the news media
    are turning it around and using it to buy other public service
    or supporting coalitions. So it is a very impressive response
    by news media.
        Senator Campbell. Your media campaign has been out now
    about one-half of a year; is that right?
        General McCaffrey. Yes.
        Senator Campbell. These are encouraging statistics, do you
    think those drops in numbers are directly correlated with the
    advent of that campaign?
        General McCaffrey. No; I think those numbers were from last
    year. That is really 1997 data being seen in 1998. I think that
    was a function of increased general news media focus on the
    subject and increased coalition activity. A lot of the people
    in this room, the CADCA in particular, but also NASADAD and the
    civic alliance we put together, 56 million Americans now have
    their association, 33 of them have signed up to work the drug
    issue with us: Kiwanis, 100 Black Men, YMCA, Rotary, Elks. Elks
    has been tremendously involved. There is just a lot of people
    that are now working on this issue.
        Senator Campbell. That is good. That reaffirms my belief
    that you cannot do it all from here. If you do not have local
    community help for good willed people in all the towns across
    the country those numbers are not going to go down.

                              Methamphetamine Labs

        You talked quite a bit about HIDTA, and I appreciate you
    doing that, and a little bit about CTAC too. Let me ask you a
    couple of questions. You mentioned a reduction of the
    methamphetamine labs. I guess they will always be there. It is
    a constant war. What would you think the next step would be in
    trying to reduce the number of labs out there, and bring the
    people to justice that have them?
        General McCaffrey. There is a lot to be learned from both
    the DEA and California narcotics officers in particular about
    aggressive law enforcement in this area. The labs are not only
    a threat to those who are buying methamphetamines--the single,
    white male, early twenties, addicted, becomes unemployable,
    paranoid, dangerous--but also a lot of these labs have children
    involved around the lab. The labs, one out of six, the
    California police tell us, in a given year explode or burn. So
    they have now passed a State law that essentially says, if we
    find children in the lab area, you have endangered them, and
    increased the sentencing component.
        DEA has been extremely aggressive in going after these
    structures. The numbers are so high they are almost beyond
    belief. We are up over, for example, 1,200 labs seized in
    California last year, a lot of them these mom and pop
    operations, a few ounces.
        Senator Campbell. 1,200 seized?
        General McCaffrey. They are cooking their own meth and
    selling it to their friends.
        Senator Campbell. We used to have mom and pop grocery
    stores. Now we have mom and pop labs.
        General McCaffrey. Yes; and it is pretty dangerous.
        We have also put $8.8 million, thanks to your 1998 funding,
    into methamphetamine add-ons. We went to the DEA and asked them
    for density of trafficking and use studies and we have passed
    out that money. I think that is going to make a big difference,
    too.

                                      CTAC

        Senator Campbell. Let me speak a little bit about CTAC. I
    attended several of the information meetings, one in Phoenix
    which you were at, and one in, I think it was Minneapolis, if I
    remember correctly. But I thought that was a very good program.
    You did not request that to be funded this year in 1999 I
    understand.
        General McCaffrey. Which program, Senator?
        Senator Campbell. The CTAC transfer to State and locals
    some of this wonderful sophisticated equipment that ATF has
    now.
        General McCaffrey. We've got $13 million in the 1998 budget
    for CTAC technology transfer. I asked for $15 million from OMB
    in the 1999 budget and did not get it. I appealed and was
    denied the appeal.
        Senator Campbell. Did they give you a reason why? I thought
    it was a pretty effective program.
        General McCaffrey. There is certainly a very strong
    argument that all over America we have law enforcement officers
    who are on the line and who need this kind of equipment, some
    of which is----
        Senator Campbell. How is it working so far? I hear from
    local police departments that are very interested in it in our
    State.
        General McCaffrey. Of course, I come to this with a belief
    that if you want to increase the effectiveness of an
    institution you do not necessarily increase manpower, you give
    them more effective tools to do their job. This is the kind of
    approach I think we need to study very closely. I would look
    forward to your own thinking on this.
        Senator Campbell. Part of the Counterdrug Technology
    Assessment Center [CTAC], there was a provision for this
    technology transfer that we are talking about. I know in my own
    hometown that they have problems with drugs and all the stuff
    related to it. I do not know the disposition of it, but I know
    that it is a small, poor town. They do not have video cameras
    in the cars. And I know they had made an application to CTAC to
    try and help defray the cost of putting some video cameras in
    the cars because they feel that if they could have it on film,
    they are going to have a much better case when they go to court
    with it. So I am a little disappointed that that was not
    included in your budget.

                               GAO Report on CTAC

        Can you respond to the GAO's recent comments that CTAC, for
    all intents and purposes, does not get any feedback from the
    field in determining the need of State and local agencies?
        General McCaffrey. Does not get feedback from the field in?
        Senator Campbell. Feedback from the field about determining
    the needs of local agencies.
        General McCaffrey. It is something I ought to take aboard
    as a challenge to us to make sure that we are not only
    effectively listening to local law enforcement, but they also
    believe that that is the case. I think we have a pretty good
    tool using the HIDTA organization now, 20 HIDTA's which are all
    over the country. In our March meeting we are going to have a
    discussion of this pilot program, and before the HIDTA
    directors leave--and several of them are in this room--they
    will become our spokesmen and our agents to listen to local law
    enforcement.
        I think your criticism is a good one, Senator. Let me see
    if we can improve on this.

                                     HIDTA

        Senator Campbell. I am a big supporter of the HIDTA's, as
    you know. We have talked about them a number of times. But I
    know in our State, a number of communities tell me now that
    they are having difficulties getting HIDTA funds and
    difficulties getting any requests approved at all.
        Some of those are not in the big metropolitan areas, but,
    in fact, some of those smaller communities are where the drugs
    are moving, the places where there aren't lots of law
    enforcement, lots of officials, lots of surveillance on the
    highways and so on. You know as well as I do, these guys are
    going to go to the backroads and the quiet landing strips, the
    places where there is not much enforcement. It would seem to me
    that some of those communities should be equally important when
    they are applying for help from the HIDTA's.
        I know Steamboat Springs, Cortez, CO, and a couple of
    counties out in the southeast part of the State have all told
    me that they have problems getting any help from HIDTA. So I
    would appreciate it if you could kind of pass that message on
    to local HIDTA's for me.
        General McCaffrey. Senator, the Rocky Mountain HIDTA has
    gotten a little over $3 million to date. We will give them an
    additional $2.89 million prior to the end of March. Then the
    Rocky Mountain HIDTA will also get about $1.5 million of our
    national methamphetamine reduction appropriated money. So help
    is on the way.
        I might also add that the Senate has now confirmed, and
    Attorney General Janet Reno has sworn him in, Chief Bob
    Warshaw, who is a police chief up in Rochester, NY, and has
    been chief in three departments. He is a nationally recognized
    law enforcement professional. I think this HIDTA program will
    better achieve our purpose in the coming years.

                                 Media Campaign

        Senator Campbell. I understand that you are going to have
    some feedback on your pilot media program around July; is that
    correct?
        General McCaffrey. Exactly. We have gotten interim feedback
    that is in your packet right now. But we will have an
    evaluation component formally done.
        Senator Campbell. So you will use that to make decisions on
    your next request I assume.
        General McCaffrey. We have already factored in the
    evaluation component. We had Annenberg School of Journalism put
    their own money into it, and we have a pretty decent set of
    focus groups and questionnaires, and we are trying to
    incorporate that into the next generation of ads, yes.
        Senator Campbell. Good. In the fiscal year 1998 bill there
    was language that required quarterly reports on the obligations
    of funds relating to the media campaign. When do you expect to
    give us a complete report on----
        General McCaffrey. Actually, I am surprised that the law
    said quarterly reports. I thought we did not have that in
    there. But one way or the other, we will comply with any
    reporting requirements that are involved in it.
        We do have a budget. We do know how we are spending the
    money. It is, as far as I can see, pretty well controlled.
        Senator Campbell. In addition to that, as I remember we
    also asked for a monthly accounting of the obligation of funds
    to the campaign so we could keep track of that, and I do not
    remember getting that either.
        General McCaffrey. Let me go find out. We will be, of
    course, responsive, not only to the law but to your own
    interest. If I could underscore though, that there is a danger
    with this tiny group of people we have managing this
    operation--five folks--that I do not want to run this program
    with four sets of Senate and House staffs. There are four
    committees involved and I really need to be held accountable,
    but to do the management and the creative work as best we can.
        Senator Campbell. They tell us we are going to have to be
    over on the Senate floor in about 20 minutes or a little bit
    after and I certainly do not want to monopolize all the time,
    so let me just ask one more question. I am going to submit
    several more questions to you in writing, if you would get back
    to us on those.

                              Director's Security

        Does your fiscal year 1999 budget request include anything
    about the 1998 appropriated amounts for your own personal
    security? I remember reading something in the paper that there
    was, when you went to Mexico there was some discussion----
        General McCaffrey. Let me give you a piece of paper. There
    is probably a substantial increase. There is a one-time
    purchase of an armored vehicle. We have added now a chase car.
    I am a little reluctant to sketch out the whole security.
        I had a series of reasonably credible threats last August.
    We are trying to respond to that to ensure I can do my job and
    not get whacked.
        Senator Campbell. I understand. We would not want that to
    happen either. But you travel around so much by plane, how
    would you get the--if security requires an armored car and a
    chase vehicle, how are you going to get that around?
        General McCaffrey. Again, without detailing how we do it,
    the biggest protection I have is to be careful on what I
    release in public in advance. Fortunately, I am protected by
    the Federal Marshal system. I have never met a more
    professional group in my life. And they, of course, have
    national representatives, so when I go a place it is the local
    marshals and the local police force that provides security.
        Again, I do not want to detail too much of this. I travel
    under an assumed name. I am in hotels under a cover name, et
    cetera. So we are trying to ensure that I am----
        Senator Campbell. I frankly do not even need to know about
    that or do not particularly want it on the record. I was just
    concerned in terms of heavy equipment.
        General McCaffrey. I do not take armored vehicles. The
    armored vehicle in the Washington area is on predictable
    travel, home to work, and return.
        Senator Campbell. I see.
        General McCaffrey. Coming to the Hill.
        Senator Campbell. Not if you are out in the field somewhere
    when you have to go to San Francisco or something like that.
        General McCaffrey. Yes; it has been my experience in the
    past--I have been under personal security for three of my
    assignments, in NATO, in Latin America, and the single cheapest
    thing to do is get an armored vehicle. It then makes it just
    about impossible to get you without car bombs or RPG's. So we
    have gone that route. We just have to be sensible in what we
    are up to.
        Senator Campbell. Are you sure you want this job?
        General McCaffrey. To be honest, Senator, it is the same
    way I started life, carrying a gun.
        Senator Campbell. I understand.
        Senator Kohl, do you have some questions?
        Senator Kohl. Thank you, Senator Campbell.

                     Performance Measures of Effectiveness

        General McCaffrey, the program measures that you developed
    to evaluate the media campaign as we understand it will start
    in 2002. But by then Congress may well have committed close to
    $1 billion to this media campaign. Should we not get a clear
    evaluation before 2002 with respect to how this program is
    working?
        General McCaffrey. Senator, you sure should. I think there
    has been a misconception. The performance measures of
    effectiveness began with twelve 10-year targets. Then we were
    able in the interagency debate to get 5-year targets. I might
    add, there were 200 or more outside experts that helped us
    articulate those numbers.
        What we do owe you is to break it now into annual targets.
    We will do that in the year to come, in my view. One of the
    things we could do is straightline it. But we absolutely should
    be held accountable each year for achieving something.
        Now the other ones though, the National Youth Media
    Campaign has a series of measures, many of which, fortunately,
    exist already. Others exist in a form where if we slightly
    modify them we will get measures and some new ones that we will
    create. But there will be a rigorous picture, as well as we can
    do it, on what impact are we having with this $195 million. And
    by the way, we need to draw that evaluation screen wide enough
    to not miss things that we did not think of.
        That is one of the reasons that I am so pleased to see this
    cascade of phone calls to community coalitions. Donna Shalala's
    people have had to add all sorts of personnel to respond to
    requests for these pamphlets on parents talking to their kids
    about marijuana. And in many cases we do not even have the
    numbers down there, they are just searching now for
    information.
        So I can assure you that we are going to give you, not in
    2002, but you have the first response already in front of you,
    and this summer we will get an even better look at how it is
    going. It is going pretty good.
        Senator Kohl. All right. General McCaffrey, it is my
    understanding that you will use data from the National
    Household Survey of Drug Abuse and Monitoring the Future to
    evaluate youth drug usage. This is the same data that you have
    been using to determine drug use patterns. Do you believe that
    these teenage surveys provide realistic information on usage?
    Do you not think that teens and their parents may be reluctant
    to provide completely truthful responses?

                     Performance Measures of Effectiveness

        General McCaffrey. I think in almost every one of these
    cases it is useful to be skeptical of the data, to understand
    how they collect it, and what the limitations are. MTF could
    have some built-in doubts. On the other hand, it is consistent.
    It has been collected since 1968. So when you see a number go
    up or go down, you should assume there has been a change. Now
    maybe it was actually all along higher or lower. That is one
    reason we are pretty confident, for example, last year that
    when MTF said drug use rates among eighth-graders went down,
    that in fact it did.
        But there are other ways to get at that data, and household
    survey comes at it from a different population. Then there are
    different data, for example, the DAWN and DUF. You can go after
    youthful arrest rates, who tested positive for drugs. Then we
    have other sources of studies done in the civilian institutions
    like Joe Califano's work which he just released.
        So there are a whole set of measurements and we ought to
    look at all of them. And then we ought to be skeptical of what
    we are hearing. I agree with you.
        Senator Kohl. These surveys show an increase in the use of
    marijuana by children in certain age groups. We are hearing
    some members question whether we should continue to fund these
    efforts with respect to marijuana use. How do you respond to
    people who raise these questions?
        General McCaffrey. When I am asked, what is the most
    dangerous drug in America, it is tempting to say it is
    methamphetamines, it is heroin addiction, it is PCP, it is
    MDMA, it is these horrendous drugs that have addicted more than
    3.6 million Americans. My normal response is, the most
    dangerous drug in America is a 12-year-old to about 16-year-old
    regularly smoking pot. Because when we look at the numbers, and
    every one of these adolescents who are at risk--and a 12-year-
    old using drugs is at risk--is potentially a $2 million tax on
    our society, which is the cost of dealing with an addicted
    adult.
        So hands down, if there is a priority in the National Drug
    Strategy it has to be through a series of mechanisms to
    persuade young Americans, do not smoke dope or use heroin, LSD,
    inhalants, et cetera. Delay the onset of this behavior. If we
    can get you to age 19, you are home free. You will never be one
    of these 4 million suffering Americans. So Donna Shalala and I
    are adamantly opposed to the use of marijuana in general, and
    fearful of its consequences on young people.

                                     HIDTA

        Senator Kohl. Good. General McCaffrey, let me thank you for
    selecting the city of Milwaukee as a new high-intensity drug
    trafficking area. Our legislation did not obligate you to
    select Milwaukee as one of the new HIDTA cities, although it
    certainly did encourage you to give Milwaukee serious
    consideration and I appreciate that choice.
        The HIDTA in Milwaukee is already paying dividends.
    Inspired by this initiative, a task force was convened in
    Milwaukee which has expanded the antidrug strategy to the whole
    problem of youth violence. The plan that we have developed will
    attack drugs and violent crimes with aggressive enforcement,
    give children and teens safe places to go to after school and
    on weekends, and keep community residents informed and
    involved.
        We in Milwaukee are committed to an ambitious $7 million a
    year program, and the $3 million that the HIDTA provides is a
    big part of it. We believe the success of HIDTA and our task
    force that we have convened are intertwined.
        General, will the duties and responsibilities of the
    Milwaukee HIDTA coordinator include taking an active role with
    our youth violence and crime task force?
        General McCaffrey. I am sure that that executive director
    up there will work in support of what I hope is an 18-member
    executive committee comprised of local, State, and Federal
    officials. He is really their servant. I hire them. I will
    approve the budgets. I will provide oversight. But that
    strategy ought to come out of those 18 women and men in law
    enforcement, prosecution, prevention, and treatment. So the
    answer will be, yes, he will be supportive of that effort.
        Senator Kohl. All right. What criteria will you use to
    determine whether or not the HIDTA is a success?
        General McCaffrey. It seems to me we owe you, through these
    performance measures of effectiveness, a way of assessing what
    they are achieving. We did get all the HIDTA's in the country
    now to write a threat assessment. Although we have different
    formats to it, we are going to try and get a common threat
    assessment. We are using the National Drug Intelligence Center
    to help us with that.
        We have asked each HIDTA to develop a strategy which
    includes what do you say you are trying to achieve, and put a
    number on it. I think we ought to learn from this. It is
    possible that they will say they are trying to achieve things
    that they cannot get to, and they may find that some things are
    easier to measure than others.
        I am a little uncomfortable. Sometimes I get them saying, I
    am going to break apart seven criminal organizations out of 15
    in the coming year. Well, six of them may be tiny organizations
    and one may be a level II international criminal group. So
    sometimes numbers can be deceptive.
        But we are going to have them write developmental
    standards, and then we are going to hold them accountable for
    it. I think one of the things I have to do is not have
    Congress--and I would ask for your support on this--instruct me
    on where to put this money by category by HIDTA, and let me as
    a manager put money where they are achieving successes and take
    away money where they are not achieving results.

                      Drug-Free Prison Zone Demonstration

        Senator Kohl. All right. General, last year the committee
    provided ONDCP $6 million to fund a drug-free prison zone
    demonstration project. Can you tell us what the status of that
    project is?
        General McCaffrey. We had a wonderful 2-day session with
    the prison drug treatment experts of America. I announced that
    as one of three initiatives in this field at the end of
    yesterday's conference. We are signing an MOU with the National
    Institute of Corrections. There is a lot of work going on in
    it.
        It will have, as I remember, three major components. It
    will commence in Federal prisons within 6 months and selected
    State prisons by next year. It will have a training component
    and a new technology component. We have to get serious about
    this. I know this is a program that you have sponsored. It is a
    great contribution to what we are trying to do.
        How can we possibly lower drug use rates in America if we
    cannot keep drugs out of our prison system? So we are
    appreciative of your support on this.
        Senator Kohl. General, ONDCP and the National Institute of
    Justice are developing a memorandum of understanding to start a
    break-the-cycle campaign aimed at incarcerated drug users.
    Could you explain this program? How will it be implemented and
    how will you evaluate its results, General?
        General McCaffrey. The second of three initiatives we
    announced to the press yesterday included this $6 million
    program. But I have to tell you, it is in the context of Janet
    Reno having put $85 million into that break-the-cycle program.
    So she really stood behind this effort.
        As you may be aware, we tested this in Birmingham, AL. It
    is now in its second year. It is achieving, we think, superb
    results. When we announced the initiative we said we would now
    expand it to two additional testing sites, and we will create
    three juvenile programs.
        That is a second thing we have simply got to do, we have to
    get at these kids who are addicted criminals and put them on a
    separate track and break them out of this pattern. So we think
    there has been tremendous payoff in the test and we are about
    to expand it dramatically in the coming year.

                             Prison Drug Treatment

        Senator Kohl. OK. General, do you have other programs that
    provide drug treatment in prisons?
        General McCaffrey. Yes; there are. I would probably better
    serve your interest by providing you an answer for the record.
    The last 3 days of sitting there listening to these absolutely
    wonderful people in corrections and treatment, both Secretary
    Shalala and the Attorney General, but particularly this Mr.
    Jeremy Travis, National Institute of Justice, have a series of
    initiatives.
        And the Federal prison system, we ought to be proud of, it
    is the premier effort in the country. Several States are doing
    a wonderful job, too. But the Federal system, Kathleen Hawk has
    really leaped out in front on it. So I think you are going to--
    but let me provide you a response. There are many programs
    going on and several of them are probably starting to work.
        One of them is drug testing. You have to tell people in
    prison, you are going to get drug tested while you are in here.
    The Federal prison system has started that, and the President's
    initiative on State prison systems, I think, comes on line this
    year.

                              Hardcore Drug Users

        Senator Kohl. OK. Last question, General. As we know, it is
    very important to estimate as accurately as we can the number
    of hardcore drug users in this country. Without an accurate
    estimate of the hardcore drug users it is difficult to evaluate
    the effectiveness, among other things, of our illegal drug
    reduction efforts. Are you satisfied that we have a methodology
    that will give us an accurate estimate on the number of
    hardcore drug users in this country?
        General McCaffrey. I think we are dissatisfied. Trying to
    put hard numbers on drug abuse is enormously challenging. The
    stigma, the shame, the denial of drug abuse, not among
    individuals but among families and communities is simply
    staggering. We got some excellent support out of the city of
    Chicago, Mayor Rich Daley and his health people and law
    enforcement. Dr. John Carnevale and Dr. Al Brandenstein in my
    shop have ended up with the first look at it where we revise
    the Cook County hardcore users from what we previously would
    have said at 117,000 up to 333,000 hardcore users.
        We put some money now into trying to go to other regions.
    We do not think we can extrapolate from that study, and we are
    going to try and get a better handle on what this problem is.
    So I think what we are seeing is a serious undercounting of the
    chronic, compulsive drug user, and this study will get at it.
        Senator Kohl. Yes; I just want to emphasize what you said.
    In Cook County, they found that the estimate that we were using
    was wildly off; that the real number was vastly more than what
    that estimate--what we were using or what we thought the number
    was.
        General McCaffrey. Yes; that was our study, right.
        Senator Kohl. It seems to me that if we are going to
    succeed in this project we have to be using numbers in terms of
    the people that are accurate, and then work off those numbers.
    And the seemingly great inaccuracy of the count that we are now
    using I would argue is something that needs to be looked at and
    corrected, as soon as we can, General, so that we work off of
    numbers in terms of hardcore users of drugs that are accurate
    in this country. If we do not work off of those numbers that
    are accurate, we are not going to be able to evaluate any kind
    of progress, is that not true?
        General McCaffrey. I could not agree with you more. Nor can
    we sensibly allocate resources or determine successes
    correctly. I think you are quite correct.
        Senator Kohl. Thank you.
        Thank you, Senator Campbell.
        Senator Campbell. I have no further questions, General,
    except the ones I will submit that I would like you to answer
    in writing. But I would remind you, the committee would like to
    get some feedback on your pilot program, and some accounting of
    the obligated funds that you have obligated so far. If you
    could do that for us, I would appreciate it.

                             Prison Drug Treatment

        I would like to just say though that I am particularly
    interested in this break-the-cycle program. Having been a
    prison counselor myself at one time, or a volunteer counselor,
    I was convinced that all the counseling and drug testing and
    all that stuff, that is all good, but unless there is some kind
    of education and job skills that go along with it, it is pretty
    hard to keep them from falling back in.
        I know I have worked with gang members after they have
    gotten out and that is the single thing they tell me the most,
    is when they got out they could not get a job. They did not
    know how to do anything. Even though counseling may encourage
    them to leave the drugs alone, some of them find it is the only
    way they can make some money again. So they fall back into it.
        I know that is not really in your bailiwick, but I would
    like to pass that on to you. Until we realize there is a real
    place for prison industries and getting a convict to get a high
    school diploma or some graduate degrees other than street
    skills, the counseling by itself, I think, reaches a point
    where it does not do any good after they are out. They have to
    earn a living. They have to have a job as an alternative to
    going back into prison.
        Senator Campbell. I know you are aware of that and I know
    that is not the primary focus of your mission being the drug
    czar. But I just wanted you to know that is a big concern to
    me.
        General McCaffrey. Senator, I agree. But I think it is a
    primary focus. So Attorney General Reno and I both have the
    same viewpoint, that we have to do precisely the kinds of
    things you are saying. I had Joe Califano brief his Columbia
    University CASA data on prisons and drugs 3 days ago to the
    opening of our conference. And he makes a powerful point.
        We have 1.2 million Americans behind bars with a compulsive
    drug use problem. And you have already got them there at
    $24,000 or more a year that you spend to lock them up. Why
    would you not be willing to spend potentially $3,000 to $6,000
    a year to ensure you do not get them back in. And then to have
    a follow-on component with indeterminate sentencing where the
    judge can lock you back up of your drug test goes hot. We have
    to do just that, and part of that is a job.
        Senator Campbell. No further questions, Senator?
        Senator Kohl. No, thank you, Senator.

                              Submitted Questions

        Senator Campbell. We have additional questions that will be
    submitted in writing to be answered for inclusion in the
    record.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]
                    Questions Submitted by Senator Campbell
        Question. ONDCP's publication, ``The National Drug Control
    Strategy, 1998'', mentions an investigation where the U.S. seized $200
    million from a Swiss bank that was the illegal profit made by a cocaine
    trafficker.
        What amount of assets are normally seized from high level
    ``source'' drug traffickers, and what happens to the seized legal
    proceeds?
        Answer. It is difficult to answer the question of normal seizures
    as there are no ``normal'' seizures. Each investigation and asset
    forfeiture operation is unique in that factors such as amount of
    assets, location of assets, cooperation of foreign countries, and
    subsequent disposition are all variable.
        Major criminals often hide their illicitly generated proceeds
    outside the United States. For the last several years, the United
    States has placed development of international forfeiture cooperation
    among its top priorities. Bilateral and multilateral agreements, which
    provide for mutual forfeiture assistance, attest to the emergence of
    forfeiture as an international law enforcement sanction. The United
    States has operative mutual legal assistance treaties (MLAT's) with a
    number of countries, including Switzerland.
        Where the United States cooperates with a foreign government in
    identifying drug proceeds in a foreign country, it is possible that the
    funds will be forfeited under that country's laws and not be
    repatriated to the United States. In such cases, the primary goal of
    forfeiture is achieved because criminals are deprived of the proceeds
    of their crime. In other cases, a foreign government will act on
    information provided by the United States, seize the funds, and
    repatriate the funds to the United States for forfeiture. Upon
    forfeiture, the U.S. may share as much as 50 percent of the net
    proceeds with the cooperating government.
        When funds are repatriated to the United States, they are placed in
    the Seized Asset Deposit Fund (SADF) and held until the forfeiture
    proceeding is completed. If monies are already forfeited and a portion
    is shared with the United States, they are deposited into the
    Department of Justice Assets Forfeiture Fund (AFF) and are subject to
    the statutory controls on use of those monies. The Assets Forfeiture
    Fund statutory authority is found at 28 U.S.C. SS 524 (c).
        The AFF is the repository for the proceeds of forfeiture cases,
    both domestic and international, in which an agency Fund member (see
    below) participated. The Fund is a self-sustaining working fund with a
    revenue and expense side. Funds may be used for six general categories
    of expense as enumerated The Attorney General's Guidelines on Seized
    and Forfeited Property, dated July 1990. The six expense categories are
    (1) asset management expenses, (2) case-related expenses, (3) payment
    of qualified third party interests, (4) equitable sharing payments, (5)
    program management expenses, and (6) investigative expenses. Funding
    for investigative expenses is authorized by Congress in the annual
    appropriations act for the Department of Justice. In fiscal year 1999,
    $23 million is available for these costs.
        To the extent excess funds are available once the fiscal year is
    closed, the authorizing statute provides for disposition by the
    Attorney General for any federal law enforcement, litigative/
    prosecutive, and correctional activities, or any other authorized
    purpose of the Department of Justice.
        As noted earlier, the United States does not ``seize'' funds held
    in foreign banks. The $200 million dollars referenced in the Drug
    Strategy represents a combination of funds deposited in several Swiss
    bank accounts, interest earned on same, and real estate holdings in
    Switzerland. The deposits and real estate holdings were those of Sheila
    Miriam Arana de Nasser, a Colombian charged with money laundering.
    Arana de Nasser is the ex-spouse of notorious drug trafficker Julio
    Nasser-David, who is a fugitive in Colombia. Arana de Nasser pleaded
    guilty in 1995 to numerous money laundering offenses. As part of the
    plea agreement, Arana de Nasser agreed to forfeit her right, title, and
    interest to funds and property. To date, none of these monies have been
    repatriated to, or shared with, the United State. Thus, these funds
    have not been used.
        (Note: Member agencies of the Justice Assets Forfeiture Fund
    include the Federal Bureau of Investigation, the Drug Enforcement
    Administration, the Immigration and Naturalization Service, the U.S.
    Marshals Service, the Justice Department's Criminal Division, the U.S.
    Attorney's Office, the U.S. Postal Inspection Service, the U.S. Park
    Police, the Food and Drug Administration's Office of Criminal
    Investigations, and the U.S. Department of Agriculture Inspector
    General.)
        The Treasury asset forfeiture program has four primary goals: (1)
    to punish and deter criminal activity by depriving criminals of
    property used in or acquired through illegal activities, (2) to be
    cognizant of the due process rights of all persons, (3) to enhance
    cooperation among foreign, Federal, State, and local law enforcement
    agencies through the equitable sharing of assets recovered through this
    program; and, as a by-product, (4) to produce revenues to enhance
    forfeitures and strengthen law enforcement.
        Property which has been civilly or criminally forfeited can be
    retained or transferred.
        Approximately $200 million per year is placed into the Treasury
    Forfeiture Fund. Fiscal year 1997 was a banner year with about $240
    million entering the fund. This money is from both the seizure and
    forfeiture of cash, and the seizure, forfeiture and sale of property
    (land, buildings, vehicles, etc.).
        Question. According to the fiscal year 1999 budget request ONDCP is
    conducting an overarching review of the Federal drug interdiction
    efforts along the southwest Border. Is this review providing a
    comprehensive review of supply coming across the borders as well as the
    success of interdiction efforts: Which agencies are cooperating in this
    review and do you have their agreement on the measures you should use
    to determine if the Federal efforts are successful? Will the review
    include recommendations on interdiction efforts? When will the results
    of the review be made public?
        Answer. Working with the Departments of Justice and Treasury and
    other agencies ONDCP has formed a Southwest Border Interagency Working
    Group. Sub-working groups are analyzing the following areas: Improved
    management and coordination; technology and infrastructure development
    and deployment; and border staffing. The group expects to present a
    report to the President by early summer of 1998.
        In the intelligence area the White House Task Force on Intelligence
    Architecture is presently collecting data worldwide and will present
    its plan for an overall counterdrug intelligence architecture in June
    of 1998. As a component of this report the group has been asked to
    review and analyze the Southwest Border intelligence network.
        Current estimates of cocaine coming through Mexico are developed by
    the Interagency cocaine movement process. As part of the development of
    the Interagency Assessment of Cocaine Movement publication process, the
    participants are looking at better ways to assess the amount of all
    drugs coming into the U.S. including the Southwest Border.
        Question. Special Forfeiture Fund requests $26 million to be
    available at your discretion to enhance drug control activities and
    address emerging drug threats. What types of projects are you targeting
    with this money?
        Answer. While events in the upcoming months might require
    modification to the list of projects to be funded, the following are
    examples of the types of projects we are considering with a
    discretionary funding amount of $26 million:
        Chronic User Study ($5 million).--We have requested an earmark of
    $10 million for a study to build on recent study in Cook County, IL. to
    develop a methodology to estimate the size of the hardcore, drug using
    population. Additional funding will be required to support the regional
    expansion of the study. Our original request to OMB was for $15 million
    to fully fund this project, but it was decided that more resources
    should be allocated for the Director's discretion.
        Domestic Heroin ($10 million).--These resources will supplement
    those requested by the Departments of Justice and Treasury to target
    heroin trafficking, production, and distribution networks operating in
    the United States. The focus will be metropolitan area most affected by
    heroin trafficking.
        Expand Break the Cycle ($5 million).--These resources will
    supplement those requested by the Department of Justice to provide
    technical assistance to local jurisdictions, including the development
    of information systems to track data on participants in the program.
    This will expand the Break the Cycle program to new sites and include a
    plan to transition these sites to local support after the initial
    Federal funding.
        Modeling Drug Trafficking Flows ($1 million).--These resources
    would allow continuation of the development of a model to estimate the
    flow of illegal drugs into the United States. The plan is to estimate
    the flow from production through transit and U.S. ports of entry and on
    to final consumption.
        Intelligence Architecture ($5 million).--These resources will
    support the development of a drug intelligence system for national drug
    control agencies that provides timely and comprehensive information at
    all levels--foreign and domestic counterdrug strategy development,
    operational planning, and tactical execution. Will use results of a
    fiscal year 1998 review being conducted of the national drug
    intelligence architecture.
        Question. The Director's opening statement before this subcommittee
    indicates that cocaine production may be down by as much as 100 tons
    from last year. What is the level of cocaine production last year? What
    is the basis of your estimates that production is down 100 tons?
        Answer. Potential cocaine HCL production fell last year to the
    lowest level this decade--from an estimated 760 metric tons in 1996 to
    an estimated 650 metric tons in 1997. Significant declines in Peru's
    production potential coupled with small declines in Bolivia's
    production potential were largely responsible.
        Peru's potential cocaine HCL production fell sharply in 1997 to a
    record low of 325 metric tons--production in 1996 was estimated at 435
    metric tons. Production potential has dropped over 40 percent since
    1992.
        Bolivia's finished cocaine production potential declined for a
    third year in a row, dropping some 22 percent from 1994 levels, to an
    estimated 200 metric tons in 1997.
        Estimates of potential cocaine HCL production are based on three
    scientific-based building blocks: US government imagery-based surveys
    of Andean coca crop, estimates of coca leaf yields, and leaf-to-cocaine
    conversion ratios. The same scientific methodology is repeated every
    year, resulting in a reliable trend assessment.
        Leaf yields and processing efficiencies have been scientifically
    researched and evaluated in Peru and Bolivia. Similar research is now
    underway for Colombian coca yields.
                                   statement
        The Director's opening statement before this subcommittee indicates
    the campaign advertising component is currently estimated at $150
    million. The additional $45 million requested is to support the
    campaign through corporate sponsorships, interactive media, evaluation
    processes and other appropriate efforts.
        Question. Why is ONDCP paying for corporate sponsorships?
        Answer. ONDCP is not paying for corporate sponsorships. We have
    budgeted approximately $1 million for development of a logo, campaign
    identity, and other marketing ``equity'' of value to corporations who
    would themselves pay for the right to sponsor the campaign. This is
    similar to the way in which a company might sponsor the Olympics, pay
    for the right to use the logo and to associate with Olympics
    activities. Similar arrangements have been made with companies that
    have sponsored activities of the Smithsonian Institution and renovation
    of the Statue of Liberty. We have engaged the advice of the leading
    ``cause marketing'' consulting firm in the country to advise on how to
    maximize the campaign's ``equity'' and negotiate successful agreements
    with major corporations. This takes careful preparation, for which we
    expect to develop a detailed strategy, and we anticipate that when we
    enter the fully integrated Phase 3 of the campaign, this will generate
    substantial return from the private sector.
        Question. Originally ONDCP discussed receiving matching funds for
    the campaign. What level of ``match'' has ONDCP received for the
    campaign?
        Answer. ONDCP has established aggressive negotiating standards for
    its media buyers to seek a 100 percent match for media purchases. To
    date, we have been highly successful in receiving media matches with a
    dollar value very near this goal. The negotiation with any single
    commercial media vendor is proprietary and should not be disclosed in
    order not to compromise the position in negotiation with other vendors,
    but overall amount and ``prime time'' placement and other value for pro
    bono Public Service Announcements (PSA) has been exceptional and highly
    praised by The Ad Council, who have agreed to serve as a clearinghouse
    for the PSA match component of the campaign. As the campaign matures in
    Phase 3, we expect even greater returns from multi-media conglomerates
    who represent a number of different media companies and outlets. In
    those cases, simple match of time or space (``bonus weight'') will be
    enriched by companies offering in-kind communications, such as event
    sponsorship, that will reach our target audiences.
        Question. What do you mean by appropriate efforts outside the
    advertising campaign and other media events?
        Answer. The National Youth Anti-Drug Media Campaign seeks to employ
    media tools for one purpose: dramatically reduce the risks of drug use
    for America's youth, their families and communities. In order to do
    this, we have consulted hundreds of experts in professional media,
    health communications and drug prevention. We have studied how other
    ``social marketing'' efforts have achieved success, and especially
    studied how major corporations conduct strategic marketing to national
    markets. The result is now published in a series of documents that
    present paid advertising as the central component integrated with an
    array of related marketing and communications tools. Based on clear
    goals cited in our Communication Strategy Overview, we have laid out
    the campaign in a Paid Media Plan for paid advertising and the related
    Integrated Communication Plan for additional measures involving use of
    interactive media, entertainment industry collaboration, news media,
    community partnerships and corporate participation. This ensures that
    the campaign has depth and follow-up--reaching our target audiences
    with messages reinforcing each other in many parts of our culture.
        These carefully integrated plans ensure that the campaign goals of
    advertising ``reach and frequency'' on the basis of which the initial
    advertising budget was estimated are, in fact, achieved. In addition,
    they ensure that ONDCP achieves the legislative objectives of not
    supplanting current anti-drug community based coalitions, and further,
    uses the power of the media to stimulate development of infrastructure
    that can translate mass media messages into community action.
        Question. What is ONDCP's current staffing level including full
    time employees and detailees?
        Answer. Of the 154 authorized positions, 138 positions have been
    filled, including five detailees and 24 military assignees.
        Question. At the fiscal year 1997 hearing before this committee the
    Director said ONDCP owes Congress ``results not rhetoric'' and you said
    you would demonstrate in concrete ways what ONDCP has achieved with the
    money Congress has provided.
        Answer. The performance measures detailed in the 1998 Strategy are
    the foundation of an ongoing interagency effort to implement the first
    ever government-wide performance measures for counter drug efforts. In
    the meantime, our yardsticks for measuring progress on are national
    surveys such as the Drug Abuse Warning Network, Drug Use Forecasting
    system, MTF and NHSDA. The latest surveys suggest that good progress is
    being made. The six-year trend of increasing drug use among 12-17 year
    olds has been halted. Drug-related emergency room episodes did not
    increase in 1996. Methamphetamine use plummeted among arrestees. And
    thanks, in part, to bipartisan support of cooperative hemispheric
    counterdrug programs, coca cultivation in Peru declined 40 percent in
    the past two years.
        At present, 51 percent of our 94 performance targets are measurable
    from primary data sources or represent milestones that do not require a
    data set. As the performance measurement system is implemented, annual
    targets formulated, and new data become available later this year, more
    information will be available on the results of the Nation's drug
    control efforts. We look forward to keeping the Congress informed of
    our progress in this area.
        Question. The Members need to clearly explain to the taxpayers in
    their districts how ONDCP will reduce illegal drug use with the $17
    billion requested in fiscal year 1999. This is [sic] to put in writing
    ONDCP's efforts in terms of reducing drug use.
        Answer. The President's record fiscal year 1999 budget request for
    the National Drug Control Strategy will support a ten-year plan to
    reduce drug use and its consequences by 50 percent. The following table
    demonstrates the progress we will achieve if this Strategy is fully
    funded:

    ----------------------------------------------------------------------------------------------------------------
                  Measure                     Current figure           10-year goals           20-year lows/highs
    ----------------------------------------------------------------------------------------------------------------
    Current drug use (all ages)........  6.1 percent............  3 percent..............  5.8 percent (low).
    Marijuana initiates................  2.37 million...........  1.18 million...........  1.37 million (low).
    Age of initiation (marijuana)......  16.7 years.............  20 years...............  20.1 years (high).
    Current use of illicit drugs (among  9.0 percent............  4.5 percent............  5.3 percent (low).
     12-17 year olds).
    ----------------------------------------------------------------------------------------------------------------

        In total, funding recommended for fiscal year 1999 is $17.1
    billion, an increase of $1.1 billion (6.8 percent) over the fiscal year
    1998 enacted level. Specific requests include:
        Defense.--The fiscal year 1999 budget for the Department of Defense
    (DOD) would increase by a net of $35.1 million from the fiscal year
    1998 enacted level. The total fiscal year 1999 DOD drug budget includes
    an increase of $75.4 million to support counterdrug activities in the
    Andean Ridge region ($60.8 million), operations in the Caribbean ($8.5
    million), training of Mexican counterdrug forces ($4.0 million), and a
    transfer of funds for air reconnaissance missions ($2.1 million). The
    request also includes an additional $15 million for the National Guard.
        Education: School Drug-Prevention Coordinators ($50 million).--This
    initiative will fund about 1,300 paid drug-prevention coordinators.
    Each coordinator will develop and direct drug-prevention programs in
    five middle schools. In total, this initiative will provide prevention
    services for 6,500 middle schools.
    Health and Human Services:
        SAMHSA.--A top priority in this budget is the federal government's
    efforts to mobilize resources to increase substance-abuse treatment
    services nationwide. SAMHSA's $200 million increase in budget authority
    for the Substance Abuse Prevention and Treatment Performance
    Partnership Grant will support efforts to close the treatment gap.
        FDA & CDC--Youth Tobacco Initiative ($146 million).--In fiscal year
    1999, this initiative provides an additional $100 million for the Food
    and Drug Administration (FDA) and $46 million for the Centers for
    Disease Control and Prevention. This program will target cigarette
    smoking by underage youth, which has been identified as a gateway
    behavior for drug use. As part of this effort, FDA will expand its
    enforcement activities and CDC will conduct further research on the
    health risks of nicotine, additives, and other potentially toxic
    compounds in tobacco.
        NIH--Drug and Underage Alcohol Research ($50 million).--This
    initiative will allow NIH (NIDA and NIAAA) to expand research on drug
    and underage alcohol use. Research on underage alcohol and drug
    addiction among children and adolescents, as well as chronic drug
    users, will enhance prevention and treatment program effectiveness.
    Justice:
        DEA--Methamphetamine Initiative ($24.5 million).--This initiative
    provides DEA with 223 positions, including one hundred special agents,
    to address the growth of methamphetamine trafficking, production, and
    abuse across the United States. New funding for DEA in fiscal year 1999
    also includes a Heroin Initiative ($14.9 million). This program combats
    heroin trafficking, production, and distribution networks operating in
    the United States and increases U.S. investigative presence in
    countries involved in the trafficking of drugs from Southeast and
    Southwest Asia. This enhancement includes 155 positions, including one
    hundred special agents.
        Office of Justice Programs (OJP)--Drug Testing and Intervention
    Program ($85 million).--This new program seeks to break the cycle of
    drug abuse and violence by assisting state and local governments, state
    and local courts, and Native American tribal governments to develop and
    implement drug testing, treatment, and graduated sanctions for drug
    offenders. Because considerable drug use has been documented among
    people within the criminal-justice system, this program will provide
    guidance and resources to help eligible jurisdictions institute
    policies that support testing and treatment for drug offenders.
        Border Patrol ($163.2 million, $24.5 million drug-related).--This
    enhancement includes one thousand new Border Patrol agents, primarily
    for the southwest border. These new resources will continue expansion
    of the Border Patrol's strategy of ``prevention through deterrence''
    along the southwest border. Also included is funding to continue
    deployment of the Integrated Surveillance Intelligence System and
    Remote Video Surveillance (ISIS/RVS) equipment. ISIS/RVS will enable
    the Border Patrol to allocate agents more efficiently based on current
    information regarding illegal alien traffic. Funding is also included
    to erect and maintain border barriers and expand infrastructure that
    will improve enforcement between ports-of-entry.
        ONDCP: Special Forfeiture Fund ($34 million).--The net increase for
    fiscal year 1999 includes $10 million for a Chronic User Study, which
    will generate national estimates of the size and composition of this
    population. A pilot project for this research, conducted in fiscal year
    1997 in Cook County, Illinois, concluded that chronic users are
    significantly under-counted in current surveys. Fiscal year 1999
    funding for the Special Forfeiture Fund includes $20 million for grants
    that continue implementation of the Drug-Free Communities Act of 1997.
    This figure is an increase of $10 million over fiscal year 1998.
        State: International Country Support ($45 million).--Included in
    this increase are funds to build on fiscal year 1998 support for Andean
    Ridge nations involved in interdiction and counterdrug law-enforcement
    operations. This effort will expand crop eradication and alternative-
    development programs to reduce illicit coca cultivation.
        Transportation: U.S. Coast Guard ($35.7 million).--Most of the
    drug-related increase ($32.8 million) requested in fiscal year 1999
    will provide for capital improvements to enhance the Coast Guard's
    interdiction capabilities, particularly in the Caribbean. The fiscal
    year 1999 request includes funding for improved sensors on C-130
    aircraft, additional coastal patrol craft, and expansion of the Coast
    Guard's deep water assets.
        Treasury: U.S. Customs Service ($66.4 million).--Customs' fiscal
    year 1999 request includes a total increase of $66.4 million for
    counterdrug operations. Of this total, $54.0 million is requested for
    non-intrusive inspection technologies. The request supports two seaport
    X-ray systems as well as $41.0 million for non-intrusive inspection
    systems like mobile and fixed-site X-ray systems for land border ports-
    of-entry along the southwest border.
        Question. The report on the Cook County hardcore drug user's study
    states the study findings should be treated with caution because the
    error of estimate has not been determined nor has the sensitivity of
    the results been explored. Shouldn't ONDCP document the accuracy of the
    Cook County study methodology prior to committing additional funds?
        Answer. The caution that is urged in interpreting the findings
    applies to the actual point estimates for the number of hardcore users
    determined by the three different models, rather than the study
    methodology. Because these are estimates based on a sample, there is
    always some statistical error associated with them, meaning that they
    have a certain + or - factor. At this time, this level of error has not
    been calculated. Likewise, we have not explored the sensitivity of the
    results to alternative specifications of the models that were used to
    estimate event rates (for example arrests, treatment episodes, or
    visits to homeless shelters)--it is possible that alternative
    specifications might raise or lower the estimates by small amounts.
        While the estimates for Cook County are of interest in and of
    themselves, the primary purpose of the Cook County study was as a pilot
    test of a methodology for estimating the size and characteristics of
    the hardcore user population, and not developing precise estimates of
    the size of the problem in Cook County. The results, as reported in the
    study, indicate that this is a very sound methodology. During
    development, the methodology underwent a rigorous peer review by
    academic and Federal government experts. The draft report also received
    a rigorous review prior to publication.
        In order to further refine and develop the methodology, it is
    necessary to apply it to a larger geographic area to confirm the
    findings achieved in the pilot study.
        Question. The household study determined there are 2.7 million
    hardcore drug users. This level has been the same since 1987. The Cook
    county study indicates the numbers for that region were off by two
    thirds. If that is true nationally it would mean there are
    approximately 7 million hardcore drug users. So far ONDCP has requested
    $12.5 million to determine the correct number. How many hardcore drug
    users could receive treatment for $12.5 million and can you explain why
    that wouldn't be a better way to spend the money?
        Answer. NIDA and SAMHSA acknowledge that the Household Survey does
    not do a very good job at estimating the number of hardcore users.
    These individuals are difficult to sample with a household survey
    because they often do not reside in traditional households and those
    few who do are reluctant to participate in such surveys. This problem
    was the motivation for conducting the Cook County study, which
    attempted to determine whether it was feasible to estimate the size and
    characteristics of this population based upon a methodology that
    interviewed hardcore users in locations where they are most likely to
    be found in substantial numbers--booking facilities, treatment centers,
    and homeless shelters.
        It is not methodologically appropriate to use the findings from a
    single site--Cook County--to estimate the size of the U.S. hardcore
    user population. To do so would assume that Cook County is fully
    representative of the United States. This is why ONDCP seeks to apply
    the proven methodology from the Cook County study to a larger, more
    representative region of the country. The bottom lines is that this
    nation's drug policy could be refined with better estimates of the size
    and characteristics of this population.
        According to a 1994 Rand Corporation report, the average cost to
    treat an addicted person is $1,740. With the $2.4 million spent on the
    pilot study and the $10 million requested for the next phase of the
    hard core user study, we could treat a maximum of 7,126 addicted
    individuals. This is approximately one-tenth of one percent of the 5.4
    million drug users in 1994 who either needed treatment or received it.
        Spending the $12.4 million on a study that will provide a more
    accurate and reliable estimate of the size and characteristics of the
    hardcore user population is, we believe, a supportable and better one-
    time use of these funds.
        Question. Will ONDCP provide opportunities for members of the
    Milwaukee HIDTA to work and communicate with other HIDTA's? For
    example, will Milwaukee and Chicago have an opportunity to work
    together on Chicago's High Drug Interdiction Project? How can you
    facilitate that?
        Answer. The Milwaukee HIDTA will have a variety of opportunities to
    work and communicate with other HIDTA's through conferences, technical
    assistance, joint intelligence sharing and coordination. The HIDTA
    program is designed to improve coordination and cooperation between
    HIDTA regions like Chicago and Milwaukee. Through intelligence sharing,
    connectivity and established linkages, the HIDTA program establishes
    improved communication and cooperation. HIDTA's are required to report
    outcomes which include activities beyond the HIDTA. Chicago and Lake
    County have agreed to share intelligence through their intelligence
    centers. It is anticipated that Milwaukee will also participate once it
    becomes operational. Chicago Highway Drug Interdiction Project will
    offer training and post-interdiction investigation cooperation with
    Milwaukee.
        Question. The fiscal year 1999 request for $10 million is for a 2-
    year study of other hardcore drug users in areas of the United States.
    What criteria will ONDCP use to decide where the study should be
    conducted? Will we see a request for a National study in the future? If
    so, how long will a national study take and how much will it cost?
        Answer. We anticipate that a number of criteria will be used in
    selecting the areas for the next phase of the Hardcore User Study,
    including demographic profile (e.g., age, race/ethnicity), urban vs.
    rural concentration, and the willingness of state and local authorities
    to participate. Our goal is to select a more representative sample than
    was possible with the pilot study, which focussed on just one site.
        We may submit a request for a National study upon completion of the
    regional phase of the study. From the beginning, our concept for
    developing a methodology for estimating the size and characteristics of
    the hardcore user population called for a three-phase approach, which
    included a single-site feasibility or pilot study, a larger regional
    validation study, and finally, a full national study. This was the
    process that was peer-reviewed and approved by OMB. We have not yet
    done a full costing of the National study nor do we have an estimate of
    how long it will take. We are taking each phase one step at a time. The
    cost and time estimates for the regional study are based upon lessons
    learned from the pilot study. Similarly, we will base cost and time
    estimates for the National study upon lessons learned in the regional
    study.
        Question. President Clinton's directive to ``cut inmate drug use''
    proposes that the Justice Department draft legislation that would allow
    States to spend the Federal money earmarked for prison construction to
    instead provide drug treatment for the prisoners. Has that legislation
    been drafted? And, what limits will be placed on using prison
    construction funds for testing and treatment? Are there other programs
    that provide drug treatment programs in prisons?''
        Answer. H.R. 3606, Drug Testing, Intervention, and Trafficking
    Reduction Within Prisons Act of 1998, was introduced in the House March
    31, 1998. Under this Act, to be eligible for funding under the Violent
    Offender Incarceration and Truth in Sentencing Grants Program, States
    must: have a program of testing, interventions, and sanctions in place
    by September 1, 1998; implement policies that provide for the
    recognition of victim's rights, within 18 months of enactment; and have
    a system of sanctions and penalties that address drug trafficking
    within and into correctional facilities, beginning in fiscal year 2000.
        No other limits are placed on the use of funds for testing,
    intervention, and the development of a baseline study of the prison
    drug abuse problem.
        Other programs that can fund prison treatment:
      --To a limited extent, the Department of Health and Human Services'
            (HHS) Substance Abuse Treatment and Prevention block grant to
            the states can be used to provide treatment to drug dependent
            offenders in prison. However, treatment of incarcerated
            populations is limited by law to the level of such funding in
            fiscal year 1991.
      --The Department of Justice's (DOJ) Bryne Anti-Drug formula grant to
            the states can be used to provide treatment to drug dependent
            offenders in prison.
      --DOJ's prison Residential Substance Abuse Treatment program is
            designed precisely to treat drug-dependent offenders.
            Unfortunately, the law does not permit funding for transitional
            or post-incarceration treatment services, although the research
            strongly suggests that such services are essential to stable
            recovery. H.R. 3606 will correct this, allowing states with
            established in-prison programs to fund post-incarceration
            services.
      --DOJ's Bureau of Prisons provides treatment to all eligible Federal
            Prisoners.
        Question. Mr. McCaffrey, the IRS, with approximately 100,000
    employees and daily interaction with the taxpayer, is requesting
    $25,000 for official representation expenses. ONDCP with 124 employees
    is requesting $20,000. When you do the math, that 150 percent increase
    is approximately $161 per employee. Mr. McCaffrey, you know the budget
    situation as well as I do, so help me understand. Why should this
    account receive such an increase when accounts like HIDTA's, which
    directly impact our communities, are not slated for an increase this
    year? In other words, can you tell me why this subcommittee should be
    paying for parties when we could be using that money for fighting
    drugs?
        Answer. The $20,000 representational request is essential to ONDCP
    to fulfill the inherent responsibility of furthering the mission of the
    office through consultative efforts, not parties. Under the provisions
    of the ONDCP authorizing statute, specifically 21 U.S.C. 1504(a)(3)(A),
    the Director is required to consult with ``heads of National Drug
    Control Program Agencies * * * Congress * * * State and local officials
    * * * [and] private citizens with experience and expertise in demand
    reduction * * * [and] supply reduction'' to help him develop the
    National Drug Control Strategy.
        Therefore, the Director must host the representational event
    therefore, a per person comparison to IRS would not be appropriate. A
    true comparable would be the amount of policy development involved, and
    the interactions with various communities and stakeholders for any
    effort to be a success.
        Clearly, the representation monies are an assistance to defining
    the scope of the common threat we face and strategies to defeating the
    threat worldwide. The work that is involved with the fight against drug
    use is a collaborative process through consultations with Congress, the
    more than 50 Federal agencies and departments, the law enforcement
    agencies, and stakeholders--mayors, doctors, clergy, civic leaders,
    parents, and youth--drawn from all segments of our society. Further,
    this enhanced cooperation within the hemisphere and worldwide is an
    important tool to use to begin to be able to win the fight against
    drugs.
        Since its inception, ONDCP received $8,000 in representation funds
    each year.
        Question. Mr. McCaffrey, I would like to state that I firmly
    support our efforts to fight against drugs. As a former law enforcement
    officer, I have seen first hand how drugs destroy our children and
    communities. However, I must state that I believe in many instances
    your budget is not necessarily what it appears. Overall, it appears
    that you are asking for a modest increase in your bottom line, but upon
    further inspection, you are slashing and burning some accounts like the
    Counterdrug Technology Assessment Center to make up for the difference,
    You are asking for the following increases: 17 percent for travel, 21
    percent for transportation, 61 percent for communications and
    miscellaneous costs, 50 percent for printing, 75 percent for supplies
    and materials , just to name a few. Can you explain, specifically, what
    these cost increases are attributed to, remembering that inflation for
    fiscal year 1999 for non-pay related costs is 2.2 percent.
        Answer. ONDCP, over the past several years, has received permission
    by the Committee on numerous occasions to reprogram funds. This
    reprogramming was necessary to accomplish the mission of the
    organization. A part of the reprogrammings were due to the staggered
    personnel growth stage, as well as the fact that ONDCP funds were
    improperly categorized by object class. This fiscal year represents a
    true picture of the needs of the office. Bar any unusual situations,
    based upon this budget, ONDCP will not require a reprogramming action
    in the coming fiscal year.
        With regard to what appears to be dramatic increases in several
    object classes, there are also essentially corresponding dramatic
    decreases in several object classes, for a modest total increase of
    less than 5 percent. Specifically, the following is a description of
    the increases by object class and what the increase is attributed to:
      --The increase in travel is a part of the required amount to support
            the mission of ONDCP. This is most evident in the fact that
            fiscal year 1999 will be the first year ONDCP will be fully
            staffed at 154 FTE, to include all political appointees. The
            National Drug Control Strategy document is a comprehensive
            approach which contemplates involvement of State and local
            authorities and non-governmental organizations. Outreach to
            these groups is essential to success. As well, international
            travel is an important component for cooperation and
            coordination in the interdiction effort.
      --The increase in Rents, Communication, and Utilities is due to the
            requirements for the additional staff with regard to space and
            communications.
      --The increase in printing and reproduction is due to the increased
            visibility of ONDCP creating more demand for all materials,
            including the National Drug Control Strategy, the Budget
            Summary, and the Performance Measures of Effectiveness.
      --The increase in supplies is directly related to the increasing
            number of staff.
      --The increase in Other Services is primarily connected to the
            protective services for the Director of ONDCP, a conference
            budget, and the increase of staff creating more demand on
            contractor support of ADP maintenance and telecommunications
            services.
        Question. Mr. McCaffrey, last year you requested that the
    subcommittee reprogram funds to provide for your security in a letter
    dated September 24, 1997. At the time, the committee staff asked if
    there had been a threat assessment conducted to justify the need for 24
    hour security and an armored limo, a cost you estimated at $1.66
    million a year. Due to the lack of justification of this request, the
    committee chose to deny it. What is the status of the threat assessment
    and does it differentiate between domestic and international threats?
    Who have you contacted to conduct the threat assessment?
        Answer. The United States Marshals Service (USMS) provides
    protective services for the Director of ONDCP. A threat assessment was
    performed by the USMS on behalf of ONDCP. Based upon several documented
    threats received against the Director of ONDCP in 1997, the USMS
    identified a moderate threat level in the United States and a high
    threat level while on foreign travel. (The classifications of this
    threat assessment are as follows: No Threat, Low Threat, Moderate
    Threat, and High Threat.) In summary, the USMS notes that as always,
    specific travel or events should be assessed independently as threat
    levels could change dramatically.
        Question. You intend to launch Phase II of the campaign before
    getting the feedback from Phase I, which is due in July. What is the
    justification for moving forward to Phase 2 without feedback from Phase
    1?
        Answer. ONDCP has received highly encouraging feedback from
    community coalitions about Phase 1 and believes it is critical to
    continue the momentum of this campaign during the summer months when
    youth are out of school, have unsupervised time, and need to hear the
    message about the dangers of drug use.
        By using the 10-year experience of the Partnership for a Drug-Free
    America (PDFA), ONDCP is not creating a completely untested and
    speculative campaign, but is relying on PDFA's experience which we have
    validated in Phase 1. We are using an approach similar to responsible
    commercial firms who rely on real-time market feedback in addition to
    longer-term, formal evaluations. While we have budgeted for more than
    $10 million in rigorous impact analysis and research, we are also
    receiving immediate market feedback through arrangements with the
    Community Anti-Drug Coalitions of America (CADCA) and others to be
    coordinated through the Substance Abuse and Mental Health Services
    Administration (SAMHSA). Commercial media planning and buying experts
    have also advised that we must make national purchases during the June
    time frame or lose the opportunity to achieve the prices and placements
    that ensure achieving our campaign strategy of reaching 90 percent of
    our target audiences at least four times per week.
        Question. So, if we don't receive the feedback from the pilot until
    July, how will we be able to use that feedback to make decisions on
    your fiscal year 1999 request?
        Answer. ONDCP will immediately provide early process measures and
    feedback from the anti-drug community in the pilot markets. Local
    coalition and community prevention leaders bring years of experience
    and have seen first-hand the effect of the campaign. We will also
    provide data from the national drug clearinghouses and others who are
    seeing increased public response due to the campaign. ONDCP can also
    provide early anecdotal feedback from the Phase 1 contractors
    conducting the impact evaluation. This feedback has been positive about
    raising community awareness, which is the initial expected goal of the
    campaign. The evaluation contractor's extensive qualitative and
    quantitative assessments are proceeding and will be available in a
    draft report in early September before we begin the fully integrated
    Phase 3 of the campaign in October. For reference, the second round of
    site visits for the Phase 1 evaluation took place in April. The
    contractor is currently preparing the report on these visits; the final
    releasable version of this report probably won't be ready until near
    the end of June. The contractor is currently collecting the final wave
    of data for Phase I. They are surveying students in schools and parents
    via telephone, as well as conducting a third wave of site visits. These
    data will be presented to us in a draft report by early September as we
    have previously reported to the Congress.
        Question. Mr. McCaffrey, can you share some of the anecdotal
    feedback resulting from the 12 city pilot?
        Answer. CSR, Inc., our Phase 1 evaluation contractor polled
    community representatives in each of the 12 target markets eight weeks
    after the campaign had been initiated. Their preliminary results
    include the following:
        Almost all of those interviewed (97 percent) reported they were
    seeing the ads and they showed high awareness of increased ad
    frequency, better placement in ``prime time'' or other matters due to
    the campaign. Specific comments included:
      --Business leader in Portland: the ads are ``much improved, more
            frequent and widely shown.''
      --School official in Tucson: ads in newspapers are very powerful,
            especially those targeting adults.
      --Community organizer in Sioux City: ``frequency of advertising has
            been quite impressive * * *''
        Eighty percent of community representatives polled reported that
    people in their community are talking about the ads, a very encouraging
    result given the short time frame of the campaign:
      --Police sergeant in Baltimore: kids in D.A.R.E. classes are talking
            about the new ads.
      --Community coalition leader in Denver: reported that about 90
            percent of parents attending PTA meeting had seen ads and
            responded favorably.
      --Drug prevention worker in Atlanta: witnessed an upswing of requests
            for presentations to parent groups as a result of the campaign
            and noted that this has brought the problem of inhalants newly
            to the attention of many parents.
      --Prevention worker in Milwaukee: supported ads featuring mentoring
            as this supports the ongoing focus on building resiliency
            skills among youth.
        Community representatives were asked about other results due to the
    campaign:
      --Washington, D.C., program coordinator: agency's new hotline number
            was included in ad and saw calls go from one or two per day to
            about 15 calls per day.
      --CADCA representative in San Diego: campaign has supported extension
            of a community-based campaign on methamphetamines.
        The National Clearinghouse on Alcohol and Drug Information (NCADI)
    has experienced marked increases in calls and requests for information.
    After ads run, calls have increased more than 25 percent. State
    clearinghouses are also reporting increased requests for information--
    some more than 300 percent--as well as requests for treatment
    referrals.
        At a recent conference conducted by the PDFA for national alliance
    coordinators, speakers from local anti-drug coalitions, including
    Portland, Denver, Sioux City, Milwaukee, and Tucson, spoke in highly
    complimentary terms about the campaign. They reported that despite
    initial uncertainties about how this would affect their communities,
    they are receiving offers of corporate support, increased volunteerism,
    offers of local media participation, requests for presentations to
    community groups, and increased dialogue between prevention and
    treatment groups.
        Question. Mr. McCaffrey, can you tell us when we can expect a
    change in attitudes and behavior toward drug use resulting from the
    Media Campaign?
        Answer. We do not expect to see changes in attitudes for 1 to 2
    years, and changes in behavior for 2 to 3 years. The authorizing
    legislation recognized this when stipulating that ONDCP would report to
    Congress on campaign effectiveness within two years.
        Experts in social change continue to advise us that we should
    expect a sequence of changes: changes in awareness first, followed by
    changes in attitudes and behavior. Unlike simple purchase of a consumer
    product, youth drug use reflects a complex of influences, and we cannot
    reasonably expect to see significant behavior change sooner than that.
    Nevertheless, earlier ``social marketing'' campaigns, such as for the
    National Cancer Institute and for seat belt use, have given ample
    evidence that such campaigns can work. This is reinforced by observing
    that the extensive awareness built by PDFA during the drug crisis of
    previous decades was then paralleled by dramatic declines in overall
    drug use. Conversely, just as diminished risk perception and increasing
    acceptance of drug use as ``normal'' behavior among youth was then
    followed by marked increases in drug use, we may expect that
    reestablishment of truthful understanding about drug harmfulness and
    social unacceptability, as well as reengagement of parents and other
    adult care givers, will lead to reversals in these trends.
        Question. This committee provided a total of $8.8 million for anti-
    methamphetamine efforts. Can you tell us how this money was spent?
        Answer. The trafficking and abuse of the destructive and addictive
    synthetic drug methamphetamine is a growing national problem. A
    resurgence in its use can be traced to two developments: (1) more
    efficient manufacturing processes for domestically produced
    methamphetamine; and (2) the growth of Mexican polydrug organizations
    and use of established distribution systems to funnel the drug. The
    drug appears to be spreading eastward from the traditional bases in the
    U.S. west and southwest to the Midwest. Seizures have been climbing
    steadily over the last few years (at the Southwest Border, for example,
    seizures have gone from 6.5 kilograms in 1992 to 653 kilograms in 1995)
    while the price has remained relatively constant ($50 to $150 per
    gram). All indications (e.g. seizures, emergency room treatment,
    clandestine laboratories seizures) are that methamphetamine production
    and trafficking have grown in the United States and Mexico.
        The methamphetamine appropriation was enacted in October. Since
    that time the HIDTA's have spent a substantial amount of effort in
    developing initiatives that would correspond to the Congress' intent to
    address the rising methamphetamine problem. As a result, funding will
    be allocated to initiatives in regions of the country that are
    seriously affected by the meth problem. A small proportion will also be
    used for developing the clandestine lab database at EPIC and for
    transfer of ``best practices'' in the field through mobile meth
    training teams to affected areas. The primary areas to develop new
    initiatives funded by the appropriation are Los Angeles, Midwest HIDTA,
    Southwest Border (Arizona and California Border Alliance known as
    CBAG), Rocky Mountain, Southwest Border (National Clandestine
    Laboratory), and San Francisco. The HIDTA Assistance Center will
    provide training and support throughout the nation. A description of
    these initiatives will be sent to the committee.
        Question. Have you seen an improvement in the meth situation since
    Congress appropriated this money?
        Answer. Funding for counterdrug activities related to
    methamphetamine has already improved coordination of law enforcement
    activities. Many HIDTA's have studied the problem in their regions as
    part of the process of submitting proposals for new initiatives.
    Distribution of funding is pending. Once more information is reported
    from the HIDTA's concerning activities, ONDCP will brief staff later
    this summer on results.
        Question. Can you provide me with an update on the Rocky Mountain
    HIDTA's meth efforts as a result of fiscal year 1998 funding?
        Answer. A new Rocky Mountain Methamphetamine task force will be
    supported by the $1.5 million in additional funding. It will consist of
    a total of 61 members collocated in two states (Utah and Colorado).
    Their objectives will be to dismantle 120 clandestine labs in Utah and
    25 in Colorado. Among other activities, they will target the greater
    Casper area for a 50 percent reduction in methamphetamine.
    Approximately 160 law enforcement officers will receive meth-related
    courses. At least 5 meth trafficking organizations will be disrupted or
    dismantled, and at least three sources of precursors and chemicals for
    meth will be identified and dismantled.
        Question. Can you tell us what the Southwest Border HIDTA and your
    agency are doing about the meth problem and interdicting meth
    precursors?
        Answer. Our strategy includes working with Mexico to target
    methamphetamine production and distribution organizations, a national
    training program for prosecutors and agents, more concerted
    intelligence operations to expose the production and distribution
    systems, the targeting and prosecution of rogue chemical companies
    supplying precursor chemicals interstate, tougher penalties and
    sentencing guidelines for both methamphetamine and precursor
    trafficking, and an education and prevention program to alert the
    American people as to the serious dangers of methamphetamine abuse.
        Battling the diversion of precursor chemicals for the illicit
    production of methamphetamine is a difficult and complex task both on
    the domestic and international fronts. Our concerted international
    effort to curtail the diversion of ephedrine and pseudoephedrine has
    impacted the traffickers' activity. But they respond by shifting to
    other chemical substitutes, and they have begun using
    phenylpropanolamine (PPA) instead of ephedrine and pseudoephedrine
    (although the end product is actually amphetamine not meth). Although
    PPA is a list 1 chemical under U.S. law, it is not a controlled
    chemical internationally (i.e. under the Vienna Convention).
    Additionally, wholesale distributors are dealing almost exclusively in
    pseudoephedrine tablets to recipients on the West Coast. But in October
    1997, we were able to close the last major regulatory loophole that now
    makes control of pseudoephedrine commensurate with controls on
    ephedrine. DEA now has the ability to target these ``rogue''
    distributors who knowingly peddle large amounts to the operators of
    clandestine laboratories. Over-the-counter pseudoephedrine products--
    sold at the retail level--are currently exempt from the chemical
    provisions of the Controlled Substances Act, and these OTC drugs are
    turning up in clandestine laboratory seizures. Our current response is
    to seek voluntary cooperative efforts with the retail industry to
    prevent such diversion.
        The Southwest Border (California) will build upon five existing
    initiatives by adding one new initiative, the CBAG Methamphetamine
    initiative. The Southwest Border HIDTA is composed of five partnerships
    covering 41 counties in the states of California, Arizona, New Mexico
    and Texas. The Southwest Border is the preferred corridor for cocaine,
    marijuana, methamphetamine and heroin. The mission of the Southwest
    Border's (California) methamphetamine initiatives is to reduce the
    impact of methamphetamine trafficking, manufacturing and use within San
    Diego and Imperial Counties. The California Precursor Committee is a
    collaborative effort of the DEA, California Bureau of Narcotics
    Enforcement (BNE), U.S. Attorney's Office and 20 local agencies to
    develop measures to reduce the availability of chemical precursors. The
    Clandestine Lab Enforcement Group targets chemical precursor sources
    and major meth traffickers. The San Diego Violent Crime Task Force,
    North County Gang Task Force, and San Diego Methamphetamine Strike
    Force will also counteract meth production and trafficking.
        The Southwest Border (Arizona) will strengthen the Maricopa County
    HIDTA Methamphetamine Task Force to target methamphetamine trafficking
    organizations and clandestine laboratory production statewide. By
    combining the available resources of enforcement, prosecution, disposal
    and education in an overall comprehensive statewide plan, the task
    force addresses a number of problems associated with the spread of
    methamphetamine production. The DEA, Arizona Department of Public
    Safety and local law enforcement will provide personnel and expertise
    to respond to clandestine labs. Since its inception in October 1996,
    over 310 clandestine labs have been dismantled statewide and over 472
    lab violators have been arrested by various enforcement components of
    this initiative.
        The Los Angeles HIDTA Methamphetamine Regional Strike Force will
    attack the sources of precursor chemicals, develop an information
    network concerning suspicious sales of precursor chemicals and enhance
    and consolidate current efforts of many agencies that are attacking the
    problem. The task force will operate from two sites to target major
    methamphetamine organizations, investigate and seize meth labs, and
    target companies that sell equipment or precursor chemicals to meth
    producers.
        One solid example of our success is shown by Operation META, a
    joint-task force law enforcement operation centered in the Southern
    California Drug Task Force (Los Angeles HIDTA). It is designed to take
    down multiple organizations dealing in methamphetamine and cocaine on a
    large scale. Charges were filed in Los Angeles, CA; Dallas, TX; and
    Greensboro, NC. A Los Angeles-based organization was responsible for
    the importation from Mexico of the chemicals needed to manufacture the
    drug, the manufacturing and distribution at the wholesale level. Since
    the inception of Operation META in May of 1997, more than 80 persons
    have been charged with offenses related to the manufacture and
    distribution of methamphetamine. 133 pounds of methamphetamine, 90
    gallons of methamphetamine solutions, as well as cocaine and marijuana
    were seized. Additionally, Operation dismantled three clandestine
    laboratories and seized chemical solutions capable of producing more
    than 500 pounds of methamphetamine.
        Mexican officials reported the arrest and incarceration of Adan
    Amezcuas Contreras, the youngest of the three brothers, who are
    allegedly the ``world's largest'' suppliers of methamphetamine. The
    Amezcuas allegedly supply ``meth'' and the precursor ``ephedrine'', to
    Mexico's top drug cartels, and have a network stretching to China and
    India.
        Chemical diversion control is a straightforward counter narcotics
    strategy: regulate trade in the chemicals most necessary for the drug
    manufacture to ensure that only legitimate end-use is achieved. It is
    complicated by the nature of the chemicals involved and the widespread
    international commerce in them. National control systems alone cannot
    prevent diversion. The challenge is to develop multilateral mechanisms
    for the exchange of information necessary for the implementation of
    effective chemical control laws. In 1997, we made considerable progress
    to achieve this goal.
        The July 7-9, 1997 meeting of the U.N. Commission on Narcotic Drugs
    resulted in a draft of a comprehensive paper detailing measures
    governments should take to control precursor chemicals. This paper will
    be considered by the June 1998 Special Session on Narcotics.
        At the operational level, India continues voluntarily to advise DEA
    of any proposed export transactions in ephedrine and pseudoephedrine.
    Hong Kong has established a sound system of chemical control.
        Finally, Mexico is directing increased regulatory and investigative
    resources to deal with major chemical smugglers and methamphetamine
    traffickers.
        In 1997, work began on the Multilateral Chemical Reporting
    Initiative (MCRI). This is an informal mechanism to promote the
    exchange of information necessary for chemical control. It was launched
    in 1997 in two meetings co-hosted by the DEA and European Commission.
    In general, countries have been most supportive where chemical control
    is considered a law enforcement issue. In countries where its
    considered a regulatory issue and administered by trade or commerce
    agencies, these countries have been more cautious. This year, DEA will
    begin implementing the MCRI by requesting information from participants
    and inviting their cooperation.
        Other initiatives include chemical diversion training and technical
    assistance programs of the U.N. International Drug Control Program
    (UNDCP) to aid countries in the establishment of legal and regulatory
    structures needed for chemical control; and the Inter-American Drug
    Abuse Control Commission (CICAD) of the Organization of American States
    has developed a program which measures--through mathematical modeling--
    the estimated quantities of these chemicals required for legitimate
    domestic industrial use and beyond that, those quantities which may be
    diverted to the production of illegal drugs. The system is under
    evaluation in one OAS member state (which?) And is likely to be used by
    other members in the future.
        Question. Does your office currently have a bureau dedicated to
    State and local law enforcement? If not, how do you assist Sheriffs and
    smaller agencies coming to ONDCP for information or assistance?
        Answer. Yes. Functional responsibility for interaction with the
    criminal justice community, including State and local law enforcement
    agencies, is vested in ONDCP's Bureau of State and Local Affairs
    (BSLA). This component is led by Presidential Appointee, Robert S.
    Warshaw, our Associate Director, who was unanimously confirmed by the
    U.S. Senate on February 11, 1998. Mr. Warshaw is the former Chief of
    Police of Rochester, New York and counts three former police officers
    among his staff. The full personnel complement now serving in BSLA
    resents an aggregate of 150 years of Federal, State and local law
    enforcement experience.
        Question. It is the Subcommittee's understanding that military
    personnel have an integral role in the current Technology Transfer
    program, how are they able to uniquely assist in liaison with local
    police?
        Answer. The current approach to managing the Technology Transfer
    program places the lead role for liaison with local police onto
    regional experts chosen from state and local law enforcement
    organizations to advise CTAC. These experts are the Chief of the
    Buffalo Police Department (New York), Chief of Field Operations Los
    Angeles County Sheriff's Department (California), a senior member of
    the Chesterfield County Police Department (Virginia), Pima County
    Sheriff (Arizona), Arapahoe County Sheriff (Colorado), Director of
    Michigan State Police, Assistant Administrator Drug Enforcement
    Administration, Executive Director of Public Safety (Massachusetts),
    Brownsville Chief of Police (Texas), Hillsboro County Sheriff
    (Florida), St. Louis Metropolitan Police Chief (Missouri), El Segundo
    Police Chief (California), and several former police chiefs located in
    Seattle, Washington and Kansas City, Missouri. CTAC relies upon these
    experts to use their professional judgment to determine the best match
    of technology to specific police organizations.
        The role of the U.S. Army Electronic Proving Ground (AEPG) at Ft.
    Huachuca, AZ, is to serve as the technical, program management, and
    contracting agent for the technology transfer program. AEPG is not
    involved with the decision process. AEPG supports the administrative
    and logistics functions of the implementation side of the program. The
    AEPG program manager is a Captain in the National Guard who is
    supported by civilian scientists, engineers and contracting specialists
    from AEPG. These personnel have been supporting CTAC since 1993 with
    technical, program management and contracting support to the
    counterdrug research and development program. The same personnel have
    been engaged in the Technology Transfer program to assist in
    purchasing, delivering and installing technology systems selected for
    transfer under the program.
        In preparation for the Technology Transfer program, AEPG has
    provided significant administrative support to the CTAC one-day
    workshop series. AEPG's first-hand knowledge of the products available
    for transfer (gained during its support to the 10 CTAC one-day
    workshops held over the past 18 months) combined with its contracting
    expertise and ability to rapidly procure and deliver these systems
    place AEPG in a unique and valuable role to the Technology Transfer
    program:
      --AEPG is contracting with the individual vendors to pay for the
            purchase, installation and training costs necessary for most of
            these systems.
      --AEPG's role also includes developing complete budgets for follow-on
            logistics and life cycle costs that can be expected with each
            transfer.
      --The initial set of surveys for the Technology Transfer program were
            sent by AEPG to the 330 state and local law enforcement
            organizations who attended the CTAC workshops.
      --AEPG personnel are collating the responses to the surveys and
            providing a summary of requirements to the regional state and
            local experts selected from state and local law enforcement
            organizations to advise CTAC on the best approach to implement
            the Technology Transfer program.
        Question. What specific actions have you taken to address the
    growing problem of drug gangs, and what assistance has your office
    provided to local agencies in this regard?
        Answer. ONDCP, through promulgation of the National Drug Control
    Strategy, encourages initiatives targeting gangs and violent crime, as
    a means of helping localities to reduce drug trafficking. These
    initiatives include, but are not limited to, Federal, State and local
    task force efforts such as the FBI'S Safe Street Task Forces and ATF's
    Achilles Program.
        In addition, the Bureau of State and Local Affairs (BSLA), our
    agency component focused on domestic drug enforcement policy, interacts
    with State and local law enforcement both directly and through entities
    such as the National Youth Gang Center and the National Gang
    Consortium. Both are led by the Office of Juvenile Justice and
    Delinquency Prevention, U.S. Department of Justice.
        It is noteworthy that BSLA recently took part in a working group
    led by the National Drug Intelligence Center (NDIC), U.S. Department of
    Justice, aimed at the establishment of a permanent mechanism that will
    ultimately improve NDIC's drug gang intelligence products.
        On those occasions when localities contact BSLA for assistance re
    gang matters, our response most often takes for form of a referral to
    the appropriate body of Federal, State or local government.
        Question. ATF operates a well known gang program, GREAT. How has
    your office coordinated with the Treasury Department on the gang issue?
        Answer. The National Drug Control Strategy acknowledges GREAT as an
    example of education as a means to discourage gang proliferation.
        ONDCP coordinates with the Treasury Department on the gang issue,
    through our administration of the High Intensity Drug Trafficking Area
    (HIDTA) program. In fiscal year 1998, for example, we are funding
    fourteen ATF anti-gang initiatives in eight HIDTA's with a total of
    $4,242,798.
        Question. According to the February 1998 GAO report, CTAC has made
    virtually no use of the Science and Technology Committee designed to
    keep it informed of agency needs and efforts. For example, the report
    notes that CTAC did not systematically consider and fund the
    counterdrug technology needs of state and local agencies as part of its
    process for selecting and funding projects. Can you tell us what
    specific actions you are taking to correct these deficiencies in the
    GAO report?
        Answer. For the past fifteen months, the Science and Technology
    (S&T) Committee, under CTAC's leadership, has been concentrating its
    efforts on virtually one task, the preparation of the ONDCP Ten-Year
    Counterdrug Technology Plan and Development Roadmap. The GAO report
    states on page 11, that ``between December 1996 and August 1997,'' the
    CTAC Chief Scientist met 10 times, with ``the Technology Coordination
    Working Group, which is an S&T Committee working group.'' The S&T
    Committee has been intimately involved and the Technology Coordination
    Working Group members were the virtual authors of the ten-year
    counterdrug technology plan. This plan is based on agency scientific
    and technological needs and supports fully the five goals of the
    National Drug Control Strategy and the national technology performance
    outcome targets. The plan was published in June. Although the GAO
    report recognizes the importance of creating, for the first time, a
    ten-year technology plan, it overlooks that it constituted a total
    commitment by CTAC and the S&T Committee to complete the task of
    preparing the plan. The technology plan and development roadmap covers,
    in some detail, the test and evaluation and transfer of advanced
    technology which could benefit state and local agencies.
        As the S&T Committee long range planning effort began to address
    the ten year needs and priorities of Federal law enforcement, it became
    clear that, if the state and local agencies were to benefit, a direct
    outreach through one-day workshops could make the 17,000 police
    departments aware of advanced drug technologies which could be
    transferred. Since the spring of 1996, CTAC has hosted 10 one-day
    regional technology workshops across the country to make state and
    local agencies systematically aware of CTAC and DOD sponsored
    counterdrug technology projects which could benefit them. The workshop
    locations were: Austin Texas (April 1996), St. Louis, Missouri (July
    1996), Bloomington, Minnesota (October 1996), Portland, Oregon
    (December 1996), Tucson, Arizona (March 1997), Atlanta, Georgia (April
    1997), San Diego, California (July 1997), Denver, Colorado (October
    1997), Bedford, New Hampshire (November 1997), and Phoenix, Arizona
    (January 1998).
        The projects of importance to the state and local agencies include
    technologies to advance drug crime investigative information
    processing, surveillance and tracking, communications interoperability,
    and communications. The workshops have been attended by more than one
    thousand law enforcement technical operations officers, Chiefs of
    Police, state's attorneys and Sheriffs. The attendees took part in
    hands-on demonstrations given by other law enforcement officials who
    are currently using these technologies. The approach of using law
    enforcement officials speaking to other law enforcement officials has
    been a very effective way to get realistic assessments of the worth of
    the technologies to state and local agencies. Following each one-day
    workshop, the attendees evaluated the projects. The one-day workshop
    series has led to a systematic approach to deriving the needs of state
    and local law enforcement and a pilot program to support the transfer
    of advanced drug crime technology directly to state and local law
    enforcement.
        Question. Although CTAC has developed what it terms a priority
    listing of counterdrug R&D needs, there seems to be more items on the
    list than can be funded. There is no ranking of needs, relevance, or
    usefulness to agencies. CTAC appears to have no way to ensure that
    projects it funds reflect the most current and highest priority needs.
    What is CTAC's role if it is not setting priorities and keeping
    supported agencies informed?
        Answer. The federal law enforcement agencies have identified under
    CTAC leadership a total of 132 law enforcement scientific and
    technological (S&T) needs. These needs were ranked by the following
    technology areas or thrusts: tactical technology (80 needs), non-
    intrusive inspection (24 needs) and wide area surveillance (28 needs).
    The needs then were ranked within technology thrust by priority
    operational need versus S&T requirements, and then the S&T requirements
    within each technology thrust were ranked by time frame (short, medium
    and long-term). CTAC has issued four Counterdrug R&D Blueprint Updates
    which provide a complete listing of needs ranking in the appendix to
    each issue. The following is a summary of the current ranking:

    ----------------------------------------------------------------------------------------------------------------
                                                                                    Scientific and technological
                                                                  Operational              requirements--
                          Technology thrust                         priority  --------------------------------------
                                                                     needs        Short        Medium     Long-term
    ----------------------------------------------------------------------------------------------------------------
    Tactical Technology.........................................           20           45            9            6
    Non-Intrusive Inspection....................................            3           13            7            1
    Wide Area Surveillance......................................            3           20            4            1
    ----------------------------------------------------------------------------------------------------------------

        It should be noted that the February 1998 GAO report addressed only
    CTAC and not the total national counterdrug R&D program. The total
    counterdrug R&D expenditure by federal agencies was $676 million in
    fiscal year 1998 with a request of $722 million in fiscal year 1999.
    CTAC's annual budget of $16 million is 2.3 percent of the total
    expenditure.
        The list of counterdrug S&T needs are certainly more than CTAC
    alone can fund. A CTAC-maintained data base of ongoing federal law
    enforcement agency R&D projects was mapped onto the entire set of 132
    S&T federal law enforcement needs and all but 11 needs were being
    addressed, in part, by at least one R&D project being sponsored by CTAC
    or a federal law enforcement agency. Currently, efforts are being taken
    to ascertain the priority, relevance and usefulness of the remaining
    unaddressed needs.
        CTAC's role has been to identify and pursue those highest priority
    projects that transcend the needs of any single agency. Consequently,
    CTAC has focused only on innovative solutions to technology gaps which
    address the highest priority needs of more than one agency.
        For example in demand reduction, the highest priority need is to
    develop an effective medication for cocaine addiction, and to
    understand the status, trends and efficacy of substance abuse
    treatment. CTAC responded to these needs by sponsoring a high risk,
    innovative project to develop artificial enzymes which offer the
    promise of producing cocaine antibodies in the bloodstream which could
    effectively immunize addicts in treatment against the effects of
    cocaine. A computer-based, real-time treatment effectiveness system was
    also developed under CTAC sponsorship which links treatment centers
    with research scientists. This national network provides real-time
    information to researchers and providers on the most effective drug
    treatment modalities.
        In supply reduction, advanced technologies and systems for non-
    intrusive inspection of cargo and conveyances for hidden drugs are
    needed at our ports-of-entry. Special emphasis has been placed on the
    U.S. Southwest border. CTAC has sponsored engineering tradeoff studies
    to assess the technical feasibility of those advanced technical
    approaches available today to inspect cargo for drugs. CTAC also
    sponsored the successful development of a gamma-ray system now being
    considered by U.S. Customs Service to be deployed operationally along
    the Southwest border to inspect tanker trucks, empty containers and
    moving trains. Currently, a technology and infrastructure study is
    being sponsored by CTAC specifically to address the needs of the
    Southwest border for advanced inspection technologies. This technology
    study is being done in conjunction with U.S. Customs Service and
    Immigration and Naturalization Service.
        CTAC is also sponsoring projects to improve communications
    interoperability among state and local law enforcement organizations.
    Innovative computer algorithms to analyze trends in financial
    transactions and identify money laundering activities are being
    developed hand-in-hand with several U.S. Attorneys' offices. Systems to
    improve digital recording and processing of wiretap information have
    been developed under CTAC sponsorship to fill high priority needs of
    several sheriffs' offices.
        Question. In fiscal year 1998 this committee provided $13 million
    for a new program to transfer anti-drug technology to those who need it
    the most, state and local law enforcement. Can you give us an update on
    this program and how it's working?
        Answer. The technology transfer program is being well received and
    progressing very well. Requests have been received from over 128 state
    and local law enforcement agencies for transfer of technologies and
    products totaling $14.6 million. These costs include installation,
    training and support needed to fully implement the system or product
    with each agency.
        The U.S. Army Electronic Proving Ground (AEPG), the CTAC
    contracting agent for the pilot program, provides the engineering and
    contracting support. AEPG has developed a survey questionnaire and
    catalog of products available for transfer. This catalog has been sent
    to interested state and local organizations across the country,
    including representatives who attended one of our technology symposia
    or one-day workshops, organizations involved with one of the High
    Intensity Drug Trafficking Areas, or law enforcement personnel who
    participated in technology evaluations at one of the CTAC-sponsored
    state and local testbeds.
        A panel of regional experts from state and local organizations have
    agreed to serve as advisors for the implementation of the potential
    transfer actions. These experts are the Chief of the Buffalo Police
    Department (New York), Chief of Field Operations Los Angeles County
    Sheriff's Department (California), a senior member of the Chesterfield
    County Police Department (Virginia), Pima County Sheriff (Arizona),
    Arapahoe County Sheriff (Colorado), Director of Michigan State Police,
    Assistant Administrator Drug Enforcement Administration, Executive
    Director of Public Safety (Massachusetts), Brownsville Chief of Police
    (Texas), Hillsboro County Sheriff (Florida), St. Louis Metropolitan
    Police Chief (Missouri), El Segundo Police Chief (California), and
    several former police chiefs located in Seattle, Washington and Kansas
    City, Missouri. The success of the pilot program relies upon these
    experts and their professional judgment to determine the best match of
    technology to specific police organizations.
        Question. Part of the Counterdrug Technology Assessment Center, or
    CTAC, mission is to help state and local agencies battle drugs through
    technology. In fiscal year 1998's bill there was a provision for
    technology transfer to state and local entities. Outside of this
    effort, do you systematically identify and consider state and local
    needs?
        Answer. Yes. CTAC sponsors two activities that serve to
    systematically identify and consider state and local needs: (1)
    testbeds to evaluate new and emerging law enforcement technology, and
    (2) an outreach program of regional one-day technology workshops.
        CTAC sponsored technology testbeds are performed in conjunction
    with state and local law enforcement organizations to evaluate the
    impact of inserting new technology into the daily law enforcement
    operations. The participating state and local operational personnel
    work directly with the testbed scientists and engineers. These projects
    serve as pilot programs to develop technology appliques specific to a
    unique state and local need. Some examples of technology testbeds
    include: a wide-band, high-speed, regional information network in
    conjunction with Pinellas County Sheriff's Office (Florida); a digital
    recording and processing system for wiretap information in conjunction
    with the Pima County Sheriff's Office (Arizona); a digital GPS-based
    tracking and surveillance system in conjunction with Yonkers (New York)
    Police Department Narcotics Squad; a cellular phone analysis system in
    conjunction with the New York State Organized Crime Task Force; and a
    GPS-based miniaturized geolocation command and control system which
    included an airborne applique with the Fillmore County Sheriff's Office
    and the Mayo Clinic (Minnesota).
        Many of the products from these testbeds are now available for
    transfer to other state and local organizations under the $13 million
    pilot program for transferring technology to state and local
    organizations.
        The outreach program includes regional one-day technology workshops
    held across the nation to inform state and local law enforcement
    organizations of advancements in technology which are available for use
    by their agencies. CTAC has sponsored 10 regional one-day workshops
    over the past 18 months: Austin Texas (April 1996), St. Louis, Missouri
    (July 1996), Bloomington, Minnesota (October 1996), Portland, Oregon
    (December 1996), Tucson, Arizona (March 1997), Atlanta, Georgia (April
    1997), San Diego, California (July 1997), Denver, Colorado (October
    1997), Bedford, New Hampshire (November 1997), Phoenix, Arizona
    (January 1998).
        Question. How many total ONDCP staff are former State and local law
    enforcement officers?
        Answer. A total of four ONDCP staff have former experience as
    (only) State or local law enforcement officers. This number does not
    include former Federal law enforcement officers, military police, and/
    or prosecutors.
        Question. Does each account and program activity of ONDCP have
    performance measures associated with it?
        Answer. Each key activity area has performance measures associated
    with it. Areas such as Strategy Budget, Coordination, etc., have
    milestones that indicate performance. The four programs, where ONDCP
    has direct administration have multiple performance measures.
        Question. Does your plan include performance measures for which
    reliable data are not likely to be available by March 2000?
        Answer. The HIDTA Program falls under Goal 2, Objective 2 of the
    NDCS, ``Improve the ability of High Intensity Drug Trafficking Areas
    (HIDTA) to counter drug trafficking.'' The HIDTA Program's long-term
    effectiveness will be better defined as the PME system is implemented,
    the following constitute their fiscal year 1999 targets and sufficient
    data exists to ensure the ability to measure this program.
      --Each HIDTA will meet at least one additional step of the HIDTA
            Developmental Standards in at least one category.
      --Each HIDTA will disrupt, dismantle, or render ineffective 5 percent
            of the targeted drug trafficking organizations identified in
            its threat assessment.
      --Each HIDTA will disrupt, dismantle, or render ineffective 5 percent
            of targeted money laundering organizations.
      --Each HIDTA will achieve a 5 percent reduction in specified crimes
            (homicides, robberies, assaults, and crimes against property as
            reported by FBI UCR).
        CTAC activities fall under the Research Objective addressed in the
    last Objective of each NDCS Goal. The CTAC's long-term effectiveness
    will be better defined as the PME system is implemented, the following
    constitute their fiscal year 1999 targets and sufficient data exists to
    ensure the ability to measure this program.
      --Conduct three regional workshops and one major technology
            symposium.
      --Coordinate and support 85 counterdrug research programs with
            Customs, DEA, DOD, Coast Guard, FBI, Agriculture, and NIDA.
      --Develop and field five technology prototypes to address counterdrug
            law enforcement and drug treatment requirements. These
            prototypes will support improvements to inspection capabilities
            for trucks and rail cars (2), low cost, efficient
            communications interoperability (1), surveillance tools (1),
            and a means to evaluate and monitor substance abuse treatment
            programs in real time (1).
      --Increase by 20 percent, the rate at which new systems are acquired
            by Federal, state and local agencies.
        The Media Campaign falls under Goal 1, Objective 2, ``Pursue a
    vigorous advertising and public communications program dealing with the
    dangers of drug, alcohol, and tobacco use by youth.'' While the
    campaign has recently been authorized and is now fully operational, the
    development of meaningful internal process measures is still ongoing.
      --Ensure target audience exposure to anti-drug advertisements
            averages four times per week reaching 90 percent of the target
            audience.
        Drug-Free Communities support Goal 1, Objectives 1, 3, and 6;
    Objective 1: ``Educate parents or other care givers, teachers, coaches,
    clergy, health professionals, and business and community leaders to
    help youth reject illegal drugs and underage alcohol and tobacco use,''
    Objective 3: ``Promote zero tolerance policies for the use of illegal
    drugs, alcohol, and tobacco use by youth within the family, school,
    workplace, and community,'' Objective 6: ``Encourage and assist the
    development of community coalitions and programs in preventing drug
    abuse and underage alcohol and tobacco use.'' This program's long-term
    effectiveness will be better defined as the PME system is implemented.
    The following constitute fiscal year 1999 targets as process measures.
      --Success in granting the $20 million, minus administrative costs, to
            qualified coalitions through a system that is user friendly.
      --Provide funds to qualified coalitions within three months of the
            initial request.
        Question. Do you have the technological capability of measuring and
    reporting program performance throughout the year on a regular basis,
    so that the agency can be properly managed to achieve the desired
    results?
        Answer. HIDTA's have been in existence for a number of years and
    their collection processes are well established. CTAC is also a mature
    program with the capability to measure and report performance
    throughout the year. The Media Campaign is not yet fully operational to
    the extent that there are meaningful internal process procedures, but
    these are being developed. The new Drug-Free Communities Program is
    developing the capability to measure and report the progress.
        Question. Through the development of the fiscal year 1999
    performance plan, what overlapping functions or program duplications
    were identified?
        Answer. None. The nature of ONDCP functions and the specific
    assignment areas within the offices are individualized and preclude
    duplication or overlap in key program areas. For instance, the Bureau
    of State and Local Affairs has the lead for Domestic Law Enforcement
    and while CTAC provides certain technical and evolutionary support in
    this area they do not have the lead.
        Question. Did those duplicative programs receive funding in the
    fiscal year 1999 request?
        Answer. N/A.
        Question. What ONDCP programs did you have to eliminate or scale
    back as a result of utilizing your performance plan?
        Answer. None.
        Question. The Grand, Routt and Moffat Narcotics Enforcement Team,
    or GRAMNET, have applied for HIDTA recognition have been recommended
    for denial by the Regional HIDTA director, Tom Gorman. Although they
    appear to have met all of the other statutory requirements for the
    inclusion into the Rocky Mountain HIDTA, GRAMNET was told that they
    cannot receive designation as part of the Rocky Mountain HIDTA because
    of a technical matter of whether a judicial district can be designated
    as a HIDTA member. Please provide the Committee an update on this
    particular application and any justification for its denial, when in
    fact it appears to qualify under the basis of a ``multi-agency
    collocated task force.''
        Answer. GRAMNET is not located in a designated HIDTA county. This
    is a process used since the beginning of the program in 1990. As has
    been done in other HIDTA's, additional counties can be considered for
    inclusion. In the case of the Rocky Mountain HIDTA, the Executive
    Committee makes the decision to seek inclusion based on the threat
    level and requests the ONDCP Director to include. ONDCP reviews the
    request. The review includes an analysis whether the counties meet
    statutory criteria and whether they are recommended through
    consultation with the Attorney General, Treasury, Health and Human
    Services and the Governor.
                                     ______

                     Questions Submitted by Senator Thomas
        Question. ONDCP relies heavily upon DEA statistics and data in
    determining the ``most critical areas'' within HIDTA designated project
    areas. However, because the vast majority of DEA personnel are assigned
    to major metropolitan areas it is only natural that DEA figures reflect
    more drug enforcement activity in those areas. What steps might the
    ONDCP take to correct this inherent flaw in the process? Shouldn't the
    ONDCP diversify its sources of data to eliminate the distortion that
    accompanies such a reliance on facts and figures solely from the DEA?
    What consideration does the ONDCP currently give to drug enforcement
    figures supplied to it by state and local law enforcement entities
    which might paint a better picture of the degree of activity that is
    occurring in rural areas?
        Answer. ONDCP does not rely solely on data from DEA. A major source
    of information is the threat assessments from the HIDTA. HIDTA threat
    assessments rely on a variety of data sources: state and local,
    emergency room reports, FBI, and other Federal statistics.
        For example, the transmittal memorandum for the Methamphetamine
    Addendum to the Program Guidance, indicates that the most critical
    areas were determined by considering:
      --Threat assessments, strategies, and initiatives from the HIDTA's
            (these include State and local data and actions to address the
            methamphetamine problem).
      --DEA study of the most significant methamphetamine production/
            distribution regions.
      --California Bureau of Narcotics Enforcement report dated October
            1997 (to provide information on the most critical areas within
            California which is the epicenter for methamphetamine).
        Question. Concern has been expressed that ONDCP plans call for
    wholly independent HIDTA task forces to be created to deal with the
    methamphetamine problem rather than complement existing task forces
    with an infusion of HIDTA funds. In many rural states it is not
    reasonable to create separate HIDTA task forces. Do you agree that in
    rural states the HIDTA money would be best spent enhancing existing
    operations?
        Answer. The addendum to the Program Guidance emphasizes: ``The
    Program will intensify and network the efforts of existing HIDTA task
    forces focused on methamphetamine reduction.''
        The HIDTA program includes extensive rural areas including the
    Southwest Border States, Gulf Coast States, and Midwest States.
    Experience indicates that even in rural areas, the best return on tax
    payer dollars that HIDTA funds are best used for joint Federal, State,
    and local initiatives rather than mere add-ons to individual agencies.
        HIDTA supports Wyoming initiatives: the Natrona Task Force and the
    Wyoming SW Enforcement team. Their objective include dismantling 2 meth
    trafficking organizations, to reducing the availability of meth in the
    greater Casper area and to interrupt sources of precursors and
    chemicals for meth.

                              Subcommittee Recess

        Senator Campbell. I appreciate your appearance, General.
    Thank you and this subcommittee is recessed.
        General McCaffrey. Thank you, Senator.
        [Whereupon, at 10:34 a.m., Thursday, March 26, the
    subcommittee was recessed, to reconvene at 10 a.m., Thursday,
    April 30.]

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 1999

                                  ----------

                            THURSDAY, APRIL 30, 1998

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10 a.m., in room SD-124, Dirksen
    Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)
    presiding.
        Present: Senators Campbell, Faircloth, and Kohl.

                           DEPARTMENT OF THE TREASURY

                              U.S. Customs Service

    STATEMENT OF SAMUEL H. BANKS, ACTING COMMISSIONER
    ACCOMPANIED BY:
            GENE WEINSCHENK, HEAD, CYBERSMUGGLING CENTER
            JOHN MAC KINNON, SENIOR SPECIAL AGENT
            ERNEST E. ALLEN, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
                NATIONAL CENTER FOR MISSING AND EXPLOITED CHILDREN

                                Opening Remarks

        Senator Campbell. The Subcommittee on Treasury will be in
    session. Today we will be dealing with the question of
    pornography on the Internet. The Internet is a tool which can
    deliver a world of information on computer screens at our
    fingertips. Many parents are unaware that this also means that
    along with the positive side there is a down side. That is what
    we are here to discuss today, and that is child pornography on
    the Internet.
        The purpose of this hearing is to demonstrate to the public
    the volume of this activity on the Internet and how simple it
    is to get this information into the households of America even
    when you are not looking for it, as well as what Government is
    doing about the offenders and to protect children. With us
    today is the U.S. Customs Service which has the responsibility
    for overseeing and regulating international commerce of which
    the Internet is a part. Within Customs, there is a division
    responsible for tracking and arresting people engaging in child
    pornography on the Internet, which is not as simple as it
    sounds.
        Acting Commissioner of Customs, Sam Banks, is with us
    today. I understand you have to leave a little bit early to
    testify in another committee. Commissioner Banks, you are here
    with Ernie Allen, the director of the National Center for
    Missing and Exploited Children. We will hear your statements
    and then I understand you will have to leave.
        Following your statements there will be a demonstration of
    what there is on the Internet. I think many people would be
    surprised, as I was, about how easily these things can be
    pulled up on the Internet. I am certainly not a computer
    expert, but I know my son who is, has demonstrated a couple of
    times how easy it is to get literally every kind of information
    that you want or would not want your children to see on the
    Internet.
        I know this is a difficult issue to discuss but I believe
    we owe it to our families in America and our children certainly
    to talk about the consequences of pornography on the Internet.
    With that, I will yield to Senator Kohl for an opening
    statement.

                           Statement of Senator Kohl

        Senator Kohl. Thank you, Senator Campbell. Today we are
    very interested in hearing from Customs on what can be done to
    reduce or eliminate child pornography and sexual exploitation.
    It is critical that the Federal Government work harder than
    ever before to develop the necessary technology to fight this
    growing problem.
        Today we are here to listen to Customs explain how the use
    of the Internet has resulted in a vast increase in the
    distribution of child pornography. We must have the technology
    necessary to track down the perpetrators of these crimes
    because the Internet now provides child pornographers a safe
    place to conduct criminal activity.
        The Internet is relatively anonymous, rapid, and
    unsupervised. Once the materials are downloaded they can be
    retransmitted or reproduced continuously. Ultimately what this
    means is that the pornographer is no longer relegated to the
    back room of bookstores. Instead he can comfortably acquire the
    materials over his or her home computer through numerous sites
    for viewing or even engaging in online chat room conversations.
        As a result, child pornography via the Internet provides
    the purveyors and consumers of this material a society:
    something that was not previously available. The validation of
    pornographic activity is not the direction in which civilized
    society should move.
        The Customs Service has been working to prevent the illegal
    trafficking and distribution of child pornography both in and
    throughout the United States before 1977. With the development
    of the International Child Pornography Investigations and
    Coordination Center in 1996, Customs has increased its ability
    to provide support to international and domestic agents working
    on these cases. Hopefully this hearing will give us an
    opportunity to understand the complexity of the cases and
    Customs' ability to respond to these crimes.
        Thank you very much, Senator Campbell.
        Senator Campbell. Yes; Sam, if you would like to proceed?

                          Statement of Samuel H. Banks

        Mr. Banks. Yes, sir; thank you very much, Mr. Chairman,
    Senator Kohl. I am pleased to appear before the subcommittee.
    With me today is Gene Weinschenk, to my right, who is the head
    of our CyberSmuggling Center, and John MacKinnon, who is a
    senior special agent with Customs.
        Customs obviously has the traditional role of protecting
    our borders, and historically we have even protected our
    borders against pornography of all sorts including child
    pornography. Traditionally it has been through the mails and
    through videos. The advent of the Internet has radically
    changed the dynamics of the child pornography enforcement issue
    for us.
        It has also changed dynamics in terms of intellectual
    property rights. One cannot believe the amount of
    counterfeiting that goes on, and the amount of narcotics
    information that is on the Internet. Even trafficking weapons
    of mass destruction and money laundering are going on on the
    Internet.
        But today, specifically we want to talk about two of the
    most cruel and damaging crimes, and these are child pornography
    and child sexual exploitation. Our authority and our
    enforcement role came with the Child Protection Act of 1984,
    and then in 1988 our enforcement authorities against child
    pornography were extended to child pornography transmitted via
    computers.
        Customs immediately went to work trying to focus our
    enforcement efforts on the computer issue and the Internet. In
    1989, we were the first Federal law enforcement agency to
    initiate investigations into child pornography on computers.
    Today we spend thousands of investigative man-hours in order to
    focus in on this terrible problem. We work with State, Federal,
    and local law enforcement on these issues. We work
    internationally. We work with both law enforcement and other
    governments in order to try to expand the legal authorities to
    deal with this problem internationally as well as domestically.
        Last fall we initiated the CyberSmuggling Center which we
    call C \3\. It has a core staff of eight people that are really
    driving this. With the advent of the Internet--and the
    international network is what Internet means--there has been a
    tremendous increase in violations. The reason there has been an
    increase is because, really, all it takes is a PC. In fact,
    today you can even access it through your television screen,
    you can hook up. A simple modem and a telephone line give you
    immediate access not just to computer files domestically but
    computer files worldwide.
        Equally important is, you can remain relatively anonymous
    when you are dealing through the Internet. The saddest thing of
    all is it provides an opportunity for these violators to
    actually find other support groups out there that are engaged
    in the same sort of activities.
        It is really a fairly simple matter. You get an Internet
    service provider, AOL, Erol's; there is a whole variety of
    them. Some of the service providers actually protect some of
    their own chatrooms. But once you are on the Internet, once you
    access it, you basically can roam free anywhere through a whole
    variety of different chatrooms and discussion points.
        The thing that we see the most is that people are accessing
    the Internet Relay Chats, and it is really almost like a CB
    radio on which people with common interests get together and
    share information. There are news groups out there that
    actually post articles and post images on the bulletin boards
    that people can access. So it really is fairly simple for them
    to gain access to this information.
        One of the other things that we have seen on the Internet
    is violators that are actually arranging international travel
    and international meetings in order to actually conduct child
    sexual exploitation through the use of the Internet. This is
    probably one of the things that recently has frightened us the
    most.
        Our accomplishments, since fiscal year 1992: we have
    arrested 515 people and we have convicted 442. Either they have
    been convicted or they have pled guilty. This year so far we
    have arrested 65 individuals and we have 57 convictions. The
    astounding part of this thing is the type of people involved in
    this activity. We have teachers, we have truckdrivers. We have
    policemen, we have pediatricians. Some of the situations that
    you are going to hear about today and the instances that you
    are going to hear about are not only astounding, they are just
    terribly depressing.
        Part of our enforcement work has been training hundreds of
    State and local law enforcement officers in the United States,
    in virtually every State in the country. We also have gone out
    and trained law enforcement officials in 50 other countries
    around the world. We have worked with these other countries in
    order to try to build the necessary legislation so that
    enforcement can be conducted, so we can take enforcement
    actions against these people, and conduct international
    investigations.
        We have also linked up with the National Center for Missing
    and Exploited Children. We have worked with them for the last
    12 years. It has been a very productive relationship. They even
    provide us with tips on where to search for this.
        The real trick is for us to try to stay ahead of the curve.
    The technology in this area is changing rapidly, and the
    violators are finding new and different ways in order to try
    and conceal their trail and their activities. So that is one of
    the major challenges that is facing us in the future.
        I am very proud of the special agents in the Customs
    Service that have launched this effort and that have attacked
    this problem. I think that the U.S. Customs Service is
    recognized worldwide as one of the leading law enforcement
    authorities on child pornography being transmitted by computer.
        I appreciate the opportunity to be here, and what I would
    like to do is leave you in the hands of our real experts that
    will be able to show you a demonstration and just how easy it
    is to access this. Thank you very much.

                               Prepared Statement

        Senator Campbell. Thank you, Mr. Banks. We have your
    complete statement and it will be made part of the record.
        [The statement follows:]
                     Prepared Statement of Samuel H. Banks
                           introduction and overview
        Good morning, Mr. Chairman and Members of the Subcommittee. I am
    here this morning to give you an overview of the U.S. Customs Service
    CyberSmuggling Center and, in particular, to tell you about Customs
    work in investigating two of the most cruel and damaging crimes that
    Customs investigates: international child pornography and international
    child sexual exploitation. Both of these crimes endanger our nation by
    damaging our future, by damaging our children.
        Customs has always been the front line of defense against the
    illegal trafficking in and distribution of child pornography in and
    throughout the United States. Before 1977, Customs seized child
    pornography entering the U.S. under obscenity laws. In 1977, Congress
    enacted the first anti-child pornography law, and in 1984, Congress
    enacted the Child Protection Act of 1984, which gives the Customs
    Service the authority to investigate any cases which involve the
    receipt, transmission, manufacture or possession of child pornography
    which has been shipped internationally. In 1988, Congress passed a law
    outlawing the use of a computer to transmit, manufacture or possess
    child pornography which has been shipped internationally, thus opening
    the door to Customs computer investigations.
        In 1989, the U.S. Customs Service became the first federal law
    enforcement agency to initiate an investigation into child pornography
    on computers, opening an investigation into computer bulletin boards in
    Denmark that contained child pornography. One significant result of
    this investigation was the drafting of the first federal search warrant
    used to search computers that contained child pornography.
        Customs investigations into child pornography on computers, and
    later on the Internet, set the worldwide standard for both child
    pornography and computer investigations. We have trained thousands of
    state and local law enforcement officials from every state in the
    Union; we have trained hundreds of foreign law enforcement officials in
    more than 50 countries around the globe. We work with our law
    enforcement and legislative counterparts in foreign countries in
    developing investigative procedures and legislative remedies to the
    problem of child pornography and computer crimes. We conduct
    investigations of individuals worldwide who produce and traffic in
    child pornography, pursuing those in this country and turning over
    information on those in foreign countries--and the problem is
    universal, from Australia to Zimbabwe--to appropriate law enforcement
    officials.
        In our investigations into child pornography on the Internet, we
    have seen evidence of the growth of other criminal activity in
    cyberspace as well. From pirated copies of copyright-protected audio
    recordings and computer software that threaten the intellectual
    property rights of the music and software industries of this country,
    to traffic in illegal arms and weapons of mass destruction, criminals
    have moved into cyberspace to conduct their business--and the U.S.
    Customs Service has pursued them there. We have done so with a staff of
    eight people dedicated full-time to pursuit of Internet crime, and a
    few other agents who work on these types of cases as part of their
    already-full and diverse caseloads.
        Response to these international cybersmuggling threats is
    coordinated from the Customs CyberSmuggling Center, or C\3\ as it is
    more commonly known. We established the C\3\ in August 1997 to begin
    Customs foray into combating international Internet crime.
               child pornography and exploitation on the internet
        This morning I am here to discuss a principal investigative focus
    of the C\3\--international child pornography and international child
    sexual exploitation. These two problems are pervasive and the lasting
    damage caused by them is widespread.
        Child pornography is a crime in progress; it does not end with the
    click of a camera shutter. Every time someone makes another copy of
    that picture or launches it out internationally over the Internet, a
    crime is again committed.
        Child pornography, however, is not just ``looking at dirty
    pictures.'' Child pornography is the permanent record of the abuse of a
    child that will not only live forever in the mind of that child but
    will be repeated every time someone views that picture.
        Unfortunately, I must report to you that the instances of
    international child pornography and international child sexual
    exploitation are rising dramatically. The quantum increase in the
    availability of inexpensive home computers and the ease of accessing
    the Internet has opened whole new worlds to people across the globe--
    and have opened whole new venues for exploitation of children. Almost
    100 million people world-wide can access the Internet, and a number of
    them are children. Unfortunately, others are child sexual predators.
        All of the child pornography cases we investigate are terrible and
    heartwrenching. One particularly gruesome case was of a suspect located
    in Colorado who made contact with a Customs undercover agent on the
    Internet and asked how to get child pornography. During his
    conversation with the agent, the suspect expressed a sado-masochistic
    interest in young boys. The suspect later admitted that he was a
    channel operator (like a director) of a ``boy torture'' channel on the
    Internet. He transmitted to our agent several images of young boys
    being tortured. It turned out that he had a record for previous child
    pornography violations, and in July 1996 he was arrested. A search of
    his computer revealed more child pornography images on his computer,
    including a motion picture file of a prepubescent girl having sex with
    an adult man.
        The Internet is a tool for research, for education, for
    entertainment. Sadly, like most tools, its benefits can also be used to
    inflict harm. Pedophiles and child molesters use the Internet to
    create, transmit, and traffic internationally in child pornography,
    child sexual exploitation, and child sex tourism. The relative
    anonymity and instantaneous world-wide reach of cyberspace appeal to
    these sick individuals who engage in international child sex crimes,
    giving them the instant gratification they crave as well as giving them
    validation in the company of other sexual predators. The dark side of
    the Internet is its use to perpetrate violent and vicious acts that
    can, and often do, change the course of someone's life forever.
    Frequently, that ``someone'' is a child.
        Child sex crimes committed over the Internet are even more
    insidious than other Internet crimes. The number of potential victims
    who could be lured into dangerous situations via the Internet and the
    accessibility to these children is virtually unlimited. Trafficking in
    child pornography is a crime that recognizes no boundaries or borders
    nor do the traffickers respect the sanctity of the home or the age of
    the victims. In fact, the U.S. Customs Service has evidence of the
    world-wide trafficking of child pornography in which the victims are
    believed to be only a few months old.
        The Internet reaches everywhere. Crimes involving international
    sexual exploitation of children occur in big cities and small, in good
    neighborhoods and bad, everywhere there is the will and desire to
    exploit children. All it takes is a computer, a telephone line, and a
    person who wants to exploit a child.
        And these predators have many faces: faces of teachers and
    policemen. Faces of judges and doctors. People who live down the street
    or even next door. We in the United States may want to think that
    international child pornography and child sexual exploitation are
    invasions of our borders by foreign offenders. Sometimes that is true,
    but the laws covering these crimes have outbound as well as inbound
    provisions. Criminals in the United States are also molesting children
    and distributing the graphic evidence of their crimes world-wide via
    the Internet.
        Just to give you an example of the pervasive nature of these
    crimes, one of our investigations involved a town in Texas so small
    that it wasn't even shown on our map of the state. That case involved a
    member of the town's school board, a school administrator, and a
    teacher--all of whom were using the school's computer system to traffic
    in international child pornography while they were teaching that town's
    children. Horribly, our investigation showed that this child
    pornography had also been shown to students in the school system.
        These are truly international problems with far-reaching
    consequences. Allowing a child unsupervised access to the Internet is
    similar to dropping a child off in the middle of a large city without
    adult supervision: there are wonderful and educational experiences to
    be had, but there is also great potential for great harm--or even
    death--for that child.
                              scope of the problem
        Before I go further, I would like to give you a thumbnail sketch of
    the cybersmuggling environment. The Internet is a collection of
    interconnected computers which serves as a network for the transfer of
    data. Commercial online services, like America OnLine (AOL), or
    Internet Service Providers, like Erols, only provide access to the
    Internet and a familiar, easily understood method to navigate through
    this network. These services are NOT the Internet themselves, as many
    people believe.
        Anyone with a computer, or even a television equipped with the
    appropriate computer software, can establish a link to the Internet
    using any Internet Service Provider. Many libraries and schools also
    have access to the Internet.
        When someone connects to the Internet, through whatever means,
    access is world-wide. The open nature and direct communication afforded
    by the Internet means that anyone, regardless of age, can access just
    about anything that is available there.
        Although many online services and Internet service providers
    provide safe, monitored chat rooms and services, these protections are
    not inherent to the Internet itself. Connection to the Internet also
    makes available to the user direct and unmediated access to services
    such as Internet Relay Chat (IRC) and Newsgroups.
        Internet Relay Chat (IRC), another source available on the
    Internet, is a lot like channels on a CB radio. Anyone can join in the
    real-time conversation on these channels--and there is a shocking
    amount of trafficking in child pornography going on in that ``talk.''
    In fact, most of the trafficking in child pornography goes on in the
    IRC, since the IRC gives people the capability to allow access to their
    computers to anyone else in the IRC channel. Child pornographers can
    then trade privately, one-to-one, without having to attach those
    pornographic files to a potentially traceable e-mail.
        Newsgroups are a collection of articles ``posted'' or sent to the
    Newsgroup area, much like articles are posted to a bulletin board.
    There are hundreds of Newsgroups on every imaginable topic--and there
    are numerous Newsgroups dedicated to child pornography and child
    exploitation at any given time. These Newsgroups can contain graphic
    images of child sexual abuse that anyone may access--even a child.
    While many of the Internet service providers and Online service
    providers do filter those newsgroups to exclude those obviously
    indulging illegal habits such as child pornography, banned Newsgroups
    can be accessed through other computers on the Internet.
                        customs response to the problem
        No one alone can control and eliminate international child
    pornography trafficking and child exploitation; law enforcement,
    legislators, industry, and families must work together in a
    concentrated, world-wide effort to protect our children from this
    plague.
        The U.S. Customs Service has established the C\3\ to coordinate and
    focus its activity in the investigation of international child
    pornography and child exploitation, as well as other cybersmuggling
    crimes.
        Over the last two years, the U.S. Customs Service has averaged
    close to one arrest every other day for international child sex crime-
    related activities.
        Though these numbers may be surprising, even more shocking are the
    jobs held by some of these violators. I am saddened to report to you
    that the persons arrested are from all walks of life. We have arrested
    teachers and truck drivers, pastors and choir masters, police officers
    and pediatricians.
        One recent arrestee is a family physician who was certified as a
    forensic pediatrician at an Indian Health Service Hospital in New
    Mexico. He was arrested for trafficking internationally in child
    pornography and for traveling to Spokane, Washington for the purpose of
    having sex with an eight year old girl. It was his intention to record
    his sexual molestation of this young girl and to make those images
    available world-wide over the Internet. Fortunately, this child sexual
    predator's ``prey'' turned out to be a U.S. Customs Service undercover
    agent.
        Child sex tourism is not a rarity. The numbers of predators using
    the Internet to arrange international travel for the purpose of
    molesting a child in another country is on the rise. It also is not
    unusual for these predators to record these child molestations and to
    later make them available over the Internet.
        The rise in the number of arrests by the U.S. Customs Service for
    international child sexual predator crimes has risen in parallel with
    the rise in Internet usage.
        As more people became home computer users with the drop in price,
    increase in availability and ease of access to the Internet, use of the
    Internet rose dramatically after 1995. During the same time frame, U.S.
    Customs Service arrests for Internet-related international child sexual
    crimes rose 183 percent from 48 in fiscal year 1995 to 136 in fiscal
    year 1996. Just this year alone, we have arrested 65 individuals, and
    have had 57 convictions. Since fiscal year 1992, the U.S. Customs
    Service has arrested 515 individuals for child sexual exploitation-
    related offenses, and 442 have been convicted of or pled guilty to
    these charges. The U.S. Customs Service has never lost a case that has
    gone to the judicial process; all of those individuals have either pled
    guilty or have been convicted.
        The U.S. Customs Service is recognized by international law
    enforcement as the world's leading law enforcement authority on
    computer child pornography investigations. I mentioned earlier our
    training programs for federal, state, local and foreign law enforcement
    officials. We also maintain the world's largest reference collection of
    child pornography materials, and are consulted regularly by federal,
    state, local and international law enforcement colleagues on child
    pornography and child exploitation investigations. We have had a very
    close working relationship with the National Center for Missing and
    Exploited Children for 12 years. In fact, the National Center has used
    Customs as its principal point of referral for the Center's Child
    Pornography Tipline. Leads from the TipLine have led to over 50
    arrests.
        Pursuing international investigations into child sexual
    exploitation can be difficult because of the differing laws world-wide
    regarding children and also regarding computer communications. As we
    have done in the past with other international crimes such as money
    laundering, Customs works with foreign governments and law enforcement
    entities in addressing the problems of computer and Internet crime, as
    well as crimes of child sexual exploitation, through legislative,
    investigative, and educational means.
        Computer and Internet investigations are new territory for law
    enforcement, and require new and innovative solutions, both from the
    investigative and legislative standpoints.
        Computer criminals are computer-savvy--and are able to invest large
    amounts of time and money in remaining a step ahead of law enforcement
    in utilizing cutting-edge technology. The technological advances in
    computing, such as data encryption, data encoding, computer-booby-
    traps, and computer networking put law enforcement at a disadvantage
    unless we are able to invest the intensive amounts of time and labor to
    keep up. Keeping up with the latest technology is a large, hidden, but
    necessary expense if we are to enforce laws in cyberspace as well as in
    real space.
        Computer crime is also relatively new territory for lawmakers. The
    U.S. Customs Service stands ready to work with Congress and all law
    enforcement entities to help find solutions to address these burgeoning
    crimes.
        Mr. Chairman, thank you for the opportunity to appear before the
    Subcommittee today. I would be happy to answer any questions and then
    demonstrate our cybersmuggling operations.

                            Occupations of Offenders

        Senator Campbell. Sam, I appreciate you being here. I might
    say, while you were talking I was looking at your chart over
    here. I am absolutely amazed at that list of occupations of the
    offenders. Do you have some type of a breakdown of these 515
    arrests, 442 convictions? A breakdown that you can give to the
    subcommittee about these different occupations of the offenders
    and how they fit some of the convictions?
        Mr. Banks. Yes, sir.
        Senator Campbell. Is there a larger number of a certain
    category of offenders than another?
        Mr. Banks. No, Mr. Chairman; one of the common threads is,
    these people work with children on a regular basis. They have
    activities that put them close to children.
        Senator Campbell. Yes; pardon the language, but I think the
    bastards ought to all be put in jail, frankly.
        Mr. Banks. I am with you.
        Senator Campbell. I know you have to leave.
        Senator Kohl, do you have any questions that you would like
    to ask Sam before he has to run?

                                  Limitations

        Senator Kohl. Yes; I wanted to ask you, Mr. Banks, what are
    the limitations that prevent you from doing a much, much better
    job with respect to arresting these people, convicting them,
    and putting them in jail? Are there things that we can do to
    help you do your job much better than you are able to do it
    right now?
        Mr. Banks. There is always a staffing issue in terms of the
    number of people that you can bring to bear on this issue. One
    of the things that we have got to do is we also need very
    particular skill sets. We need people that know how to
    manipulate computers in a very sophisticated fashion. So that
    is a big issue.
        One of the things that is always a problem is trying to
    stay current with the latest technology in order to be able to
    access the Internet and be able to try and trace back, in
    investigative fashion, the people who are involved.

                   Legislation to Extend Existing Authorities

        Mr. Weinschenk. We also need some fine-tuning of
    legislation to extend our existing authorities to the Internet.
    We are working on developing that.
        Senator Kohl. I guess how I feel, and I am sure how Senator
    Campbell and Senator Faircloth feel is that this is a problem
    that we should be using as much of our expertise as is
    available and possible to bring this to a minimum in terms of
    its perpetration. I have the feeling that we can do a lot
    better if we will work together in every way to be sure that we
    bring to bear the resources and the technology that we have to
    see to it that this kind of activity is kept to an absolute
    minimum. It is obviously very serious and it should command all
    the attention that we need to give it to bring it down to its
    lowest possible activity level.
        Mr. Banks. Yes, sir; I totally agree with you. One of the
    other things that we need to continue to do is to work
    internationally, because you cannot solve this problem just
    domestically. We need to make sure that some of these other
    countries, in particular, the countries that are the sources
    for some of this child pornography, have the necessary
    legislation to be able to do their work. We need to make sure
    that we are linked with their law enforcement authorities so
    that we can take strong action against the people who are
    involved in this.
        Mr. Weinschenk. To bring that into perspective, Senator,
    there are approximately six countries around the world that
    have sufficient legislation on the books already to combat
    this; 6 out of 190-plus.
        Senator Kohl. And we are not one of them?
        Mr. Weinschenk. We are.
        Senator Kohl. We are one of them.
        Mr. Weinschenk. We have the legislation; however, we just
    have to fine-tune some of it to where we can begin our work.
        Mr. Banks. Last year we arrested 145 people engaged in this
    effort. So we have the legal authorities to be able to do this
    work.
        Senator Kohl. Are there constitutional prohibitions that
    keep you from doing this work as effectively as you would like?
        Senator Campbell. Like first amendment rights or something
    of that nature.
        Mr. Weinschenk. There are a lot of contentions of first
    amendment right violations, but the Supreme Court has basically
    ruled that child pornography is not included within the first
    amendment rights.
        What we have to do, because this is such an international
    problem, is have other countries develop parallel law because
    it is going in and out of our country. So we have to be able to
    work with them. If they do not have the authority to do this,
    we are really at a loss.
        Senator Campbell. He has to testify at another hearing,
    Senator Faircloth. Do you have anything you want to ask him
    before he runs to his next commitment?
        Senator Faircloth. Just if I could ask one quick question.
    How many people do you have working in Customs specifically on
    child pornography?
        Mr. Weinschenk. We have eight at the center and we have at
    least one in every office. It would be about another 144 at the
    moment, but they are working it part time.
        Senator Faircloth. So you have----
        Mr. Weinschenk. Eight full time.
        Senator Faircloth. Eight full time and----
        Mr. Weinschenk. And roughly 144 part time, giving any
    variation of hours to it.
        Senator Faircloth. Thank you.
        Mr. Banks. Mr. Chairman, could I introduce someone very
    quickly?
        Senator Campbell. Yes, please do.

                             Protection of Children

        Mr. Banks. This is tied to the protection of children. We
    have a supervisory Customs inspector from San Diego here,
    Inspector Al Morales. A week ago Monday there was a high-speed
    chase of a suspect from Los Angeles all the way down to the
    Mexican border. In that car was a 2-year-old infant. When they
    got to the border and we boxed them in, the suspect actually
    pulled a knife, grabbed the kid, held the knife to the child's
    throat. It ended up being his child as well, although he was
    taking him from the mother. But held the knife to the boy's
    throat.
        Our supervisory inspector basically talked him through this
    whole situation, calmed him down. He was surrounded by a
    considerable number of police. Walked him out through this
    situation, actually walked him over toward the border. And as
    the suspect started fleeing for Mexico, our inspector grabbed
    the 2-year-old infant. So the infant was unharmed, and has been
    returned to his mother. The Mexican authorities returned that
    person back to us.
        We are involved in protecting children on all sorts of
    fronts. So, Al, if you would stand up for a moment I would like
    to introduce you to the chairman and the members of the
    subcommittee.
        Senator Campbell. Thanks for being here.
        I am the chairman of the Indian Affairs Committee and we
    are getting a lot of information from Interior, Indian Health
    Service, and Bureau of Indian Affairs that child pornography,
    child molestation and so on, all that is on the rise on Indian
    reservations. Do you have anybody that is specifically assigned
    to work with the reservations?
        Mr. Weinschenk. Senator, the pediatrician listed on that
    chart there was the pediatrician for the Indian nations in New
    Mexico and he had himself put into a position where he would be
    responsible for doing the forensics on any child who had been
    molested. We arrested him both for trafficking in international
    child pornography and for traveling to Spokane, WA, to molest
    what he thought was a 7-year-old child. The agent who conducted
    that investigation, Marcus Lawson, is right here.
        Basically there is really no way we can focus on something
    like that. We have to deal with whatever we come up with on the
    net and then work with it.
        Senator Campbell. Sure; I understand.
        Mr. Weinschenk. But there is a perfect example of it.
        Senator Campbell. I thank you. Sam, thank you for
    appearing.
        Mr. Banks. Thank you, Mr. Chairman.
        Senator Campbell. I might tell you that we are going to
    have a slide presentation after Mr. Allen's comments and I
    understand it is pretty explicit. If anybody in the audience
    prefers not to see it, you are welcome to leave the room.
        Mr. Weinschenk. Senator, if I might. We are going live
    online. It is not going to be a slide presentation. We are
    actually going to pull it up as anyone could go in and get it.
        Senator Campbell. All right; fine. In any event, if there
    is anybody in the room that does not wish to see this, you are
    welcome to leave.
        Mr. Allen.

                          STATEMENT OF ERNEST E. ALLEN

        Mr. Allen. Thank you, Mr. Chairman. I am Ernie Allen. I am
    the president of the National Center for Missing and Exploited
    Children which is a nonprofit organization mandated by
    Congress. I am here today really for two reasons. One is
    because of our long partnership with the U.S. Customs Service
    which Commissioner Banks mentioned, to speak in support of
    their efforts on child sexual exploitation, child pornography.
        Second, to thank you and this subcommittee. This
    subcommittee has been a great champion for children. We are
    proud of the relationship that we have built with Customs and
    with the Postal Inspection Service and with the U.S. Secret
    Service. It was this subcommittee that funded our new exploited
    child unit which is targeting the sexual exploitation of
    children in the same way that we are searching for missing
    children. So great progress is being made.
        In Senator Kohl's questions and your questions, a couple of
    key points came out. I wanted to emphasize to the committee
    that we are aggressive supporters of the Internet and the use
    of the Internet in many ways. However, about 4 years ago we
    began to look at the risks posed by the Internet and we tried
    to address those risks through a three-part strategy.
        One is through aggressive public education. There are a lot
    of parents out there who have a false sense of security. My kid
    is at home, he is on his PC, he is doing something good and
    positive for his future. And a lot of parents do not really
    know what their kids are doing and what they are into. So we
    have tried to address that.
        We have done publications, including our child safety on
    the information highway which has gone into now 3 million
    American homes providing positive information, usable
    information, and tips. Our data indicates that the kids at
    greatest risk on the Internet are teenagers. So we have done a
    separate initiative targeting teen safety on the information
    highway, trying to reach out to kids in ways that they can
    relate to.
        Through the leadership of this committee, and in
    partnership with the Customs Service and the Postal Inspection
    Service and the FBI, we have actually done mouse pads with
    safety tips that we are trying to take into America's schools.
    Our goal as a nation is to wire every school in America for the
    Internet by the year 2000. What we are trying to do is to make
    sure that every one of those schools, at every one of those
    PC's, has the kind of positive, supportive information that can
    keep kids safe.
        So working with private sector leaders as well as this
    committee and the Congress, we are trying to put a mouse pad at
    every one of those PC's in every school in the United States.
    So education and prevention has been a goal.
        Second, we have worked with leaders in the computer
    industry to try to develop technology tools, access controls
    that give parents the kinds of ability to limit the access of
    their kids to certain areas.
        But really the third prong of that strategy, the third key
    point and we think the most important is aggressive
    enforcement. Mr. Chairman, you made the point that this is not
    protected speech. In the 1980's, the Supreme Court of the
    United States in a case called Ferber v. New York said that
    child pornography is not protected speech. It is child abuse.
    So what we have tried, working with the U.S. Customs Service,
    is to send the message that there should be zero tolerance for
    child pornography, for child sexual exploitation on the
    Internet.
        The problem has been that, as with many issues, law
    enforcement technology has lagged the technology of those who
    would misuse it for unlawful purposes. I guess 80 years ago--I
    heard this story that when the automobile was first introduced,
    law enforcement leaders opposed it saying that only the crooks
    will have the cars and we will be chasing them on horseback and
    on foot. Well, in many ways, that is where we are today, and we
    are trying to catch up.
        The leader in this effort of using technology to attack
    this problem has been the Customs Service. We are proud at the
    National Center, as Commissioner Banks mentioned, for 12 years
    we have been the partner of the Customs Service in this effort.
    We have operated the National Child Pornography Tip Line
    providing leads from the general public about the manufacture
    and distribution of child pornography. That has led to many of
    the convictions that Commissioner Banks talked about.
        But there are some challenges here. One is that there were
    some positive effects of that Supreme Court decision in the
    1980's. The primary effect was to eradicate, by and large,
    commercially produced child pornography from the shelves of
    adult bookstores. Law enforcement, it was clear, there was no
    longer a debate about whether this is obscenity or not. It was
    not protected speech. And the result was that it disappeared
    from adult bookstores.
        Through the aggressive efforts of the Postal Inspection
    Service we have made great progress on cracking down on the use
    of the mails for the distribution of child pornography.
    However, with the advent of cyberspace, with the advent of the
    Internet, what has happened is that a virtual sanctuary was
    created: a place where pedophiles and others trading in child
    pornography could achieve virtual anonymity. So what was
    necessary was an aggressive law enforcement assault on that
    effort.
        As the Commissioner mentioned, now for more than 4 years
    the Customs Service has been out front on that. We work very
    closely with Customs, with the FBI, with the Postal Inspection
    Service, and as this subcommittee may be aware, only last month
    we just launched our new CyberTipline, which provides a vehicle
    to report child pornography, child enticement, various sexual
    crimes against children online in addition to via our telephone
    hotline.
        So to show you that there is a huge potential for reaching
    out to the public to get the kind of information that we need
    for law enforcement purposes, in barely 1 month we have already
    received 732 leads over that CyberTipline, which are being
    worked by Customs and the FBI and the Postal Service. Of those
    leads, 472 of them relate to child pornography; 168 of them
    relate to the enticement or luring of children online through
    chatrooms for illegal purposes; 62 of them relate to direct
    reports of child molestation.
        So our belief is that by and large this is still a problem
    of hidden victims. We need to do a great deal more. I am not an
    employee of the Federal Government or the U.S. Customs Service.
    I know the Commissioner probably could not answer Senator
    Kohl's question as directly as I would like to. But in my
    judgment as a child advocate and a citizen, they need more
    resources. They need more people. They need more tools.
        The impact that they have had with eight people, and eight
    people really working on multiple issues, not just on this
    issue but that whole range of cyber crimes, I think is
    extraordinary and is really one of the great success stories of
    the Federal Government. But our view is, the law enforcement
    needs, the law enforcement challenges that we face in this
    issue require greater attention, greater resources, and it
    would be my plea to this committee that you look for ways to do
    more.
        I guess the final point I would like to make, Mr. Chairman,
    to sort of illustrate the breadth of this problem and how in
    the words of one police official, the only way not to find it
    is simply not to look. In our judgment, America has begun to
    look. Law enforcement is becoming more sensitive, more
    sophisticated, more effective in this area, but we need a lot
    more to do. We looked at just the last month in terms of the
    States of the members of this committee. In every State there
    has been a significant arrest or prosecution related to this
    issue within the last 30 days.
        For example, Mr. Chairman, in your State on April 15, the
    Boulder County sheriff arrested a 44-year-old man on charges of
    sexual exploitation of children involving the Internet. Senator
    Kohl, in Milwaukee on March 22 there was a child pornography
    related arrest by the sheriff's department. Senator Faircloth,
    in Charlotte on April 9 in Catawba County, actually related to
    a murder in Catawba County, the Catawba County officials found
    child pornography and have related it to that offense.
        This is a problem that is happening in every community in
    every State, and in our judgment, while we have made great
    progress there is a lot more to do. Thank you, Mr. Chairman.

                               Prepared Statement

        Senator Campbell. Thank you, Mr. Allen. We have your
    complete statement and it will be made part of the record.
        [The statement follows:]
                     Prepared Statement of Ernest E. Allen
        Mr. Chairman and members of the Committee, as President of the
    National Center for Missing and Exploited Children (NCMEC), I am
    honored to have the opportunity to submit testimony on behalf of the
    United States Customs Service's International Child Pornography
    Investigation and Coordination Center (ICPICC).
        I would like to first take a brief moment to thank this committee
    in a broader way for your long-standing leadership and support for the
    National Center for Missing and Exploited Children, specifically your
    support for our new Exploited Child Unit (ECU).
        This special division at NCMEC provides information and technical
    assistance specifically in cases of sexual exploitation, providing the
    same kind of assistance to families and law enforcement in sexual
    exploitation that NCMEC provides in missing child cases. The ECU is
    developing technology and other resources to assist law enforcement in
    all areas of child sexual exploitation, including emerging issues such
    as international child sex tourism, Internet-related child sexual
    exploitation and sex offenders. It serves as a primary point of contact
    on these issues and provides informational support to local, state, and
    federal investigators, as well as to victims and other concerned
    citizens.
        On March 9, we launched our new CyberTipline, www.missingkids.com/
    cybertip. The tipline was created for parents to report incidents of
    suspicious or illegal Internet activity, including the distribution of
    child pornography online or situations involving the online enticement
    of children for sexual exploitation. Since its unveiling less than two
    months ago, the CyberTipline has received 732 ``leads'' pertaining to
    child pornography, child prostitution, child sex tourism and online
    enticement of children for sexual acts. ECU staff is available seven
    days per week, 24 hours per day, to handle these leads, and then
    distribute them to the appropriate law enforcement agencies, including
    U.S. Customs. The CyberTipline is our newest and brightest star, and we
    are excited and enthusiastic about improving our services in this vital
    area.
        Long before the launch of the CyberTipline, the National Center for
    Missing and Exploited Children and the U.S. Customs Service have been
    working together in the fight against child pornography and child
    sexual exploitation on the Internet. In 1987, Customs was the first
    federal law enforcement agency to agree to be the contact point for
    tips and leads from NCMEC's toll-free Child Pornography Tipline. Since
    then, Customs has established a strong working relationship with NCMEC.
        For the past four years, Customs has provided more than $215,000 to
    the toll-free Child Pornography Tipline and other NCMEC operations.
    This funding has been used for promotional brochures, public service
    announcements, and a current campaign designed to educate teenage girls
    about the risks they may encounter and ways to stay safer from crime,
    called ``Know the Rules.''
        On many occasions, NCMEC has asked Customs Agents to provide
    training around the country to state and local law enforcement on
    investigative methods and techniques to combat child pornography
    violations. Locally, Customs Agents have trained NCMEC Hotline
    Operators to become familiar with the types of leads that we are now
    receiving via the CyberTipline. This includes child pornography and
    exploitation methodologies, terms and nomenclature. NCMEC and U.S.
    Customs have had a successful ten-plus years combating child
    pornography, but unfortunately, much, much more needs to be done.
        Child pornography, all but eradicated from adult bookstores and
    aggressively targeted in connection with the use of the mails in the
    1980's, has resurfaced with a vengeance, thanks to computer technology.
    Although, sexually oriented materials are still available and
    prevalent, this illegal activity has flourished on the Internet--with
    child pornography being traded freely in chat rooms, news groups and
    private e-mail. Pedophiles, child molesters and other purveyors of
    child pornography now have instant access to explicit photographs in
    the privacy of their own homes and offices. Hidden behind their PC's,
    they brazenly trade pictures and videos, using technology to transmit
    an unprecedented number of images around the world, broadening the
    audience for child pornography and victimizing a new generation of
    children. And they taunt law enforcement that does not have the
    manpower or resources to hunt them down. The risks to children,
    particularly teenagers, in cyberspace include:
        1. Use by predatory adults to entice children to leave home for
    purposes of child sexual exploitation; and
        2. Exposure to child pornography and other unlawful sexual content
    on the Internet.
        These two types of cases are now being reported and investigated
    almost everywhere. It is a problem in virtually every community. For
    example, in the past few months, there have been major cases reported
    in every state represented on your committee:
      --April 15 in Boulder, CO: Sheriff's detectives are looking for
            victims of a man they say had pornographic pictures of children
            stored on his computer files. Teddy Mark Long, 44, was arrested
            March 25 on charges of sexual exploitation of children.
      --March 22 in Milwaukee, WI: William Harry Kucharek was accused in
            the complaint of having ``numerous boxes of child pornography,
            including pictures, videotapes, dolls and other sexual
            devices'' among his belongings when Sheriff's Department
            deputies and movers arrived to evict him.
      --March 29 in Gunterville, AL: A Marshall County Sheriff's Department
            jailer was arrested and charged with possession of child
            pornography. Authorities confiscated about 98 computer disks
            containing pornographic images of children from various sites.
      --April 25 in New York City: An aerospace engineer with ties to the
            U.S. Department of Defense pleaded guilty yesterday to using
            the Internet to induce two 16-year-old girls in Maryland to
            engage in sexual acts with him, federal prosecutors in New York
            said.
      --April 9 in Charlotte, NC: On the same day the sexually tortured
            body of a Maryland woman was found in a shallow grave in
            Catawba County, the man accused of killing her possessed child
            pornography, federal prosecutors say.
        It is clear that this is not an isolated problem, it is widespread
    and growing. An encouraging development is the growing number of
    specialized units at the federal, state and local level targeting these
    offenses. One of the most successful is the Customs Service's ICPICC
    unit.
        The U.S. Customs Service established the International Child
    Pornography Investigation and Coordination Center (ICPICC) in April
    1996. Part of Customs' new CyberSmuggling Center, and staffed by
    Special Agents with expertise in both child pornography cases and
    computers, the primary objectives of the ICPICC are to:
      --more effectively assist the field in the investigation of the
            increasing number of child pornography cases;
      --provide guidance and support to the field in the investigation of
            complex cases involving child pornography violations; and
      --spearhead the U.S. Customs Service international effort to combat
            child pornography.
        Since being established in April 1996, ICPICC has overseen seven
    operations, recording 247 arrests, 238 indictments, 240 convictions and
    653 seizures. And just since Oct. 1997, Customs Special Agents arrested
    65 individuals in the United States for trafficking in or possessing
    child pornography--of those, 57 persons were convicted. But clearly,
    one of Customs' biggest success stories is the ``Tholian Web''
    operation.
        A joint state-federal operation, ``Tholian Web,'' has been credited
    by law enforcement as the most successful sting of its kind in the
    nation. The 18-month dragnet uncovered child pornography traffickers
    throughout the United States, and as far away as Germany, Switzerland
    and Great Britain. The sting has so far resulted in over 120
    prosecution referrals and at least 32 convictions nationwide.
        As a result of the probe, investigators have amassed over 200,000
    child porn images--possibly the largest collection of child porn in the
    world--and seized over $137,000 in home computer equipment. Although
    Customs' vigor in targeting child pornography traffickers has been
    successful and yielded tremendous dividends, much more needs to be
    done.
        The National Center for Missing and Exploited Children believes
    that Congress should adequately direct federal resources toward
    attacking the problem of child exploitation over the Internet. The U.S.
    Customs Service has long been recognized by law enforcement and the
    international community for its knowledge and skill in investigating
    cases of child pornography and child exploitation. And the close
    relationship we have fostered with the Customs Service has allowed the
    National Center for Missing and Exploited Children to maintain our
    aggressive posture in this important child protection area.
        The best way to protect the positive, unfettered uses of the
    Internet is to ensure that it not be allowed to become a sanctuary for
    pedophiles, child pornographers and others who prey upon children. The
    United States Customs Service has long shared that commitment, and it
    deserves this committee's full support. Thank you.

                              Online Demonstration

        Senator Campbell. Should we go ahead with the
    demonstration?
        Mr. Weinschenk. What we would like to do, Senator, if you
    would like, is to actually go online and show you how quickly
    we can get into these areas, as anyone can, any child, and also
    to show you what is going on out there.
        Senator Campbell. All right.
        Did you have an opening statement that you wanted to make
    before we see this demonstration?
        Senator Faircloth. I do have an opening statement, if I
    may.
        Senator Campbell. Go ahead, Senator.

                         Statement of Senator Faircloth

        Senator Faircloth. Thank you, Mr. Chairman. I just want to
    thank you for holding this important meeting. I have just
    recently--being older, maybe I have just become aware of the
    problems that are out there. But as most any parent can tell
    you, children seem to have a better ability to use computers
    than their parents or grandparents do and can get into the
    computer system.
        In just a few years the Internet has gone from being a
    novelty known only to computer experts to a part of everyday
    life. More and more computers are in our homes, they are in our
    classrooms, and children are among the most frequent and
    sophisticated users.
        This is a tremendous tool for education, but as has been
    well said here today, it opens a doorway through which the most
    deviate of child molesters can have direct access to children
    and grandchildren. And this is an international problem, not a
    national problem, as has been well said here. Child molesters
    from virtually any country in the world can come in contact
    with vulnerable children in this country as easily as they
    could if they were across the street. And this is more of the
    problem.
        I introduced legislation last October to prohibit Internet
    service providers from providing accounts to sexually violent
    predators because of my concern that the Internet is becoming
    an open market for the most twisted kinds of child pornography.
    I want to talk with the chairman to increase resources for the
    cybersmuggling program and what we can do to stop it.
        Thank you, Mr. Chairman.
        Senator Campbell. OK, if you would like to proceed.
        Mr. Weinschenk. This is John MacKinnon, special agent with
    U.S. Customs assigned to the C\3\ center. We will show you what
    we bump into on a daily basis.

                          Statement of John Mac Kinnon

        Mr. MacKinnon. Thank you. Good morning, Mr. Chairman,
    Senator Faircloth, Senator Kohl. My name is John MacKinnon. I
    have been a Customs agent for 10 years and the past 6 years I
    have been involved in and conducted child pornography
    investigations, most of which involve the Internet. I have also
    been fortunate to have been involved in the training of 3,000
    law enforcement officers, not only here in the United States,
    but in numerous countries abroad.
        One of the things I have found useful in instructing not
    only law enforcement officers but law enforcement officers who
    were parents and teachers themselves, is the use of analogies
    in understanding the basic but crucial concepts of the
    Internet.
        There are several different areas of the ether of the
    Internet. The terms are bandied about, semantics are
    interchanged. You have commercial online services. This is an
    example of one of the online services, America Online.
    Microsoft Network, Prodigy, AT&T Worldnet. A citizen will pay a
    monthly fee to have access to this nationwide computer club.
        I put this up here for several reasons because--I know the
    purpose and the scope of this hearing is to discuss the
    downside of the Internet and the evil that exploits the net.
    But an example here on the things that we can see that are
    offered by all the online services and other services in other
    parts of the Internet, are the good parts that are available,
    the good things that are available on the Internet. Sports,
    news, games, health, lifestyles, shopping. You can make airline
    reservations, you can check the weather, so on and so forth.
        You pay your monthly fee. You are given a telephone number
    locally that you can dial up with your computer and your modem
    to connect. You connect inside this nationwide computer club
    and you can do many or all of these things. You can also
    exchange things on the commercial online service. You can
    exchange files. You can exchange thoughts. You can exchange
    pictures. You can do that through electronic mail.
        I know you are familiar with the mail service that you use
    here in the Capitol. Within the commercial online service you
    can send electronic mail in real time, or you can send it to be
    read at a later time. The mail can be a message containing any
    thoughts. It can be egregious. It can be seductive to a child.
    Or the mail message could contain pictures. For our purposes,
    child pornography pictures. Or from within this closed
    nationwide, or actually international computer service, you can
    reach out to other people in other parts of the Internet.
        What I am going to do now is just get right to it and we
    will connect. Can you see that?
        Senator Campbell. We only have two options, and that is
    this light or no light at all, turning the whole thing off. We
    cannot just dim them, so we will just have to go with this. But
    we can see the large print.

                              Online Demonstration

        Mr. MacKinnon. To reiterate our disclaimer here, I am not
    going to display child pornography. There may be a small amount
    of offensive language, and that is the risk we take by going
    live.
        Senator Campbell. OK.
        Mr. MacKinnon. This is the World Wide Web, another section
    of the Internet, separate and distinct from our online
    services. The service, the access to the World Wide Web you get
    from an Internet service provider. America Online or Microsoft
    also provide service to the Internet in addition to their
    closed club. An Internet service provider like IBM or AT&T, and
    up to 4,000 other Internet service providers in the United
    States, will collect from the user $20, $25 a month, give you a
    phone number to access their big computers which interconnect
    with the Internet.
        The World Wide Web became very user friendly, very
    appetitive for the nontechie, the noncomputer person just in
    the past few years. Why? Point and click. Instead of using
    arcane computer commands and having to learn them, it is very
    graphical. You take your arrow, you point on something, like
    this enforcement activities in the U.S. Customs Service, and
    you go to another section of this World Wide Web site. The
    majority of the World Wide Web sites are legitimate. There is a
    small minority, an unscientific estimate of 1, 2, 3, 4, 5
    percent of World Wide Web sites that are illegal, unlawful.
        We conduct our investigations in several different ways. We
    conduct reactive investigations. We receive tips from Mr.
    Allen's National Center for Missing and Exploited Children
    CyberTipline, an online World Wide Web realtime forum to
    receive information to forward to law enforcement. We have our
    World Wide Web page ourselves, and a computer citizen will
    click on. If they come and visit our site and they have
    information that they want to report, they can simply send us
    an e-mail and a complaint.
        We receive tips from our 24-hour-a-day, 7-days-a-week,
    every-day-of-the-year telephone hotline, tips and information.
    We collect this information from computer citizens and we try
    to do something with it. We try to validate it through other
    investigative techniques.
        We also conduct investigations in a proactive sense.
        Mr. Weinschenk. If I may, Mr. Chairman. We receive anywhere
    between 200 and 400 tips a week from our own tipline on the
    page.
        Senator Campbell. 400 tips a week and you only have eight
    full-time people to deal with them?
        Mr. Weinschenk. Yes, sir; 200 to 400.
        Mr. MacKinnon. And that is just from our own tipline. We
    receive information from other avenues which compounds it.

                              Online Demonstration

        Now the World Wide Web offers preferential child molesters
    and traffickers of child pornography a global forum to meet
    other violators. It is unsophisticated to create web pages. The
    problem for law enforcement is that the use of the Internet is
    becoming easier and easier for a greater amount of people.
        This is an example of a web site put up by somebody, we
    believe maybe overseas. There are the initials, NL, which is
    Internet parlance for the Netherlands. On this web site--and I
    was showing the majority staff director this the other day, and
    also the minority clerk--is a compendium of places on the net
    to learn about pedophilia, child pornography. I use this to
    instruct law enforcement officers as well, and here is a pretty
    good place to start to learn about the milieu that we have to
    deal with.
        Each phrase in blue is what we call a hyperlink. That just
    means--I am sorry for the technical terms. You put your arrow
    on it, your cursor, you click on that and you are going to go
    somewhere else on the Internet. Now FreeSpirits site,
    FreeSpirits is this pedophile organization that has concocted
    this web site, and they have on this web site several different
    subsections, as you will see by subtopic. Message boards
    related to boy love, other major resources for boy lovers,
    sites hosted by individual boy lovers.
        Message boards, think of the bulletin boards that you would
    see in the squadroom of a police station or in the anteroom of
    your office. You could post notes. You can pull down notes. It
    can be realtime or it can be looked at and viewed later. It is
    a place to exchange thoughts.
        Boys viewpoints, community involvement, the written word,
    news groups. Another section, in addition to our online
    services in the World Wide Web, of which this is, are the news
    groups which have upward of 40,000 separate titles. Each title
    of each group is a unique topic area. Motorcycles, basketball,
    pedophilia. This will list the news groups that are focusing on
    pedophilia.
        Free speech and censorship issues, privacy and security
    Internet. Mr. Chairman, these two areas here, especially the
    last one, when posted to these pedophilia sites give me and my
    colleagues concern. Because what the offenders are doing is
    trying to educate other offenders on how to evade detection. In
    this particular law enforcement arena where technology is
    paramount to either avoiding detection or being detected, is
    one of our challenges. It is not only just staying up with the
    technology, but trying to keep up with the techniques that are
    circulated.
        Mr. Weinschenk. Mr. Chairman, if I may, we made copies this
    morning--John was perusing the net while we were waiting for
    you. We found a web site which instructs the pedophile how to
    undo what parents are doing. What parents are telling their
    children to be aware of, that site tells them, here is how you
    get around that. Here is how you can bring down the child's
    defenses. It is available on a site just like that.
        Mr. MacKinnon. Mr. Chairman, Senator Kohl, further down in
    this section are other major resources, including one that Mr.
    Weinschenk just alluded to. This also shows the international
    aspects of what we are dealing with. Danish Pedophile
    Association, European Boy Lover home page, Montreal Ganymede
    Collective, NAMBLA, which is an acronym for North American Man
    Boy Love Association, Pedophile Liberation Front, which we will
    click on and visit. This is another World Wide Web site that is
    interconnected with the previous one.
        Mr. Weinschenk. If you look at their heading, ``Do
    something on the 25th.'' They want to celebrate. You can
    imagine what they want you to do.
        Mr. MacKinnon. Which is Pedophile Pride Day. Now what is
    listed here on the top and on the side are other options, other
    links, other connections for this subject area. It lists
    members' home specific web sites. Let us go to Reconsidering
    Pedophilia.
        Mr. Weinschenk. One of the questions that is always asked
    of us is, do we know how many pedophiles or molesters? We are
    not sure because we do not know how many pedophiles are out
    there. But we do have an educated guess that as many as 70 or
    80 percent of the molesters are pedophiles.
        Senator Campbell. Is it also gender skewed, more men than
    women? That would be my guess.
        Mr. Weinschenk. I would say probably more men than women,
    but there are sites, mother-daughter sites.
        Senator Campbell. Let me ask you a couple things, moving
    along here. You talked about the ability to evade detection. I
    noticed one up there that you said was at the top of the list
    and it said Free Spirit. Do you have a way of tracking just who
    that is, where they are coming from, where they live?
        Mr. MacKinnon. Yes.
        Senator Campbell. If you make phone calls, there are ways
    of tracking where the phone call came from. Do you have a way
    of tracking who actually is putting it up on the web?
        Mr. MacKinnon. Yes; with all due respect, given that this
    is a public hearing, we have numerous investigative techniques
    that we employ. Given that there are commonly available
    Internet tools that anyone can use to initially identify what
    computer this person who is using the name, TheSlurp, or the
    other person, Free Spirits, are using to connect to the
    Internet.

                              Online Demonstration

        Senator Campbell. Is there some type of fingerprint or
    signature or something on these different--I am speaking from a
    total layman's standpoint. Is there a print that can be tracked
    to determine where that computer or where the access was made?
    I am not quite sure even how to phrase that question.
        Mr. MacKinnon. You are in the right ballpark. On top of
    someone's user name, like gene@ibm.net, that is up here. You
    can change that. But what is sitting underneath it are other
    things that are more difficult to change. Think about VIN
    number on an automobile, or DNA in a human body. That DNA
    stays.
        Senator Campbell. So that is like a fingerprint for that--
    --
        Mr. MacKinnon. Now the corresponding analogy is a thing
    called the Internet protocol address, or an IP address. That is
    a number that sits--that is similar to the DNA or the VIN
    number. That stays with your Internet account wherever you
    traverse the Internet. Now there are ways of faking that but it
    is real, real difficult. So there are easy ways to determine,
    any citizen, computer user can identify realtime, possibly,
    that IP number. And then for us the tracking begins.
        Mr. Weinschenk. Also what happens on here, Senator, is
    different than phones. As you mentioned earlier, if someone
    makes a phone call, you can track-back on the phone. They have
    what is called anonymous remailers where my computer goes
    through your computer, goes through your computer, changing
    names and identifiers as it goes, and you can send it through
    any number of these different computers. Ultimately, we can
    find out who it is, but it is a process of going back through
    remailer, through remailer, through remailer.
        Senator Campbell. Do I understand that these groups, like
    Slurp or these other things, subscribe--to be on, for instance,
    on America Online, do they pay some type of fee to be on there
    or can they just log on?
        Mr. MacKinnon. There is a difference with--what we are
    looking at here is the World Wide Web, and that is largely
    unregulated. America Online is a closed commercial business
    like Microsoft and Prodigy. There is interaction but it is
    informal.
        Mr. Weinschenk. Most of these folks opt to not go through
    the America Onlines because they are filtered, they are
    monitored. They go other avenues which are unregulated and they
    can do whatever they want totally without restriction.
        Senator Campbell. Do these groups like America Online, try
    to limit these things or do they have any responsibility in
    this action to reduce it?
        Mr. Weinschenk. America Online has been very, very
    conscientious in what they do. We have worked with them on a
    number of occasions. We have identified sites where we found
    that pictures of preteens were being circulated, and we went to
    America Online and they went right to it and put filters in
    which knocked those rooms out. They have been very, very good.
        The problem that we have here in the United States is that
    we seem to think of the Internet as the America Onlines or the
    Erol's. That is only a very small piece of the total picture.
    Roughly there are 100 million people accessing the Internet, of
    which America Online has 20 million. You can see the
    percentage, the difference.
        The people that we are talking about here stay away from
    the America Onlines. They may go in there to identify, if they
    are looking to identify a child or someone they want to target,
    and they can draw them from America Online over to--you know, I
    will contact you through e-mail or go through a different
    direction. They will go in there to hunt for targets and prey,
    but they will do their trading in other than the AOL's of the
    world.
        Senator Campbell. Mr. Allen, you said you thought Customs
    needed more resources. I think so too, frankly, when I hear
    that they only have eight full-time people working on this. I
    think most of the members of the committee would be more than
    willing to try to work some stronger legislation or put
    additional resources into it. We need some direction on what we
    can do to help.
        What would you suggest that we do from the standpoint of
    additional legislation?
        Mr. Allen. I think the Commissioner made the point earlier
    that I think there is pretty good law. I think the primary
    challenge is enforcing it. Clearly there are some things that
    are unique about the Internet. For example, I think Senator
    Hatch in the last Congress introduced legislation that dealt
    with the whole question of what an image is. Can you manipulate
    an image so it is not a real child but that there is still a
    sexual act conveyed?
        Clearly, pedophiles are using this content in a lot of
    ways. They use it to access other kids. They use it to break
    down a child's inhibitions. They use it for commercial
    purposes. So I think laws that enhance penalties, laws that--
    Gene mentioned making the law more uniform so that there is
    greater consistency in the law State to State and nation to
    nation would be very key.
        But in our judgment, the single most important thing we
    need is just more law enforcement, more officers, more agents
    working on this.
        Senator Campbell. Which requires additional resources in
    terms of money, obviously.
        Mr. Allen. Exactly. And probably improved technology. Mr.
    MacKinnon talked about the fact that we have evolving tools to
    track these people down. But the whole nature of the Internet
    is, these communications bounce off servers and go through
    multiple avenues. It is not as simple as tracking down a
    telephone call. So law enforcement technology has to improve,
    law enforcement technology has to catch up in many instances
    with what the bad guys are doing. And the Customs Service has
    really been at the forefront of that.
        Senator Campbell. My computer skills are pretty limited,
    but how difficult is it for a youngster to find this
    information? Is it kind of rudimentary skills to be able to
    find this information?
        Mr. Allen. It is not difficult at all. One of the reasons
    is that these guys are clever. You notice in some of the
    descriptors on the screen some very generic terms like boy and
    girl. And things like that lead you, when you search those
    terms, to a whole host of options, some of which are legitimate
    and useful and some of which are not. So our experience has
    been particularly computer-savvy kids, whether intentionally or
    otherwise, do not have any problem finding the darker sides of
    the Internet.
        Senator Campbell. Apparently they use a lot of code things
    that would appeal to people looking at this information. I
    mean, everyone wants friends, and children all tend to like to
    keep secrets and things of that nature, and they play on that,
    do they not?
        Mr. Allen. They do. The other thing is, there seems to be
    an emerging category of people on the net who are purposefully
    using very attractive sounding web sites to bring people
    unwittingly. For example, whitehouse.com is a porn site.
        Senator Campbell. White House?
        Mr. Allen. Whitehouse, one word. Now obviously, the whole
    intent of that--to the best of our knowledge it is not a child
    porn site, but it is a pornographic site. So if you enter
    whitehouse.com what you get, other than information about art
    and history and the U.S. Government, is you get pornography.
    And there are a host of those where people, kids, and
    otherwise, are being attracted unknowingly and unwittingly to
    sites in order to try to exploit for commercial reasons or
    other reasons.
        Mr. Weinschenk. Those sites can then trap that child's
    screen name and feed back info to them unsolicited.
        In answer to another part of your question, Senator, we are
    not realizing the problem now, but we will very shortly. We
    know that with pedophiles, they have an urge that they want to
    see this stuff now. So they do not encrypt because it takes too
    long for a file to decrypt. It takes a very long time to do
    that, and their urges are such that they do not want to wait.
        Internet II which the Vice President announced a few weeks
    ago, is going to speed up the speed of the net by 100 times.
    That means that they can now encrypt and decrypt and still get
    them in a very, very rapid time period, which is going to
    change the face of what we are doing radically. Because we as
    law enforcement will get an encrypted file and we will not even
    know what we have. So we have a problem. It is going to be
    very, very shortly--a problem with encryption.
        Senator Campbell. Senator Kohl, we are moving along here,
    do you have some comments or questions?

                                   Resources

        Senator Kohl. Thank you, yes. Is there a dimension to the
    kinds of resources that you need to bring this activity down to
    its absolute minimum? We say, if we have more resources we can
    do a much better job. Could you put that into some kind of a
    perspective that we could understand what you are saying?
        Mr. Weinschenk. In general numbers, I could easily use--I
    have eight. I could use 80.
        Senator Kohl. If you had 80, what would happen?
        Mr. Weinschenk. We are barely scratching the surface of
    what is out there, because this is 24 hours a day, 7 days a
    week. One, we can identify more. We are at the present time
    running approximately six undercover operations, strictly on
    the net, strictly doing child pornography on the net. We would
    be able to expand those. We would be able to put more time in.
        Senator Kohl. I know. But if you had 800 would you do an
    even better job? If you had 8,000? Do you know about--could you
    tell us, if you had x, you could accomplish x?
        Mr. Weinschenk. I can probably figure that out for you,
    Senator. I do not know if I could give you a precise answer at
    the moment, but I can get back to you with that answer.
        Senator Kohl. Do you have some comment on that, Mr. Allen?
        Mr. Allen. By way of contrast, we aggressively supported
    the FBI's request in the last appropriation to dramatically
    expand the Innocent Images Task Force, which is 2 years old,
    also doing great work. The Innocent Images effort at the FBI
    and the work at the Customs Service really meshes. There are
    differences in terms of the approach. The FBI is probably
    targeting more the online enticement, the chatroom issue, while
    the Customs Service probably plays a more dominant role in
    traditional child pornography and the use of the Internet for
    child pornography.
        In the last Congress your Appropriations Committee, CJS,
    gave the Innocent Images an additional $10 million. So they
    have expanded--I do not know what the number of agents is, but
    they too are playing catchup. I do not know what the magnitude
    of the increase ought to be, but in my judgment, having eight
    people trying to deal with an issue of this magnitude is just
    woefully inadequate. I think it certainly needs to be
    substantially greater.

                               Computer Forensics

        Mr. Weinschenk. There is another facet to this too that you
    have to realize, and that is what we call computer forensics.
    Obviously, the people that we are dealing with are dealing with
    computers. We have to develop the expertise, which we have. We
    have schools constantly going. When we go in and we execute a
    search warrant and make an arrest, there are computers there.
    These people are cognizant enough to know how to boobytrap them
    so that if we turn them off the wrong way or we do the wrong
    thing, it erases everything.
        So we have to develop a second arm that goes out and--to be
    able to recover the evidence, to make sure we have it all, we
    preserve it and we are able to use it for trial. That is a
    parallel expense to us and a parallel cost, which we are now
    doing, training people.

                               Child Sex Tourism

        Senator Kohl. What is child sex tourism? Could you explain
    that phrase to us?
        Mr. Weinschenk. Sure. Child sex tourism is unfortunately a
    growing international problem. There are individuals around the
    world who are contacting, for lack of a better term, a travel
    agent type Internet site. And they are telling that site, I am
    interested in traveling to country x and I am looking to find a
    5-year-old girl and I intend to have anal, vaginal, straight,
    whatever, sex. I want to film it. And these people make the
    arrangements.
        That person then travels to that country. They are met at
    the airport with the child, and are on their way. They do what
    they intend to do.
        Senator Kohl. Is this prevalent in the United States?
        Mr. Weinschenk. Yes; it is. Yes; we have--one of our
    undercover operations is targeting it in the United States at
    the moment, and we are very successful with it.
        Mr. Allen. It is our sense, Senator, that probably
    historically, probably the best known examples of this have
    been literally travel tours to Thailand and to the Philippines,
    places like that, where it is literally marketed for pedophiles
    as part of tour packages, that a key element of the tour
    package is you get to have sex with children.
        Mr. Weinschenk. We are hearing from the Department of the
    Interior that there is also a problem over in Saipan and Tinian
    where young children are being brought out of mainland China,
    allegedly to work in the factories there, but, in fact, they
    are being brought over as part of the sex tourism operations.
        Senator Kohl. Thank you, Mr. Chairman.
        Senator Campbell. Senator Faircloth.
        Senator Faircloth. Just a couple of brief questions. Did
    you say this same activity takes place in the United States?
        Mr. Weinschenk. Yes, sir; the arrangements are being made
    in the United States. They are contacting sites here in the
    United States to make the arrangements.
        Senator Faircloth. With children in this country?
        Mr. Weinschenk. I do not have clear evidence of that, but
    we understand that is happening. It is more prevalent in a
    developing country where--I hate to use this term, Senator,
    believe me--but there are throwaway children. Where there are
    children who are orphaned, who are on the streets, 3, 4, 5, 7
    years old. They have no papers. No one even knows they are
    there. Those children are more readily available for these type
    of predators. But they want everything set up so that when they
    come in they can just go and do what they want to do.
        Senator Faircloth. And, of course, if the children were
    killed I guess nobody would know the difference.
        Mr. Weinschenk. We understand that is even a request at
    times. They refer to it as ``snuff.'' That when they are done
    with the sex act they do kill the child.

                                  Convictions

        Senator Faircloth. I see the arrest, indictments, and
    convictions. What does a conviction amount to in terms of time
    or penalty normally?
        Mr. Weinschenk. That all depends, Senator.
        Senator Faircloth. I understand that.
        Mr. Weinschenk. As an example, we have one now that is
    being negotiated, and 78 months would be--6 years, 6 months.
        Senator Faircloth. In a Federal prison?
        Mr. Weinschenk. Federal.
        Senator Faircloth. They would see that as the maximum?
        Mr. Weinschenk. Yes; I would think so, sir.
        Mr. Allen. Let me say, Senator, that that is substantially
    greater than prior history. Our experience has been, it is very
    difficult to get significant time for a child molester, a
    sexual offender against children, for a variety of reasons. One
    is that prosecutors oftentimes are reluctant to use the child
    as a witness, to put the child through the process. The
    experience has been in child sexual abuse cases that probably
    one-half do no time at all and that the normal sentence, actual
    time served is probably a year or less.
        I do think penalties are improving and I think penalties,
    obviously, need to be a significant focus of what we are
    talking about here.
        Mr. Weinschenk. I have just been informed that the average
    is between 15 and 20 months.
        Senator Faircloth. Fifteen and twenty months. You could
    almost get that for a speeding ticket.
        Mr. Weinschenk. Yes, sir.
        Senator Faircloth. But a more diabolical crime I cannot
    think of.
        Mr. Weinschenk. I agree.
        Senator Faircloth. Thank you, Mr. Chairman.
        Senator Campbell. When these people get time for this, my
    view is that they are pretty sick. I mean, they are emotionally
    sick people that would do this in the first place. Do those
    sentences usually include some kind of medical help or do they
    just put them away for a few months and let them back out on
    the streets?
        Mr. Weinschenk. At the Federal level there is one prison in
    the United States where they are sent to, and there is a
    treatment program in there. But the experts tell us that the
    odds are pretty good when they get out they will----
        Senator Campbell. What about the incidence of repeat
    offenders that you mentioned, the 515,432 figure. Have some of
    them been repeats?
        Mr. Weinschenk. Yes, sir; in fact, some of the cases that
    we were going to tell you about, one of the individuals we just
    arrested in Washington State within the last month, had been
    arrested as a child molester and also as a child murderer. He
    had strangled a 6-year-old boy who he was molesting. Back out
    on the street and we got him again.
        Senator Campbell. We do have a 15-minute call to vote and I
    have no further questions. Do you, Senator Kohl?
        Senator Kohl. Thank you, it has been very informative--I
    have to say this, Senator Chairman, I hope that we can follow
    this through----
        Senator Campbell. Yes; me, too. We will.
        Senator Kohl. We will try to provide some additional
    resources, as much as we can. What you are saying, I believe,
    very clearly is that you can do a much better job if we can
    provide you with additional resources.
        Mr. Weinschenk. Absolutely, sir.
        Senator Kohl. This will not be simply a case of throwing
    money at a problem and not getting very much by way of results.
    That is not the case here, and we are relying on what, I
    believe, we are hearing from you. Is that right, Senator
    Campbell?
        Senator Campbell. Yes; and I think, considering the limited
    resources you have, I think you are doing a terrific job. I
    want to add my voice to Senator Kohl's and tell you that we are
    going to help you all we can, whether it is strengthening of
    legislation or additional money going to additional manpower.
        Mr. Weinschenk. Mr. Chairman, Senator Kohl, I want to
    assure you, I have been a Customs agent for 29 years. The
    people who are doing this work and doing these jobs, I have
    never seen anyone more dedicated to, more intense at what they
    are doing. I think we are doing the best we can with what we
    have.
        Senator Campbell. I think they, like us, have the
    additional incentive that they are parents in many cases and it
    could be their children.

                               Latest Technology

        Mr. Weinschenk. Absolutely. One more thing before you go,
    Senator. I want to show you both something that is kind of
    really diabolical. This is what they call a see-you-see-me cue
    ball. What it is is a camera, the latest technology, what the
    sexual predators are doing.
        You set this on top of your computer, you plug it in,
    anybody that is out there in the same room with you, as John
    has demonstrated, the latest thing what they are doing is they
    are bringing in a child, filming the molestation. And the other
    people in the chatroom, what they are doing is saying, OK, we
    want you to do A, B, C to the child. The person with this on
    their computer does it. That image is sent out to the rest of
    the people in the room. So they are molesting on demand.
    Something as small as this.
        People who we arrested in, and who traveled into, the
    United States from Switzerland, had 90,000 child pornographic
    images on one of these; 90,000. That is the size of what we are
    talking about. The technology is there to do things like----
        Senator Campbell. The problem is a lot larger magnitude
    than I had ever understood.
        Mr. Weinschenk. Very much so. The cost of this is under
    $300.
        Senator Campbell. I thank you for being here, and we
    certainly appreciate your testimony.
        Mr. Weinschenk. Thank you, Mr. Chairman, Senator.

                              Submitted Questions

        Senator Campbell. We have additional questions that will be
    submitted in writing to be answered for inclusion in the
    record.
        [The following questions were not asked at the hearing, but
    were submitted to the agency for response subsequent to the
    hearing:]
                    Questions Submitted by Senator Campbell
                              U.S. Customs Service
                       child pornography on the internet
        Question. What was your fiscal year 1999 request for
    cybersmuggling, as child pornography on the Internet is commonly known?
        Answer. The President's fiscal year 1999 budget request for the
    U.S. Customs Service did not include specific funds for cybersmuggling
    activities. Customs currently assigns eight positions to the Customs
    CyberSmuggling Center, funded out of base appropriations for smuggling
    activities.
        Question. Can you explain the difference between your jurisdiction
    and FBI's in the area of child pornography?
        Answer. The U.S. Customs Service has jurisdiction over the
    investigation of the smuggling of prohibited articles into the United
    States. This includes the use of the Internet to transmit child
    pornography materials from foreign locations to points within the U.S.
        In fact, Customs had been investigating the smuggling of child
    pornography even before the first child pornography legislation was
    enacted in 1977.
        Following the enactment of the computer-related child pornography
    statute in 1988, Customs broke new ground by becoming the first Federal
    agency to conduct those Internet-based investigations. Customs conducts
    proactive investigations on every major facet of the Internet, which
    includes the World Wide Web (WWW), the Internet Relay Chat (IRC)
    channels, and the News Groups.
        The Internet is an international medium, a medium used extensively
    throughout the world for international trafficking. It is also a medium
    that recognizes neither sovereignty nor borders.
        Since most of the materials used in the production and distribution
    of child pornography as well as the child pornography itself have
    traveled in foreign commerce, Customs has primary jurisdiction in these
    investigations.
        Customs is also mandated by the Violent Crime and Law Enforcement
    Control Act of 1994, 18 U.S.C. 2423, to investigate foreign travel by
    U.S. citizens and/or resident aliens for the purpose of having sex with
    a minor.
        The FBI's jurisdiction lies principally in the domestic, interstate
    transportation of child pornography, including the use of the Internet
    to transmit child pornography materials between domestic locations; and
    domestic, interstate travel for the purpose of putting children at risk
    through sexual exploitation.
        Question. What is Customs currently doing to inform parents and
    children about child pornography on the Internet?
        Answer. The U.S. Customs Service works very closely with the
    National Center for Missing and Exploited Children (NCMEC) to inform
    both parents and children of the dangers lurking on the Internet.
        Together, Customs and NCMEC have published and distributed
    literature and computer accessories that alert both parents and
    children to the many traps and methods used by sexual predators.
        Customs is working with State and local agencies such as Education
    and Library Associations in an outreach program dedicated to informing
    parents as to the areas of concern on the Internet.
        To date, Customs has provided training to thousands of Federal,
    State, local, and international law enforcement officers as well as to
    countless members of non-law enforcement persons, most of whom are
    themselves parents.
        Customs has also been invited by members of Congress to participate
    in State-wide informational meetings set up to inform their
    constituents on issues related to the Internet.
        Question. Can you tell some of your recent successes in your
    efforts against child pornography on the Internet?
        Answer. Since October 1, 1995, the U.S. Customs Service has
    successfully conducted several undercover and special operations
    targeting individuals and businesses that use computers to transmit and
    receive international child pornography. These investigations have
    resulted in the arrest of more than 500 persons for such pornography-
    related violations in the United States. This is an average of an
    arrest every other day since fiscal year 1996.
    Case No. 1
        Customs recently arrested a pediatrician from New Mexico for
    trafficking internationally in child pornography via the Internet and
    for soliciting an undercover Customs agent to have sex with a seven-
    year-old girl, whom the pediatrician believed was the undercover
    agent's daughter.
        The pediatrician was, at the time of his arrest, the designated
    pediatrician for the Native American Nations in the New Mexico area.
    The pediatrician recently had himself appointed as the forensics
    physician designated to investigate child sexual molestations.
        At the time of his arrest, the pediatrician had in his possession
    some of his medical tools, including a speculum, and a digital camera
    capable of taking 99 digital images. It was his stated intention to
    molest the seven-year-old girl and to take digital images of the
    molestation, which he then intended to post on the Internet.
    Case No. 2
        In another matter, Customs arrested a Swiss husband and wife who
    were international commercial distributors of child pornography.
        The couple had traveled to the U.S. from Switzerland, along with
    their two-year-old daughter, with over 90,000 child pornography images
    contained on one computer drive. The couple had negotiated with an
    undercover Customs agent to make and distribute CD-ROM's of the images
    throughout North America. It is believed that the Swiss couple made
    over $2,000 per day from child pornography distribution.
    Case No. 3
        In a Customs undercover operation being run out of Salt Lake City,
    a Canadian citizen and resident of Bridal Falls, British Columbia
    (Canada), offered to sell the undercover Customs agent images of child
    pornography which he claimed to be producing himself in his home town.
        The violator advised that he produced the pornography while
    babysitting children under 10 years of age. The violator indicated that
    he would be babysitting next week and would be molesting more children
    and, as before, filming the molestation as he did it.
        Because of the nature of the violator's comments, the Customs agent
    immediately contacted the Coordinated Law Enforcement Unit (CLEU) in
    Vancouver, Canada. As a result, the CLEU arrested the violator the next
    morning and conducted a search of his residence. The search resulted in
    the seizure of a substantial amount of child pornography, including
    over 300 videos, 60 rolls of undeveloped film, and digitized child
    pornography images.
        The violator had previously been convicted for the sexual
    exploitation of a two-year-old girl and is the prime suspect in a
    number of other sexual assaults involving children and animals.
        On December 19, 1997, the violator was convicted of having sexual
    contact with three separate children, bestiality, and possession and
    distribution of child pornography. More importantly, another child was
    saved from molestation by a sexual predator.
    Case No. 4
        In July 1997, a subject made contact with an undercover Customs
    agent and requested information pertaining to child pornography. In
    January 1998, the subject placed an order through a certified Customs
    undercover operation requesting video tapes containing child
    pornography.
        Subsequent investigation disclosed the subject had a 1975
    conviction for second-degree murder which involved the strangulation of
    a six-year-old boy. A review of that case revealed that the subject had
    molested several children, including the murder victim. The subject had
    been paroled in 1980.
        In 1985, the subject had been rearrested and charged with having
    sexual contact with a minor and returned to prison.
        A controlled delivery of the requested child pornography video
    tapes was executed by Customs agents to the subject at his residence. A
    search warrant was also served and the subject was subsequently
    arrested for violations of child pornography laws.
    Case No. 5
        Information from Canada Customs indicated that an individual using
    the screen name ``Joker'' was distributing child pornography over the
    Internet, through a file transfer protocol (FTP) site, to individuals
    in Canada, the United Kingdom, Germany, Japan and the U.S.
        During undercover meetings on the Internet, the subject--who was a
    computer engineer with a secret clearance--transmitted over 100 child
    pornography images electronically, and sent computer diskettes
    containing over 800 images to the undercover Customs agent.
        The subject was subsequently arrested by Customs agents at his home
    in Aurora, Colorado.
    Case No. 6
        In April 1998, an undercover Customs agent was contacted by an
    individual who wanted to trade child pornography via the Internet. The
    subsequent investigation identified the violator as a U.S. Army Green
    Beret Master Sergeant assigned in a key military intelligence position
    in Germany.
        Working in cooperation with the Department of Defense, the violator
    was arrested while on duty at his intelligence post in Germany as he
    was trafficking child pornography with the undercover Customs agent.

                              Subcommittee Recess

        Senator Campbell. With that, this hearing is recessed and
    the subcommittee will recess until 9:30 a.m., Thursday, May 7.
        [Whereupon, at 11:04 a.m., Thursday, April 30, the
    subcommittee was recessed, to reconvene at 9:31 a.m., Thursday,
    May 7.]

             MATERIAL SUBMITTED SUBSEQUENT TO CONCLUSION OF HEARING

        [Clerk's note.--The following statement was not presented
    at the hearing, but was submitted to the subcommittee for
    inclusion in the record subsequent to the hearing:]
                 Prepared Statement of Congressman Nick Lampson
        Mr. Chairman. Members of the Subcommittee. As Chairman of the
    Congressional Missing and Exploited Children's Caucus, I appreciate the
    opportunity to testify on what has become an issue that I unfortunately
    know too much about--the exploitation of children.
        Child pornography was a worldwide industry that was all but
    eradicated in the 1980's. Unfortunately, it has resurfaced with a
    vengeance, thanks to computer technology. Although the smutty magazines
    and photographs ordered from back page ads in adult magazines are still
    prevalent, this illegal activity has flourished on the Internet--with
    child pornography being traded freely in chat rooms, news groups and
    private e-mail. Pedophiles, child molesters and other purveyors of
    child pornography now have instant access to explicit photographs in
    the privacy of their own homes and offices. Hidden behind their PC's,
    they brazenly trade pictures and videos, using technology to transmit
    an unprecedented number of images around the world, broadening the
    audience for child pornography and victimizing a new generation of
    children. And they taunt law enforcement that does not have the
    manpower or resources to hunt them down.
        I represent part of Houston. During one week in March 1998, the
    Houston Chronicle reported that U.S. Customs agents--who are charged
    with investigating Internet crimes against children--seized computers
    from a home and church, saying the equipment was used to send and
    receive child pornography through the Internet. Apparently this was not
    the only seizure of child porn that week. A man was accused of
    possessing and distributing pornographic images of children on the
    Internet. A subsequent search of his home revealed thousands of
    pornographic images on his computers, including at least 150 illegal
    pornographic images of children as young as 6.
        Allow me to tell you a true and chilling story. In February, a
    South Houston teenager ran away from home to Baytown to see someone she
    had never met. That night, the 22-year-old man sexually assaulted her.
    Why did she leave home to meet a stranger? They met each other on the
    Internet.
        I will be introducing legislation in the next few days that will
    authorize funds for the U.S. Customs Service Child Pornography
    Enforcement program--the International Child Pornography Investigation
    and Coordination Center (ICPICC).
        To help combat the problem of child pornography through computer
    technology, the U.S. Customs Service established the International
    Child Pornography Investigation and Coordination Center (ICPICC) in
    April 1996. Staffed by Special Agents with expertise in both child
    pornography cases and computers, the primary objectives of the ICPICC
    are to:
      --more effectively assist the field in the investigation of the
            increasing number of child pornography cases;
      --provide guidance and support to the field in the investigation of
            complex cases involving child pornography violations; and
      --spearhead the U.S. Customs Service international effort to combat
            child pornography.
        There is a need to adequately direct federal resources toward
    attacking the problem of child exploitation over the Internet. The U.S.
    Customs Service has long been recognized by law enforcement and the
    international community for its knowledge and skill in investigating
    cases of child pornography and child exploitation. The establishment of
    the ICPICC has enhanced the ability of the Customs Service to maintain
    its aggressive posture in this investigative arena. Since fiscal year
    1995, ICPICC's investigations have resulted in 329 arrests.
        Properly funding the ICPICC will allow the Customs Service to
    continue its worldwide leadership in the prevention of the sexual
    exploitation and abuse of children in the United States and abroad.
        My concern with the lack of funding provided for the U.S. Customs
    Service Child Pornography Enforcement program is obvious. Ever mindful
    of the widespread benefits which the Customs Service provides, I am
    greatly discouraged that the fiscal year 1999 budget request does not
    provide adequate funding for this program.
        I have led a number of my colleagues in writing to Chairman Kolbe
    and Ranking Member Hoyer (both members of the Congressional Missing and
    Exploited Children's Caucus) to request proper funding.
        I urge my colleagues to take this issue seriously and fund the $2
    million necessary to help protect our children from victimization. Mr.
    Chairman, I am sure you'll agree that this is a small price to pay to
    reduce the exploitation of our children.

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 1999

                                  ----------

                             THURSDAY, MAY 7, 1998

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:31 a.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)
    presiding.
        Present: Senators Campbell and Kohl.

                       EXECUTIVE OFFICE OF THE PRESIDENT

                            Office of Administration

    STATEMENT OF ADA LOUISE POSEY, DIRECTOR
    ACCOMPANIED BY:
            MARK LINDSAY, CHIEF OF STAFF AND GENERAL COUNSEL
            LAURA CRABTREE, SENIOR TECHNICAL ADVISOR, INFORMATION
                TECHNOLOGY MANAGEMENT TEAM

                                Opening Remarks

        Senator Campbell. Good morning. The hearing on the Treasury
    Subcommittee will be in session.
        I would like to welcome Ada Posey this morning, the
    Director of the Office of Administration, and thank you for
    appearing today. I see you are joined by Ms. Crabtree and Mr.
    Lindsay.
        Finally, I would ask that any responses that we submit to
    you in writing, you could get the answers back to us by the
    21st of May, I would appreciate that.
        I convened this hearing this morning for basically two
    reasons. The first is to discuss the fiscal year 1999 budget
    request of the Executive Office of the President, which
    includes approximately 12 smaller agencies, including the
    Office of Administration. The Executive Office of the
    President's fiscal year 1999 request primarily focuses on
    funding to maintain current levels, except for an increase
    relating to the Office of Administration's computer technology
    program.
        The second reason I called this hearing is to provide the
    members and the taxpayers with an opportunity to gain a better
    understanding of the duties of the Executive Office of the
    President and the work the White House attorneys are paid for
    with appropriated funds. I know that you testified in the House
    regarding this issue but I have had some questions from my own
    colleagues here in the Senate and I, therefore, wanted to
    provide the members with the opportunity to hear your testimony
    again.
        Throughout the course of this hearing, I want to address
    the public concerns, part of them brought about by news-related
    articles, about the issues of the President's legal defense,
    both public and private. Many would agree that there needs to
    be a bright line between the advice the legal staff must
    provide as part of their responsibilities relating to the
    office of the Presidency as an institution, and the personal
    legal matters of a sitting President.
        I believe that by working with the Executive Office of the
    President we can address these concerns. I fully understand the
    White House's needs for attorneys to provide legal assistance
    to the President on all matters relating to legislation,
    regulations, nominations, and inquiries of Congress. Yet still,
    I believe that the public deserves some accountability and some
    answers to questions of where that bright defining line is.
        I hope today, Ms. Posey, you can shed some light on this
    issue and provide a better understanding to the members of the
    subcommittee.
        As an example, I understand the current Department of
    Justice rules, taxpayer funded attorneys cannot be used to
    defend a President in personal civil lawsuits, but clearly if
    these lawsuits prompt inquiries from Congress then those same
    attorneys are obligated to respond to those inquiries. That is
    the point I want to get to, where that defining line is, and
    where the gray areas are.
        With that, Senator Kohl, if you have an opening statement,
    I would yield to you.

                           Statement of Senator Kohl

        Senator Kohl. I will be brief, Mr. Chairman.
        This hearing has been scheduled to explore the Executive
    Office of the President's fiscal year 1999 budget request. One
    outstanding issue is whether Federal funds provided by
    taxpayers, are being used by the White House for official or
    for private legal purposes.
        The role of the White House Counsel's Office is to provide
    legal representation to the White House employees in their
    official capacity. The President, in his official role as
    President, is their chief client.
        However, the President must acquire private legal counsel
    to deal with personal legal issues. I think everyone agrees
    that the President cannot seek the advice of Federal employees
    being paid Federal funds when responding to private and
    personal legal issues.
        Thank you, Mr. Chairman.
        Senator Campbell. Ms. Posey, I understand you wanted to
    testify, answer some questions, and then leave; is that
    correct?
        Ms. Posey. Yes.
        Senator Campbell. Why don't you go ahead and proceed.

                         Statement of Ada Louise Posey

        Ms. Posey. I do have an opening statement that is about 12
    pages, but I will abbreviate that.
        Senator Campbell. That will be fine. Without objection, we
    will include your complete testimony in the record.
        Ms. Posey. Thank you.
        Good morning, Mr. Chairman, and Senator Kohl. It is an
    honor to appear before you to present the fiscal year 1999
    budget request for the nine Executive Office of the President
    accounts. Joining me today is Mark Lindsay, our Chief of Staff
    and General Counsel for the Office of Administration, and also
    Laura Crabtree, who is our Senior Technical Advisor for the
    Information Technology Management Team.
        I am thankful that I have the opportunity to serve in the
    EOP and to enable the EOP to face the challenge and seize the
    opportunities presented to us by these ever-changing times
    caused by daily advances in technology associated with the
    information age. Such challenges remind me of my grandmother,
    Mrs. Ada Berryman, who was recently recognized by this Congress
    in the Congressional Record when the Honorable Louis Stokes
    acknowledged her as the first African-American to be appointed
    to the Ohio State Housing Board.
        She was born in 1910 in Troy, AL. When she was young, her
    family fled to Ohio to escape the segregation of the South.
    Throughout her life she was faced with the dynamics of this
    changing country and she sought to make a difference. She
    challenged segregation. She challenged the political system.
    And she challenged our society. As my grandmother led my family
    into the industrial age, I now find myself in a position to
    help lead the EOP into this dynamic information age.

    Executive Office of the President Information Technology Infrastructure

        The EOP must adapt to this radically changing world and
    economy. The explosion in computer technology, especially the
    rise of the Internet and e-mail, are transferring Government
    and the way it responds to the American people. At the same
    time, the new information technology poses new challenges from
    the year 2000 problem, to the shear inundation of the Executive
    Office of the President system, the EOP.
        Frankly, our information technology infrastructure has not
    been able to keep up with the ever-increasing demands of
    change. As a result, our infrastructure has been unable to
    support all of the information technology needs of the
    President and his staff. While we maintain service in an
    environment of ever-increasing needs, we must also meet the
    challenge of the year 2000 problem and of fixing our
    information technology so that the EOP survives and thrives in
    the millennium.

            Allegations of Improper Use of Legal Counsel by the EOP

        Let me move on to the other question at hand. Before we
    turn to questions about the rest of the budget, I would like to
    briefly address the recent allegations that appropriated funds
    are being used for the private legal defense of the President.
        I can assure you that appropriated funds are not being used
    for this or any other nonofficial purpose. As Charles Ruff,
    Counsel to the President, made clear in his letters to this
    subcommittee on March 19 and April 30, the White House
    Counsel's Office represents the President in his official
    capacity, and the Office of the President as an institution.
    There is no personal work being performed by the lawyers in the
    White House Counsel's Office or any office within the Executive
    Office of the President.

                             EOP Budget Submission

        Beyond that question and with regard to all of our budget
    submissions today, the EOP will continue to maximize its
    resources and implement cost savings and measures. Yet it is
    also imperative that the EOP be adequately funded to provide
    the quality of support required as we move into the next
    millennium and necessary to support the increasing information
    demands of the American people.
        It is crucial that the EOP maintain and improve upon its
    existing infrastructure and plan for future investments in
    personnel and information technology now and into the future.
        I thank you very much, Mr. Chairman, for allowing me to
    share those opening statements.

                               Prepared Statement

        Senator Campbell. Thank you, Ms. Posey. We have your
    complete statement and it will be included in the hearing
    record.
        [The statement follows:]
                       Prepared Statement of Ada L. Posey
        Good morning Mr. Chairman and members of the Subcommittee. It is an
    honor to appear before you to present the fiscal year 1999 budget
    request for the following nine Executive Office of the President (EOP)
    accounts: Compensation of the President, the White House Office,
    Special Assistance to the President, the Official Residence of the Vice
    President, the Office of Administration, the Office of Policy
    Development, the National Security Council, the Council of Economic
    Advisers, and Unanticipated Needs.
        I want to start by telling you why I am so thankful that I have the
    opportunity to serve in the EOP, and to enable the EOP to face the
    challenges and seize the opportunities presented to us by these ever
    changing times caused by daily advances in technology associated with
    the Information Age. Such challenges remind me of my grandmother, Mrs.
    Ada Berryman, who was recently recognized by this Congress in the
    Congressional Record when the Honorable Louis Stokes acknowledged her
    as the first African-American to be appointed to the Ohio State Housing
    Board in the 1940's. She was born in 1910 in Troy, Alabama. When she
    was young, her family fled to Ohio to escape the segregation of the
    South. She resided in Warren, Ohio for 45 years and is credited with
    founding the Warren Chapter of the NAACP, as well as serving as
    president of the Warren Urban League Board, and as member of the
    Trumbull County Welfare Board. Throughout her life, she was faced by
    the dynamics of this changing country and she sought to make a
    difference. She challenged segregation, she challenged the political
    system, and she challenged our society.
        And as my grandmother led my family into the Industrial Age, I now
    find myself in a position to help lead the EOP into this dynamic
    Information Age. The EOP must adapt to this radically changing world
    and economy. The explosion in computer technology--especially the rise
    of the Internet and e-mail--are transforming government and the way it
    responds to the American people. As the seat of executive authority,
    the White House is in a position to use the new information technology
    to involve the American people in their government, in real time, in a
    way that was never possible before. At the same time, the new
    information technology poses new challenges--from the ``Year 2000''
    problem to the sheer inundation of the EOP system.
        In all of 1993, the President received 68,784 e-mail messages--this
    January alone, he received nearly 100,000 (99,256). The number of hits
    to our website is increasing exponentially. Before June 1996, we
    received an average of 1,500 hits per day--we are now up to an average
    of 8,787 hits per day. In 1994, the number of records captured by our
    Automatic Records Management System (ARMS) was 1.7 million--in 1997, it
    was 4.1 million, and we estimate that by the year 2000, we can expect
    to be managing 30 million records in ARMS, consuming 210 GB of storage
    space.
        And while we have witnessed these exponential increases, our
    information technology infrastructure has not been able to keep up with
    the ever increasing demands of change. As a result, our infrastructure
    has been unable to support all of the information technology needs of
    the President and his staff. Already, we are experiencing systems
    failures and crashes due to the dramatic increases in e-mail traffic.
    While we maintain services in an environment of ever increasing needs,
    we must also meet the challenge of the Year 2000 (Y2K) problem, and of
    fixing our information technology so that the EOP survives and thrives
    in the Millennium.
        In order to provide the EOP with the tools necessary to most
    effectively represent the American public, I now present you with the
    EOP's budget for fiscal year 1999. The total for the nine accounts is
    $112.494 million. Since the most significant increase is related to the
    EOP's $12.2 million Capital Investment Plan, which is critical toward
    taking the EOP into the next century, I will address this first. In
    order to understand where we are going, however, it is necessary to
    understand where we are, and where we have been.
        The Office of Administration has engaged in a methodical plan to
    revitalize its information technology, a plan begun by my predecessor,
    Frank Reeder, when he formed the EOP's Information Technology Advisory
    Board (ITAB) in 1995, and began immediately to develop a five-year
    plan--internally and without the benefit of outside consultants or
    additional resources. Mr. Reeder then submitted the Office of
    Administration's first ever Five Year Information Technology Plan to
    Congress in September of 1996.
        In fiscal year 1997, however, we endured a level of hardship
    imposed through the fencing of our funds from which we are still
    recovering. In hindsight, we appreciate the concern and oversight of
    the Chairman and this Subcommittee, which led us to create a more
    detailed EOP Information Technology Architecture (ITA) and to form an
    Information Technology Management Team (ITMT). Prior to the events of
    fiscal year 1997, each EOP agency acted independently in procuring
    information technology with not enough regard to redundancy,
    interchangeability or support requirements--and an inadequate overall,
    common, EOP vision. We now understand the importance of working
    together, and the ramifications to our infrastructure when we do not.
        With the rapid advancement of information technology in the past
    twenty (20) years spanning several administrations, EOP agencies were
    independently constructing custom, redundant, inconsistent,
    incompatible, and inaccessible systems. The result is the EOP's current
    infrastructure--heterogeneous, diverse and difficult to maintain. For
    example, applications have been developed to run under six different
    operating systems on a dozen hardware platforms using few Computer
    Aided Software Engineering tools or automated configuration management
    tools. The current set of applications software is difficult to
    maintain, and requires technology skills that are often difficult to
    keep on staff. More importantly, in an effort to sustain these diverse
    applications, we have devoted most of our resources to maintaining the
    status quo rather than infusing new technologies.
        I am pleased to report, however, that on July 18, 1997, the Office
    of Administration submitted to Congress the Logicon Information
    Technology Architecture Plan, a document that built upon the Five Year
    Information Technology Plan of September 1996. The Logicon Plan set
    forth a vision and framework to guide the EOP's information technology
    investments for the next five years. In its plan, Logicon observed that
    ``[w]e believe that the EOP is caught in a double bind--it has too many
    legacy systems that cannot be shut down without a functional
    replacement; and it does not have the budget to maintain the status quo
    in the face of escalating maintenance support costs while attempting to
    accomplish strategic improvements.''
        In an effort to keep up with technological changes, improve the
    quality of services and ensure cooperation concerning information
    technology management within the EOP, we also established the EOP
    Information Technology Management Team (ITMT), as the successor to the
    Information Technology Management Board (ITAB).
        The ITMT is comprised of representatives from each of the EOP
    agencies. Members of the ITMT include an executive board comprised of
    EOP agency heads and their representatives in addition to several
    advisors. This management structure was established with the goals of:
      --Identifying the functional requirements for information systems
            throughout the EOP;
      --Ensuring that adequate integrated computer systems are in place
            throughout the EOP to meet ongoing and future workload
            requirements;
      --Ensuring appropriate exchange of information technology among EOP
            agencies so that experiences and standards can be effectively
            shared;
      --Reviewing and recommending funding for information technology
            initiatives that are common to all EOP agencies; and
      --Ensuring a strong customer service focus for information technology
            delivery.
        The ITMT's mandate is to advise the Director of the Office of
    Administration and other EOP agency heads on common information
    technology matters.
        Over the course of the last twelve months, I believe we have made
    significant progress. While we have been performing necessary repairs
    and sustaining outdated, and obsolete systems, we no longer simply seek
    to maintain the status quo.
        Recognizing the past lack of vision with regard to information
    technology and in order to stabilize our IS&T Division, we have added
    to our leadership a new Deputy Director for IS&T and a new Associate
    Director for IS&T, both of whom bring to the EOP significant experience
    from the private sector in implementing systems architectures. In
    addition, we have awarded a contract to Northrop Grumman as our new
    facilities contractor for information technology management and
    services, replacing the incumbent of over twenty years. We are
    confident that, with their Software Engineering Institute (SEI) level-
    three certification and business processes reengineering methodology,
    Northrop Grumman will be an invaluable asset to the EOP.
        With our new information technology leadership, we have built upon
    the EOP's Y2K strategy identified in the Logicon report, and have
    selected the highly-respected Northrop Grumman/James Martin team to
    complete the assessment of our Y2K exposure so that we can renovate and
    test all of the EOP's custom applications and legacy systems. We have
    developed an EOP-wide Y2K Newsletter in order to educate our customers
    on the Y2K problem, and have engaged the ITMT to actively participate
    in developing and implementing the EOP's Y2K strategy. Already, they
    have identified their critical systems, and have agreed on the criteria
    to be used in prioritizing EOP systems for renovations. As such, the
    ITMT will continue to play a pivotal role in determining what systems
    will be renovated/replaced and in what sequence based on priority.
        On February 20, 1998, with the full concurrence of the ITMT, we
    delivered a refined ITA to Congress that represents a continuation of
    the information technology dialogue that we have had with the
    Subcommittee since 1996. We have been encouraged by the active interest
    the Subcommittee has shown in the evolution of this matter. In
    combination with our budget, this ITA contains a milestone schedule for
    the development and implementation of all projects included in the
    systems architecture plan, an estimate of the funds required to support
    the fiscal year 1999 capital investments associated with the plan, and
    describes an overall strategy and priority setting system for
    activities. Furthermore, the initiatives outlined in the plan identify
    the functional requirements for information systems throughout the EOP,
    and ensure that adequate integrated computer systems will be in place
    throughout the EOP to meet ongoing and future workload requirements.
        OA's fiscal year 1999 $12.2 million dollar Capital Investment Plan
    (CIP) represents a significant step in our efforts to address the
    perils of the Year 2000 problem and update our information technology
    infrastructure. It is essential that the EOP continue to develop
    improved strategies to address our information technology needs. Our
    architecture supports our plan to spend about $1.2 million in fiscal
    year 1998 to continue to resolve our Year 2000 problems. In addition,
    of the $12.2 million requested for fiscal year 1999 in the CIP, over 90
    percent is earmarked for the Year 2000 effort. Despite the fact that
    the majority of the CIP will be consumed by resolving Year 2000
    problems, our ITA promotes significant performance upgrades to our
    systems. Our ``two for one'' strategy is an efficient means of
    transforming the Year 2000 problem into our Year 2000 opportunity.
    Therefore, our ITA design for the future not only addresses the Year
    2000 problem, but also uses this situation as the opportunity to
    upgrade our system in such a way as to make the EOP more responsive to
    the growing technological demands of the American people.
        The improvements that will result with the infusion of the fiscal
    year 1999 CIP represent a major step forward in bringing the EOP closer
    to current government standards. This is not ``Whiz-Bang'' stuff. What
    we are doing, we must do in order to maintain basic services and cost
    effective operations. Examples of how this change will manifest itself
    can be found in the following examples:
        Improved Information Access.--System upgrades contemplated in this
    new architecture would significantly stabilize and enhance the EOP's
    ability to readily disseminate and store vast amounts of information.
    Enhancements in Internet access, in addition to significant
    improvements in Intranet technology, will allow EOP computer users to
    conduct research, communicate with colleagues, or present information
    to the world.
        Help Desk: Virtual Desktop.--With advances in technology there will
    always be a need to enhance our help capabilities. With virtual desktop
    access to users' computers, our skilled technicians will be able to
    investigate, evaluate and repair user problems remotely. This will
    increase the efficiency of our technicians and provide our users with
    the immediate attention they deserve.
        Stabilized Network Integrity.--Our overall network integrity would
    be stabilized and enhanced by the implementation of a new network
    tracking system. This system would allow us to maintain higher levels
    of EOP network activity and permit us to upgrade our systems less
    expensively and with less disruption to our end users. This would
    result in fewer network failures, and the maintenance of a more stable
    system design.
        Strengthened Continuity.--In addition, the new information
    technology architecture contemplated in the CIP would allow the EOP to
    maintain a more homogeneous array of computer systems. This acquisition
    of more similar equipment diminishes maintenance costs, improves system
    compatibility and helps improve the overall vitality of the EOP
    computer network.
        A More Secure Computer Network.--With the acquisition of upgraded
    Year 2000 compliant computer security systems we will be able to
    greatly enhance the security integrity of our EOP network. Not only
    will the new systems make our network less susceptible to external
    intruders, and internal intruders, it will also help automate our
    efforts and the United States Secret Service's efforts to track down
    anyone who may attempt to violate our systems.
        I believe that it is incumbent on us to seize the opportunity the
    Year 2000 problem presents by ensuring that we continue to improve the
    quality of information technology services we provide the entire EOP.
        Before I turn to the remaining EOP budgets for fiscal year 1999, I
    would briefly like to address recent allegations that appropriated
    funds are being used for the private legal defense of the President. I
    can assure you that appropriated funds are not being used for this or
    any other non-official purpose. As Charles Ruff, Counsel to the
    President, made clear in his letters to this Subcommittee on March 19,
    1998 and April 30, 1998, the White House Counsel's Office represents
    the President in his official capacity and the Office of the President
    as an institution. There is no personal work being performed by the
    lawyers in the White House Counsel's Office or any office within the
    Executive Office of the President.
        With regard to the remaining budgets, we are requesting an average
    increase of only 3.17 percent. In developing these budgets, we adhered
    to the following parameters. First, to align our budget submission with
    actual expense history and demonstrated need. Second, to include an
    estimated 3.1 percent increase to cover locality and pay adjustments
    for the EOP's many General Schedule employees effective 1/1/99. Third,
    to include a 3 percent increase to cover increases in GSA rents
    anticipated in fiscal year 1999. Fourth, to cover the EOP's balloon
    payment required by our telephone switch contract in fiscal year 1999.
    And fifth, and finally, to request funding for overtime and
    compensatory time mandated by the Fair Labor Standards Act, and
    applicable to the EOP effective October 1, 1998 pursuant to the
    Presidential Executive Office Accountability Act (PEOAA).
        Operating within austere budgets over the years has been
    challenging. During the past five years, the EOP has met this challenge
    by identifying cost saving measures, shifting resources, and deferring
    or delaying purchases. Inflationary cost increases and mandated pay
    raises for the EOP's many General Schedule employees were absorbed in
    the past. Agencies whose staffs are mostly or entirely in
    administratively determined positions, such as the White House Office,
    Vice President's Office, and Office of Policy Development, held salary
    levels nearly static, delayed implementing hiring decisions, and
    brought in new hires at lower levels.
        The EOP will continue to maximize its resources and implement cost
    saving measures. Yet, it is also imperative that the EOP be adequately
    funded to provide the quality of support required as we move into the
    next millennium, and necessary to support the increasing information
    demands of the American people. It is crucial that the EOP maintain and
    improve upon its existing infrastructure, and plan for future
    investments in personnel and information technology, now and into the
    millennium.

                  Office of Administration Capital Investments

        Senator Campbell. Let us start with the technology part,
    first.
        Your fiscal year 1999 budget request includes $12.2 million
    for a capital investment program. Can you provide some
    nontechnical layman's description, please, of that request and
    the problems you are hoping to address with that increase in
    money?
        Ms. Posey. I certainly can. Again, I have brought along
    Laura Crabtree, who is a technical person but has a wonderful
    way of breaking down technical things into layman's terms for
    me and everybody else.
        But first, let me say, Mr. Chairman, that the $12.2 million
    request, 90 percent of that is going to be utilized for fixing
    our year 2000 difficulties within the EOP. The rest of the
    moneys we hope to utilize to infuse new technologies within the
    Executive Office of the President.
        We are woefully behind the eight ball when it comes to our
    infrastructure. We are operating with six software operating
    systems, 10 hardware platforms, and it is very difficult for us
    to use the technologies of today to have a stable environment
    and a stable network. And this has happened over a period of 20
    years. We have never had an information technology architecture
    that allows us to have the type of discipline to infuse new
    technologies within the EOP.
        This $12.2 million means that we are getting our act in
    order and we are setting the Executive Office of the President
    straight in terms of preparing for the future. These are basic,
    basic things that we are doing, and Laura might want to speak
    to some of the types of projects that we are working on.
        Senator Campbell. Does this increase include basically
    hardware, or is this also a manpower increase?
        Ms. Posey. This is hardware, this is software, and this is
    manpower in terms of contract support to do the renovation and
    the testing and the validation of our year 2K difficulties.
        Senator Campbell. Did you want to add something to that,
    Ms. Crabtree?
        Ms. Crabtree. Certainly. Thank you.
        To add some level of specificity to what is included in the
    $12.2 million, there are significant projects that we are
    embarking on in order to meet a twofold objective that we have
    set out for ourselves. The first, and most important, is the
    fact that we must meet our Y2K initiatives and resolve the
    problems that are associated with the year 2000 issue.
        In addition to that, as Ms. Posey mentioned, we are
    focusing as well on those projects that not only will benefit
    our Y2K initiative, but will also bring us the basic
    foundational improvements within our infrastructure that are
    necessary to be able to start to build the house upon which we
    will add additional technologies of the future.
        Specific projects within that $12.2 million include, as Ms.
    Posey mentioned, hardware and software. Specifically, there are
    funds set aside for software in particular because current
    software applications that are running across our heterogeneous
    network environment, our environment that has multiple
    different platforms talking multiple different protocols. And
    in that environment, those software items are not Y2K
    compliant. Nor are they current products that are supported by
    industry.
        So as a result, items such as our word processing software
    need to be replaced because it is not Y2K compliant, nor does
    the vendor of the product anticipate future support of the item
    itself. So that is included as part of the software upgrade, to
    give you some sense of what those items are.
        In addition to that, we have a help desk renovation project
    included within those funds. The reason being is because our
    current help desk system which is essentially the lifeblood of
    how we get our customer focus into our IT environment. In other
    words if someone has a problem, they need help, they call our
    help desk and we dispatch and/or repair the problem over the
    phone with the user.
        The system that we use to accomplish this, not only the
    interactions with the user, the recording of the problem, the
    resolution of the problem, that software is not Y2K compliant.
    In addition to it not being Y2K compliant, it is a legacy
    application that was developed in-house back around circa 1983,
    using the mainframe technology of the time which is no longer
    being supported by industry.
        So we are faced with not only the challenge to become Y2K
    compliant, but also placing into order the necessary projects
    that will provide us the foundation to start to add additional
    technology improvements over the next 5 years within the EOP.

              EOP Information Technology Planning and Coordination

        Senator Campbell. You know, I am not a real high-technology
    person, but I have to tell you, your testimony sounds quite
    similar to the IRS testimony and problems they are having with
    their technology. Something escapes me on this, when we
    purchase all this equipment that apparently does not talk to
    each other very well. I will not get into that, because I will
    get lost.
        There are approximately 12 different smaller agencies under
    the White House. How do you manage that wide variety of
    computer needs while trying to streamline it functionally and
    keep up with the workload?
        Ms. Posey. That is a good question. Now what we have done,
    Senator Campbell, is we have formulated the information
    technology management team. This actually was formally
    formulated in September 1997. This structure, this management
    structure is the first in the history of the Executive Office
    of the President, where we have representatives of each of the
    agencies, heads of the agencies, who formulate an executive
    board. This executive board is responsible for making decisions
    based on business functions, information technology needs for
    the entirety of the EOP.
        That, frankly Senator Campbell, was a problem in years past
    in the EOP because we had independent decisions being made in
    all of the different agencies about the types of technologies
    that they would be using. So we have ended up with the kind of
    system and infrastructure that we have today that we need to
    fix and put together.
        Senator Campbell. So then you had some overlapping
    functions or duplications with different systems?
        Ms. Posey. Actually, not anymore. What we have always had,
    Senator Campbell, is an e-mail system where everybody was
    connected to that particular system and there was common
    support provided by the Office of Administration for common
    software, like word processing, like spread sheets. But in
    terms of unique applications, that say, for example, OMB might
    use, or the Council of Economic Advisors might use, they have
    their own unique applications and work, of course.
        But we did not necessarily make sure that the software and
    the hardware that they were bringing onto the campus linked
    smoothly with the entire network and the infrastructure. That
    is what makes things so difficult. And of course, we are not
    the only Federal agency that has experienced this problem. But
    it makes it actually more dynamic when you have separate
    functions that are so unique in each of the particular
    agencies.
        Senator Campbell. In some of your programs you are dealing
    with, are they receiving funding in your 1999 request?
        Ms. Posey. Excuse me?
        Senator Campbell. Some of the functions that seem to be
    duplicated, and I am not sure that is the right word or not,
    are they receiving funding in your 1999 request?
        Ms. Posey. There are information technology requests in
    other budgets, but those are specifically for the replacement
    of their own software and hardware that is unique to them
    within their agencies. There is a replacement program for
    computers, PC's and other peripherals that the agencies are
    responsible for themselves. So that is what those dollars are
    dedicated to in their own particular budgets.

                        Activities of EOP Legal Counsel

        Senator Campbell. Let us get into some questions about
    these attorneys. I have read all kinds of different numbers, as
    you probably have, in local newspapers, from 49 or 89 or
    something, counting their support staff. I have heard some
    numbers going up to 100. But I have never found any absolute
    proof of that, but that is what I read in the paper, for
    whatever that is worth.
        Of the 20 detailed attorneys, are they provided to the
    Executive Office of the White House Counsel's Office? Is this
    done on a reimbursable basis? These are the 20 that I am
    referring to, who are outlined in Mr. Ruff's letter sent to me
    on March 19.
        Ms. Posey. Let me share with you the numbers. There are 34
    regular staff within the White House Counsel's Office at this
    point. There are 15 detailees as of the date, Mr. Chairman,
    that Mr. Ruff provided you with that information.
        The 15 detailees do two things. First, to help with the
    judicial nominations, vetting of those judicial nominations,
    and also vetting and review of Presidential appointees. That is
    what they do. They usually are there for a 3- to 6-month period
    and they are not reimbursable at the time. Their agency is
    providing that assistance to the White House Office, but they
    do go back to their agencies after their assignment is
    finished.
        Senator Campbell. We have had requests for additional money
    for different agencies for attorneys. Let me ask you this, if
    agency attorneys are hired to perform a mission in the
    Department of the Interior, Department of Agriculture, or
    whatever, they are hired to perform a duty. I do not suppose
    they hire them to sit around and stare at the wall.
        They are hired to perform some kind of a mission and then
    they are detailed somewhere else like to the White House. Who
    is doing the job that they were hired to do?
        Ms. Posey. That is a very good question, Mr. Chairman. We
    have found, as other administrations have found, and it has
    been traditional, that detailees come from other offices, other
    agencies, to the White House for the specific role of vetting
    and reviewing nominations and appointments because it is in the
    agency's best interest to be involved with the process.
        In fact, it is their appointees, in fact, that are being
    reviewed and vetted through this process at the White House
    Office. We find that the way we do this is effective and
    efficient and it provides a value added, not only for the White
    House but is a value added for the rest of the agencies.
        These terms of their assignments, again, are 3 to 6 months.
        Senator Campbell. When they are originally hired, is there
    anything in the job description determining that they may be on
    loan to other agencies and that they might not be performing
    whatever it is they are hired for?
        Ms. Posey. Again, Mr. Chairman, I would say to you that
    this is a practice that happens throughout the Federal
    Government frequently. Again, it is important that we utilize
    the skill, the expertise of other Federal agencies, that we
    might want to have in vetting and reviewing these nominees for
    appointments.
        Senator Campbell. Who pays their salaries when they come
    from Justice or another agency? Are they kept on the budget of
    Justice or is there some offset compensation by the White House
    budget?
        Ms. Posey. No; if they are there for less than 180 days,
    their salaries are paid by their home agencies. If they are
    there for longer than 180 days, then they become a reimbursable
    employee and the White House is responsible for paying their
    salaries.
        Senator Campbell. How do you handle it, if they are
    assigned to the White House, when they are doing some screening
    as you said, perhaps for nominees or something, how do you
    handle a potential conflict of interest?
        Ms. Posey. What we do is we do not have specifically, say
    for the Department of the Interior, we do not have Department
    of the Interior detailees working on appointments and
    nominations for the Department of the Interior. We would have
    another detailee working on the Department of the Interior.
    Just to make sure that the process is fair and equitable and
    that we, again, bring in the expertise of a wide variety of
    detailees.
        Senator Campbell. Maybe I used the wrong, maybe the nominee
    is not the example I would have used. Do they work on anything,
    when they are detailed to the White House, do they work on
    anything that could be construed as a conflict of interest with
    the agency they came from?
        Ms. Posey. No, certainly the counsel, the White House
    Counsel and the Deputy Counsel would make sure that that did
    not happen.
        Senator Campbell. You said that there are 15 there now?
        Ms. Posey. There are 15 there now, as of April 20.
        Senator Campbell. Their salaries are in what range?
        Ms. Posey. Their salaries are in the ranges, I believe that
    that is a question that might have come up and been provided in
    our questions for the record to the House. I would not want to
    yell out the specifics, Mr. Chairman, but I can find those for
    you.
        Senator Campbell. If you could provide that, but they must
    be in the $80,000 range or something. Attorneys do not come
    free.
        Ms. Posey. Thereabouts.
        Senator Campbell. So we are talking about well over $1
    million a year for just their salaries that their agencies have
    to pick up while they are detailed to the White House.
        Ms. Posey. There are also cost figures in here, with regard
    to the cost of detailees from year to year for White House
    Counsel's Office, and we can point that out and provide
    specific information on that.
        Senator Campbell. When they are detailed to the White
    House, are they supervised in any way at all from their agency,
    or are they just totally separate from the agency and
    supervised totally by the White House?
        Ms. Posey. No; there is permanent regular staff that
    supervises the process of judicial nominations and Presidential
    appointments. We have approximately three or four people on
    staff who are regular staff people who actually supervise that
    process with the detailees.
        Senator Campbell. How do you pick them? How do you choose
    them?
        Ms. Posey. I do not know the answer to that question, Mr.
    Chairman, but I certainly can----
        Senator Campbell. When the White House wants the attorneys
    transferred, do they ask for a certain type or a person with
    certain skills? Or do they just get whoever they happen to send
    over from the agencies?
        Ms. Posey. I would be sure that they would ask for people
    who have a specific expertise and skill and experience in
    looking at potential nominees and appointees. I am sure that
    that is what Charles Ruff looks for, because we do not want to
    reinvent the process. We want the process to be, again,
    efficient. So that is why we bring on these people who have
    that kind of expertise previously.
        Senator Campbell. While they are gone, you may not be able
    to answer it, but who is doing their job? Who picks up their
    responsibilities in the 6 months they are at the White House?
        Ms. Posey. I would not be able to answer that question, but
    certainly if--again, this is a benefit, Mr. Ruff believes, both
    to the agency and to the White House. There is experience that
    is garnered from that particular detailee joining the White
    House for that 3- to 6-month period. And I think, just as I
    would send my staff to training and development type of
    exercise or experience, there is a benefit to the agency when
    they get back.
        Senator Campbell. Let us say the President gets sued in a
    civil lawsuit and you have all these detailees over there
    working. And because of the civil lawsuit the Congress asks
    questions that they would like some answers for. How and who
    determines what those detailees will be able to do, where the
    fine line is about what they can provide in working with
    private attorneys that would be working on a civil lawsuit for
    the President?
        Ms. Posey. Well, detailees do not work on any investigative
    matter at all, Mr. Chairman.
        Senator Campbell. Then how do they know if somebody from
    the Hill here asks some questions? How do they know what to
    answer?
        Ms. Posey. Again, the detailees would not be working on any
    investigative matters. They are aside from----
        Senator Campbell. They would not work on investigative
    matters so they would not have any knowledge of it. How do they
    answer any questions that would come from the Senate or the
    House relating to it?
        Ms. Posey. They would not be asking or answering any of
    those questions. It would be the regular staff of the White
    House Counsel.
        Senator Campbell. That would still, even if it is the
    regular staff of the White House, those are still taxpayer paid
    jobs.
        Ms. Posey. Yes.
        Senator Campbell. Where is the defining line between the
    regular staff attorneys, of what they can get involved in with
    answering legitimate questions from Congress, and yet not cross
    over the line in coordinating or working with the lawyers who
    are dealing with a civil lawsuit?
        Ms. Posey. Certainly the question came up in the House and
    has been a question that has come up before. I would refer to
    our questions for the record, our responses, that we provided
    to the Subcommittee for Treasury and Postal Service for the
    House.
        There is an official nexus between the Independent Counsel
    investigations, the congressional investigations, because
    congressional inquiries, subpoenas, are asking for records of
    the White House Office, and it is the responsibility of the
    White House Counsel not only to coordinate that particular
    process of gathering those documents but it is their strong
    role to make sure that all of the documents are responsive,
    that they review the documents, and that is basically their
    role.
        Senator Campbell. In that role of coordinating, does that
    mean that they are then working with the private attorneys who
    would be involved in the civil suit?
        Ms. Posey. It is clear, again, let me read from the
    questions for the record because I think that Mr. Ruff actually
    responded quite succinctly and quite deliberately to that
    particular question.
        There have been, as we well know, allegations where a
    matter focused on the alleged conduct of the President during
    his tenure in office with respect to a White House employee.
    The Independent Counsel has served the White House with
    subpoenas calling for the production of documents, has made
    informal requests for information, and has interviewed or
    acquired the testimony of some 40 current and former White
    House employees.
        The Counsel's Office is responsible for responding on
    behalf of the White House to these demands, for assisting the
    White House personnel in responding to the OIC, and for
    determining whether or not the testimony sought from these
    personnel may implicate confidentiality concerns.
        Beyond those duties, the Counsel's Office is responsible
    for responding and assisting other senior White House staff to
    respond to the avalanche of press inquiries that flow from the
    OIC's investigations every day, including determining whether a
    response is appropriate and, if so, in what form and collecting
    the information necessary to respond.
        So bottomline, there is an official nexus connection or
    link between the Independent Counsel's investigation and the
    constitutional, statutory, and ceremonial responsibilities of
    the President and the Office of the President. It is obvious
    and undeniable.
        Senator Campbell. I just want you to know that I am not
    trying to focus on conduct of anybody, including the President.
    I am trying to focus on the cost to the taxpayers.
        Ms. Posey. I understand that.
        Senator Campbell. From my own perspective, I am sick to
    death of reading the newspapers every morning about conduct.
        Let me just ask you one last question and I will turn it
    over to Senator Kohl.
        Since the Justice Department now has a rule that you cannot
    use taxpayer-funded money for attorneys for private suits, I
    have to paraphrase that because I do not have it right in front
    of me, would you have a problem with putting that in statute
    since it is already in rule? And I guess then complied with,
    hopefully?
        Ms. Posey. I think that that would be a question that I
    would refer to White House Counsel staff to respond to that,
    Senator Campbell. Basically, that is something that they should
    respond to I would be glad to take that back.
        Senator Campbell. Thank you. Senator Kohl.
        Senator Kohl. Thank you, Senator Campbell.
        Senator Campbell. I apologize, too. I am just told that we
    will have a vote pretty soon, so you should get in as much as
    you can.

    GSA Fire, Life, and Safety Repairs and Renovations of the Old Executive
                                Office Building

        Senator Kohl. I will be brief.
        Ms. Posey, your office manages the Executive Office of the
    President's office space and you act as the principal liaison
    with the GSA on facility repairs and restoration. We understand
    that the GSA is requesting over $25 million in fiscal year 1999
    budget for repairs to the Old Executive Office Building. Can
    you tell us what will be done with these funds?
        Ms. Posey. These funds are to be used for fire/life/safety
    projects within the Old Executive Office Building. When I talk
    about fire/life/safety, we are talking about basically the
    elevators being accessible, the stairs being accessible, and
    also the restrooms being accessible, too. It is the
    responsibility of GSA to make sure whenever they undergo any
    kind of renovation or modification of a building, upkeep, that
    they make sure that ADA and OSHA requirements are taken care of
    as they move along, as you well know.
        We feel very strongly that the Executive Office of the
    President, particularly the Old Executive Office Building,
    needs to be a model, an example, of keeping up with ADA and
    OSHA requirements. We have a responsibility, through the
    Presidential Executive Office Accountability Act, to make sure
    that those things are done within the White House complex.
        Senator Kohl. Is a full systems modernization plan being
    designed by the GSA for this building?
        Ms. Posey. Actually, the modernization plan for the Old
    Executive Office Building is probably going to be, as I
    understand from GSA folks, a step-by-step process because the
    entirety of the modernization for the Old Executive Office
    Building, of course, which was built in 1870-something, needs a
    lot of work. There are tens of millions of dollars that need to
    be done to that building.
        I am sure Senator Kohl, if you have an opportunity, or Mr.
    Chairman, if you have an opportunity to come over to the Old
    Executive Office Building, you will see some wiring and cabling
    that might be a little bit disturbing. It is a beautiful
    building but, of course, it does not have the type of
    accommodations that we need to have today for ADA or even
    wiring or cabling.
        That is something that GSA has decided to bite off segment
    by segment. Otherwise, we would be looking at actually
    replacing quite a few people in the Old Executive Office
    Building for several years.
        Senator Kohl. Will this $25 million request result in the
    building being in full compliance with health and safety codes?
        Ms. Posey. It is getting closer to full compliance but not
    complete full compliance.
        Senator Kohl. Will this be, when you finish with this
    modernization program, this $25 million program, will the
    building then be in full compliance with health and safety
    codes?
        Ms. Posey. Again, I would say it would be closer. It would
    not be in complete compliance. There are other things that need
    to be done, Senator Kohl, throughout the Old Executive Office
    Building, but it is a matter of taking care of fire/life and
    safety, ADA, and OSHA issues first, the primary priority
    projects first.

        White House Communications Agency Agreement With the White House

        Senator Kohl. Ms. Posey, can you explain the services
    provided under the memorandum of understanding between the
    White House Communications Agency and the White House Office?
        Ms. Posey. Yes, Senator; the White House Communications
    Agency provides audiovisual services for the President
    principally, and for the Vice President when they have an
    opportunity. Those are things like lighting and microphones at
    official events. They provide stenographic services and they
    also provide all kinds of things, even the podium that they
    call the Blue Goose, for the President when he goes to official
    events and speaks at official events.
        Senator Kohl. What are the costs associated with these
    services?
        Ms. Posey. In the White House budget for fiscal year 1999
    we are looking at $10.1 million for those particular services.
    Of course, this is when the President travels, not only in this
    country but outside of this country. The Africa trip was very,
    very interesting in that I understand in Uganda the White House
    Communications Agency was required to actually build an
    infrastructure for communication there.
        Now that is communication costs, which is something that is
    picked up by DOD. But the complexity of providing these types
    of equipment, audiovisual equipment for historical purposes,
    gets pretty harried sometimes when you go to countries that do
    not have the type of infrastructure and sophistication that
    other countries do.
        Senator Kohl. Last question. What is the bill payment
    procedure between the White House and the White House
    Communications Agency?
        Ms. Posey. On a monthly basis, the White House
    Communications Agency provides to the White House Office a
    specific bill that lists expenses category by category from
    audiovisual equipment, film, tape, whatever that is used. The
    White House goes over those to verify and validate the bills,
    and then it is prepared for reimbursement to WHCA, as we call
    it.
        In other situations, billings are presented to the White
    House Office and other EOP agencies on a quarterly basis.
    Because this is the first time that WHCA has--we are providing
    for these audiovisual services within the White House budget,
    as opposed to DOD, it was very important for us to place very
    strong management controls, in terms of billing and costs,
    within what we did. We need to make sure that all the
    procedures are followed with regard to billing and
    reimbursement. One of those things is to make sure that we have
    a monthly billing process, a monthly review process.
        Senator Kohl. Good. Thank you. Thank you, Mr. Chairman.

                              Submitted Questions

        Senator Campbell. I thank you, Ms. Posey, and your
    colleagues for appearing this morning. We will submit
    additional questions to be answered for the record. We have a
    vote on now so, with that, we will recess for 10 minutes and
    then take Mr. Gray's testimony. Thank you.
        [A brief recess was taken.]
        [The following questions were not asked at the hearing, but
    were submitted to the Office for response subsequent to the
    hearing:]
                    Questions Submitted by Senator Campbell
               logistics of private versus public legal activity
        Question. Does the White House have any role in determining whether
    or not a legal issue is private or public in nature?
        Answer. The vast majority of matters coming to the Office of White
    House Counsel are, on their face, purely official--e.g., legislation,
    ethics, legal policy, pardons, etc. As particular matters arise on
    which the advice of the White House Counsel's office is sought and
    which may relate to private, rather than official, responsibilities,
    Counsel to the President and the Deputy Counsels are responsible for
    determining whether the advice relates to the official functions of the
    person requesting it and can, therefore, appropriately be provided by
    the Counsel's Office. If the matter is personal, in whole or in part,
    Counsel's Office will so advise the person making the request and
    suggest that he or she retain private counsel to deal with any personal
    issues.
        Question. Can you tell us what the specific legal nexus is for the
    White House lawyers to be handling anything related to Ken Starr's
    investigation, which is private in nature?
        Answer. The allegations in the Lewinsky matter focused on the
    alleged conduct of the President during his tenure in office with
    respect to a White House employee. The Independent Counsel served the
    White House with subpoenas for the production of documents, made
    informal requests for information, and interviewed or required the
    testimony of more than 40 current and former White House employees. The
    Counsel's Office has been responsible for responding, on behalf of the
    White House, to these demands, for assisting White House personnel in
    responding to the OIC, and for determining whether the testimony sought
    from these personnel may implicate confidentiality concerns.
        The Counsel's Office has also been responsible for responding, and
    assisting other senior White House staff to respond to the many press
    inquiries that flowed from the OIC's investigation every day, including
    determining whether a response is appropriate and, if so, in what form,
    and collecting the information necessary to respond. Similarly,
    Counsel's Office has been responsible for advising and assisting the
    President in his dealings with the press on these issues. In these
    settings, and others relating to the operation of the Office of the
    President, it is the responsibility of the Counsel's Office to advise
    both the senior staff and the President, concerning the status of the
    investigation and any expected developments, and to help ensure that
    the President continues to be able to perform his duties effectively.
    Further, as is evident from the recent judicial decisions and
    pleadings, Counsel's Office must advise the President concerning issues
    relating to potential claims of governmental attorney-client and
    executive privileges, including litigation arising out of those claims.
        Question. It is my understanding that, according to the Counsel's
    office, there is only a small part of the staff devoted to issues
    relating to investigations, therefore, can you tell me their specific
    tasks and will you provide the subcommittee the supporting
    documentation?
        Answer. During 1997 and most of 1998, the Counsel's Office staff
    has been devoted to issues relating to investigations is headed by
    Special Counsel Lanny Breuer and has consisted of six (6) other lawyers
    and three (3) paralegals. The lawyers are generally responsible for
    responding to subpoenas and requests for documents and information from
    congressional committees, various independent counsels, and the
    Department of Justice, as well as from private parties who are in
    litigation against the White House. The paralegals assist the lawyers
    by conducting the necessary document searches, organizing and numbering
    the documents and preparing them for production, and otherwise
    gathering information for use in responding to requests.
        Typically, each lawyer is responsible for a particular matter or
    set of matters, encompassing dealings with particular investigating
    entities or, in the case of a more broad-ranging congressional
    investigation, particular subjects covered by that investigation. There
    are, however, frequently situations in which lawyers are assigned to
    other matters as the need for additional resources arises--e.g., new
    document searches that require expedited response. Under the
    supervision of Mr. Breuer, the lawyer generally has responsibility for
    communicating with the staff of the investigating entity, organizing
    the search for documents or the compilation of information requested by
    that entity, and producing the documents. The lawyer is also
    responsible for identifying issues of privilege or other legal issues
    that arise out of a request for information and for consulting with Mr.
    Breuer and with Mr. Ruff or Ms. Mills to determine whether a claim of
    privilege or some other legal action is appropriate.
        There is no formal documentation assigning these tasks to
    individual lawyers other than the routine correspondence between the
    investigating entity and a particular lawyer on the subject of the
    assignment or internal memoranda to and from lawyers reflecting
    substantive discussion of, and advice concerning, issues related to the
    assignment.
        Question. Is there a specific procedure in place, which all
    affected parties are fully aware of, which takes you through a step-by-
    step procedure for relaying a private legal matter to the President's
    private attorneys outside the White House?
        Answer. As indicated in the response to the first question,
    responsibility for identifying matters that are personal in nature and
    should be referred to private counsel rests with the Counsel and Deputy
    Counsels. No formal procedure is required for such referrals beyond
    informing the individual seeking advice, or his or her private counsel,
    that the Counsel's Office will not be able to provide assistance in the
    matter.
                               education of staff
        Question. Is there an employee handbook, which explains to staff
    the Office of Government Ethics' and other government regulations which
    spell out the ethical standards of official time and that official work
    only, not personal or non-official work, may be conducted on the clock?
        Answer. Human Resources provides the Executive Office of the
    President employees with a copy of the Standards of Ethical Conduct for
    Executive Branch Employees when they arrive. In addition, the White
    House has a staff manual which also addresses the ethical obligations
    of federal employees.
        Question. If there is a handbook, does it provide specific
    guidelines for how an employee is to handle the incoming information or
    inquiry if it is personal in nature?
        Answer. The Standards of Conduct provide guidance regarding
    employees' obligations regarding the performance of official, as
    opposed to non-official, activities.
        Question. Is there additional training or seminars that the
    Executive Office of the President and White House Counsel's office
    conduct in order to educate the staff on these matters?
        Answer. Yes. The Counsel's office conducts annual ethics training
    for White House employees as well as providing additional ethics
    briefings in response to requests from the various White House offices.
                                   year 2000
        Question. How far along is the White House with making its
    computers Year 2000 compliant?
        Answer. The status of our Year 2000 effort is as follows:
        A. An agency-wide status of the total number of mission-critical
    systems.

    Total number of mission-critical..................................    86
    Number compliant..................................................     1
    Number to be replaced.............................................    25
    Number to be repaired.............................................    30
    Number to be retired..............................................    30

    Note.--Of the mission critical systems, 39 percent are mainframe-based
    and the remaining 61 percent are desk-top based.

        B. The status of the mission-critical systems being repaired.

    ----------------------------------------------------------------------------------------------------------------
                                                             Milestones                      Percent completed
    ----------------------------------------------------------------------------------------------------------------
    Assessment...............................  April 1998............................  100 percent.
    Renovation...............................  December 1998.........................  .....................
    Validation...............................  March 1999............................  .....................
    Implementation...........................  March 1999............................  .....................
    ----------------------------------------------------------------------------------------------------------------

        There are two systems that are excluded from these milestones:
      --FAMIS: Federal Accounting Management Information System.
      --Document/Correspondence Management Systems used by:
        --Office of Presidential Correspondence
        --Office of Presidential Records
        --Office of Presidential Personnel
        C. Description of Progress.
        (1) Status of Mission Critical System.--On April 28, 1998, the EOP
    received the final assessment document from our Year 2000 assessment
    contractor. This document provided not only an enterprise assessment
    data base, but an identification of EOP wide mission critical systems.
    Per an ITMT meeting which occurred in March, a decision was made to
    concentrate in fiscal year 1998 on mainframe based infrastructure
    systems. This decision occurred because of two major concerns, severe
    budget constraints and the criticality of the mainframe systems to the
    continued operation of the EOP.
        Fiscal year 1998 budgets available for the replacement/renovation
    of systems are severely limited and few dollars remain to effect a
    complete renovation solution of these systems. We also have several
    mission critical systems such as payroll/personnel, financial
    management, security tracking etc. that reside on the mainframe and are
    written in legacy code such as Model 204, COBOL, etc. The remaining
    dollars in 1998 will be focused on the renovation of those systems.
        These mainframe systems have been identified and assessed in terms
    of their respective Year 2000 issues. Some of these mainframe systems,
    such as payroll and personnel, are being renovated in terms of their
    ranked priority and we will continue to do this, system by system,
    subject to funding.
        (2) Status of Non-Mission Critical Systems.--Non-mission critical
    systems have been identified and assessed. Due to budget constraints,
    non-mission critical systems will not be renovated prior to the receipt
    of the fiscal year 1999 budget. From a priority perspective, non-
    missions critical system renovations are scheduled to begin in mid to
    late fiscal year 1999, after the renovation of mission critical
    systems.
        (3) Data Exchanges.--Within the EOP, data exchanges have been
    identified as part of our Year 2000 assessment. Some of these data
    exchanges are in our payroll and personnel system, financial
    management, cabinet affairs network, and in MAX or the President's
    Budget system. We have identified two mechanisms to assure Year 2000
    compliance; these are: (1) Interagency Agreements; and (2) Year 2000
    check software. For payroll and personnel, etc., we have signed or are
    signing IAG's to ensure Year 2000 compliance. With respect to some
    other systems such as MAX, the Year 2000 assessment contractor has
    recommended the insertion of certain software code which will check
    external data for Year 2000 compliance. We are investigating the proper
    placement of this software at either the application level or as part
    of an enhanced firewall.
        (4) Contingency Planning.--In general, we are putting in place an
    interagency agreement (IAG) with an alternate facility to provide a
    backup or contingency to our test environment strategy. We are
    currently undergoing a mainframe vs. Enterprise server cost/benefit/
    risk analysis, and this activity will be completed in September. At
    this point, we will understand the target platform for our mission
    critical mainframe applications. Through the IAG, we will contract with
    this facility to provide a shadow configuration to our chosen platform,
    with appropriate communications.
        In addition, each application will have contingency plans
    identified at the system level. We have begun to meet with mission
    critical system owners to determine the main strategies and to
    formulate appropriate contingency plans. Such plans are tracked and
    driven by published schedules, enhanced by meetings, to gain consensus
    and understanding as events change or the schedule unfolds. For
    example, with the payroll/personnel system, we have weekly meetings to
    discuss key events. A contingency plan was in place throughout that
    implementation.
        Question. Are you focusing on the non-technology aspects of your
    Year 2000 problems, like elevators, etc?
        Answer. Yes. The General Services Administration (GSA) is the
    landlord for our building complex and is responsible for the
    maintenance and update of the buildings. They have assessed what is
    needed for the HVAC, utilities, elevators, etc., and are taking the
    steps necessary to implement any changes that might be needed.
        Although these systems are not our direct responsibility, we
    nonetheless monitor the progress of GSA in this matter. At the May 1998
    ITMT meeting, a representative from GSA reported that its Y2K efforts
    are progressing in a satisfactory and timely manner.
        Question. Do you anticipate that your fiscal year 1999 request will
    be sufficient to cover your Year 2000 costs?
        Answer. With proper and timely funding, we anticipate the fiscal
    year 1999 budget request to be sufficient to cover Year 2000 costs.
                             computer architecture
        Question. Last year, the conference report included language about
    your computer architecture and the need for its development, which your
    office submitted in late February. Can you provide us with an update on
    the architecture and how it is assisting in your computer management?
        Answer. The recently completed assessment of our software and
    hardware for Year 2000 compliance is now permitting further refinement
    of the ITA as a technology baseline. EOP has adopted a three-phase
    integrated strategic management approach. The first phase was the
    Strategic Analysis of EOP's environment, expectations, objectives,
    culture, and resources. This lead to the Strategic Choice phase, which
    generated options, evaluation of the options, and selection of a
    strategy--the Strategic Plan. The EOP Year 2000 Strategic Plan document
    was subsequently finalized by the ITMT in July 1998. The third, and
    current phase, is Strategy Implementation, which produces tactical
    plans for improving processes, upgrading or replacing technology, and
    developing the people resources required to move EOP ahead. The ITMT
    will assure that all system changes proposed in the EOP Strategic Plan
    and Budget submission truly support the strategic objectives of the
    EOP. The Team will also continue to provide oversight of the
    implementation of the new technologies to assure that they deliver the
    promised business improvements. The ITA is assisting us and is the
    guideline for these efforts.
                     government performance and results act
        Question. With respect to GPRA, or the Performance Act, do you have
    the technological capability of measuring and reporting program
    performance throughout the year on a regular basis, so each agency
    within EXOP can benchmark their performance against their goals?
        Answer. In its role as the provider of EOP administrative services,
    the Office of Administration since 1996 has compiled and distributed
    monthly performance statistics covering a range of OA services.
    Although OA is not covered by GPRA, our intention is to comply fully
    with the spirit of GPRA by continually refining and updating the
    performance measures. OA does not manage a GPRA effort for other
    agencies within the EOP.
        Our intention is to use performance measures as a management tool
    to aid agency staff in the allocation of agency resources, to ensure
    that OA services are responsive to customer concerns, and to focus
    management attention on the agency's effectiveness in achieving its
    objectives. We are working now to improve those measures, with our
    primary focus on measures regarding the effectiveness of the
    Information Systems and Technology division.
        Statistics currently collected include:
        Facilities: processing of alterations/repairs/moves; distribution
    of space allocation/rent bills.
        Financial Management: processing of travel vouchers, imprest fund
    claims, requisitions, and accounting transactions delivery of monthly
    accounting reports.
        General Services: delivery of interoffice mail, high-priority and
    courier, and certified mail, air express, and small packages; cost of
    print jobs; timeliness of composition/design graphics; office supply
    order fulfillment; timeliness procurement order timeliness.
        Human Resources: timeliness and accuracy of personnel transactions;
    timeliness of vacancy announcements, certificates.
        Information Systems and Technology: timeliness of help desk calls.
        Library/Research Svcs: timeliness of research services; timeliness
    of periodical processing; timeliness of book/CD-ROM processing
    interlibrary; loan request timeliness acquisitions of books,
    subscription renewals, dissemination of publications.
        Question. Does your office oversee the compliance to GPRA of all
    agencies within EXOP?
        Answer. OA does not manage a GPRA effort for other agencies within
    the EOP.
        Question. Through the development of the fiscal year 1999
    performance plan, what overlapping functions or program duplications
    were identified?
        Answer. We have not completed a plan for fiscal year 1999.
    Nevertheless, we are studying areas such as the costs of information
    management services from both the data center and the libraries to
    identify potential duplicative or superfluous funding. Teams of staff
    have also identified work process improvement projects to reduce costs
    or maximize the efficiencies in the print shops and the mailrooms.
        Question. Did those duplicative programs receive funding in the
    fiscal year 1999 request?
        Answer. The savings which have been identified (or are under study)
    are not separate line items in the fiscal year 1999 budget proposal,
    but rather small portions of the overall cost categories identified in
    the budget. Nevertheless, the cost for discontinued duplicative
    programs would not be incorporated into future budget requests.
                                     travel
        Question. The President's budget request anticipates a more
    demanding travel schedule in fiscal year 1999 and, therefore, requests
    an increase in funding for travel. Please detail the amount of travel
    costs/expenses incurred by the offices of the President and Vice
    President, respectively, over the past ten years. If information is not
    readily available on previous Administrations' travel, please provide
    only those travel costs incurred by the Office of the President and
    Vice President over the past six years.
        Answer.

    ----------------------------------------------------------------------------------------------------------------
                                                                              Fiscal year--
                                                    ----------------------------------------------------------------
                                                         1993         1994         1995         1996         1997
    ----------------------------------------------------------------------------------------------------------------
    White House Office.............................     $857,491     $910,541     $838,627     $826,684     $892,345
    Office of Vice President.......................      289,522      252,292      253,914      285,647      326,363
    ----------------------------------------------------------------------------------------------------------------

        Question. Please identify, for both the Office of the President and
    the Office of the Vice President, the various accounts used for
    official and campaign related travel (e.g. 21.0, 99.0). Please also
    provide the Subcommittee with a break down of those expenses related to
    official business from those related to campaign-related travel for the
    past ten or six years.
        Answer. The account used for official travel expenses is 21.0. ALL
    travel costs from this account are Official in nature. The WHO cannot
    and does not pay for any political-related expenditures with regard to
    travel costs.
        Question. How are travel expenses related to campaign activity
    reimbursed by the office of President and Vice President, respectively?
        Answer. The account used for official travel expenses is 21.0. ALL
    travel costs from this account are Official in nature. The WHO cannot
    and does not pay for any political-related expenditures with regard to
    travel costs.
        Question. How do requirements for travel differ for the President
    and the Vice President?
        Answer. We are not aware of differences with respect to the
    requirements governing Presidential and Vice Presidential travel.
        Question. What are the reimbursement requirements for campaign
    related travel? Are there written requirements with regard to how costs
    associated with campaign-related travel are paid? If so, please provide
    them with your response.
        Answer. The reimbursement requirements for campaign-related travel
    by a Presidential candidate are set forth in 11 C.F.R. Sec.  9004.7.
        Question. If a trip is both official business and campaign-related,
    how are costs allocated between official and campaign related
    activities?
        Answer. The requirements for allocating costs between campaign and
    non-campaign-related travel are set forth in 11 C.F.R. Sec.
    9004.7(b)(2).
                            NONDEPARTMENTAL WITNESS

    STATEMENT OF C. BOYDEN GRAY, WILMER, CUTLER &
                PICKERING, AND FORMER WHITE HOUSE COUNSEL
                TO PRESIDENT BUSH

                            Introduction of Witness

        Senator Campbell. The subcommittee will be back in order. I
    would like to welcome Mr. C. Boyden Gray, the former White
    House Counsel to President Bush. I have asked him here today to
    provide some perspective and insight into the general
    operations of the counsel's office, based on his past
    experience.
        Mr. Gray, thank you very much for coming. Did you have a
    statement?

                      Opening Statement of C. Boyden Gray

        Mr. Gray. I have a prepared statement, which you have,
    which I hope will be in the record.
        Senator Campbell. It will.
        Mr. Gray. I will just summarize it for a few minutes and
    then hopefully answer any questions you have.
        Sitting behind me is my former deputy, John Schmitz, so if
    you have any really truly difficult questions, I will be able
    to answer them with his help.
        Senator Campbell. Sitting behind me is my staff, who will
    also answer the difficult questions.

                      White House Counsel Responsibilities

        Mr. Gray. The job of White House Counsel is an absolutely
    terrific opportunity for any lawyer. One of my predecessors,
    Fred Fielding, said it is the best little law firm in town. I
    think that is a very accurate description.
        As for its obligations, I have set out in my statement, the
    five areas that we operated in. The first was the vetting of
    nominees, which you heard about a little bit this morning, both
    for cabinet level appointments and the second category for
    judicial nominations.
        In connection with the second category, working on judicial
    nominations, the Department of Justice, especially the Office
    of Legal Counsel in the Bush administration, provided most of
    the legwork for that. That is, most of the detail investigatory
    work. It was more of a management job from our perspective, and
    very, very important help came from the Department in that
    regard.
        The third category dealt with war powers. We had problems
    in the Philippines, obviously. We had Panama. And then of
    course, the gulf war. There were many other little operations
    that required our attention. I was chairman of a thing called
    the War Powers Group, which included officials from State,
    Defense, Treasury, and the Justice Department again, of course.
        This was quite, as you can well imagine, quite an active
    obligation during the 4 years.
        The fourth category had to do with separation of powers
    issues regarding the independent counsel statute, which is a
    well-known statute by now. Also, executive privilege, another
    very important area of topical concern. And issues involving
    vetoes, as well as the appointments power.
        The fifth category was just legal policy, legal issues that
    came up in the context of other disciplines, environment, labor
    law, regulatory policy, which was one of my personal interests
    when I worked for Vice President Bush in the Reagan
    administration. Those issues frequently involved questions of
    Presidential power and executive privilege, and so we did get
    involved from time to time in those areas. But most of these
    issues were organized or led out of different departments or
    different agencies within the White House Executive Office of
    the President.

      Commonsense View of Public and Private Activities of the Bush White
                             House Counsel's Office

        As my statement details, we had a fairly commonsensical
    view about the difference between representing the office and
    representing the person. We did not have detailed guidelines
    about it. It was fairly straightforward. We did not do taxwork.
    We did not do blind trust work for the first family.
        When investigations came along, which we did, we had our
    share to be sure--we do not like to talk about it, but we did--
    we tried to distinguish between representing the President in
    his official capacity, representing the Oval Office, and staff
    members in their individual capacity. When an investigation
    looked like it was steering away from looking at a staff member
    in his or her capacity as a potential witness into that
    person's potential liability as a target, we would tell them--
    with obviously great difficulty--we think you need to get your
    own attorney.
        Those were not always easy decisions to make, and they were
    even more difficult to convey to the individual involved, but
    of course we had to do it, both to meet our obligations to the
    President and to protect the individual involved. Our
    obligations were to the President and to the Government and we
    did not want, for example, to endanger any attorney-client
    privilege that the staff member might be entitled to.

                         White House Counsel Staff Size

        As for the size of our staff, it was fairly small. We had
    eight core staff and about six or seven detailees, which
    included ethics specialists who helped with the nominations
    especially in the first year of the Bush term. Listening to the
    testimony this morning, it appears that we had 8 compared to
    their 20, if you will, 8 core compared to their 20 core. And we
    had about 6 or 7 detailees compared to their 15.
        That is the way I can sort of understand the numbers. We
    were very reliant on the Office of Legal Counsel, as I said
    earlier, for both research work and for advice. I cannot
    imagine doing that job without the help of the Office of Legal
    Counsel. They were absolutely superb. They frequently said no,
    which is what a lawyer has to do sometimes. A no which we then
    conveyed to our client, our clients. But they were an
    absolutely indispensable part of the operation of our White
    House and the White House Counsel's Office that belonged to my
    predecessors.
        I do not know about the relationship between OLC and the
    current White House Counsel's Office, but it was indispensable
    to that office in years past.
        That ends what I would say, Mr. Chairman. I would be happy
    to answer any questions you might have.

                               Prepared Statement

        Senator Campbell. Thank you. We appreciate that. We will
    insert your complete statement in the hearing record.
        [The statement follows:]

                      Prepared Statement of C. Boyden Gray

        Mr. Chairman, I appreciate the opportunity to testify about
    the operations of the White House Counsel's office during the
    Bush Administration when I served as Counsel to President Bush.
    Before providing information about staffing levels, I would
    like to take a couple of minutes to give an overview of the
    duties of the office.
        During my tenure, we viewed the White House Counsel as
    having duties in five main areas. The first category was ethics
    and nomination clearances. With the assistance of the Office of
    Government Ethics (``OGE'') and the designated ethics officers
    (``DEO's'') of the Departments, we had the responsibility for
    coordinating compliance with the ethics obligations of the
    Executive Branch and for clearing nominations for Presidential
    appointments and senior White House Staff. This included
    processing both financial disclosure and FBI clearances, and we
    had responsibility for dealing with the FBI field
    investigations and the reports summarizing them. As you can
    probably imagine, this occupied most of my time and that of my
    staff in the first year of the Bush Administration.
        The second category was the related one of clearing
    nominees for the federal judiciary, including the Supreme
    Court. I served as Chairman of the Judicial Selection
    Committee, which consisted of representatives from the
    Department of Justice, which did most of the research, and the
    officers of the Chief of Staff, Legislative Affairs, and
    Intergovernmental Affairs (the small White House office that
    dealt with the governors and mayors). Unlike the Cabinet
    clearance process, judicial selection was an ongoing duty that
    never diminished in intensity over the four-year period.
        The third category encompassed issues relating the use of
    military force and the War Powers Resolution. I was Chairman of
    the so-called War Powers Group, which included representatives
    from the office of the Secretary of Defense, the Joint Chiefs,
    the State Department, the Justice Department and also the
    Treasury Department on occasion. This group was fairly active
    over the four years.
        The fourth category was a catchall designed to watch out
    for the prerogatives of the Executive Branch generally and the
    Oval Office specifically in the context of the Separation of
    Powers. This category included dealing with Executive
    Privilege, the Independent Counsel statute, and various
    legislative matters involving the interrelationship between
    Congress and the White House, such as enforcement of the Chadha
    decision, reviewing budget rescission issues, and addressing
    questions relating to vetoes and appointments.
        The fifth category included legal policy decisions where
    the lead was often taken by other offices within the Executive
    Branch or the White House itself, such as civil rights (usually
    lead by the Department of Justice or the EEOC), the
    environment, labor law (such as enforcement of the Beck
    decision regarding use of union dues for political purposes),
    and regulatory and administrative law generally (where the lead
    usually rested with OMB).
        There was, obviously, a great deal of interplay between the
    various categories. Regulatory issues, for example, frequently
    involved questions of Presidential authority, and on occasion
    also raised Executive Privilege issues, although President Bush
    actually invoked the Privilege only once in a procurement
    matter. Our backup at all times was the Office of Legal Counsel
    (``OLC'') in the Department of Justice, an extraordinary group
    of nonpartisan professionals who both provided the leg work for
    our efforts and gave us unfailingly independent advice. With
    our small staff, we simply could not have discharged our
    obligations to the President without the extensive backup, and
    institutional memory, of OLC. There were times when I wanted to
    strangle numerous OLC officials when they said no to something
    we wanted to do, but in retrospect I could not have done
    without their staffing or their good judgment.
        Now, what about the size of our lean staff? Beside myself
    and my Deputy, John Schmitz, we had five so-called commissioned
    officers, who automatically carried the title Associate
    Counsel, and one slot for a more junior assistant counsel. In
    addition, we had up to four detailees, that is, lawyers who
    worked full time for me but who were paid by other Departments.
    In other words, I had a maximum standing staff of twelve
    professional lawyers, including myself. In addition, of course,
    there were secretaries and clerical help for us and Jane
    Dannenhauer, who was the keeper of the FBI files and clearance
    process. Finally, especially during the very intensive initial
    1989 vetting of Presidential appointees, I had one or two
    highly dedicated agency ethics lawyers who would stay for three
    to six months to help with nominations.
        Questions have been raised over the years and especially
    recently about the dividing line between representing the
    Office and the President in his private capacity. We did not
    think twice about not doing private legal work for the first
    family. Their blind trust and tax returns, for example, were
    done by private counsel who occasionally consulted with us but
    never relied on us for any heavy lifting. Similarly, one of the
    son's issues with the S&L regulators was handled privately, as
    were a couple of ethical questions raised about private
    business matters.
        More difficult, of course, were issues arising out of
    investigations of official conduct, such as Iran Contra or
    Iraqgate. Our general rule was that investigations of
    institutional conduct of the Presidency could be addressed by
    us using taxpayer funds, but that if the investigation began to
    focus on an individual as a potential target rather than as a
    mere witness, we would advise the individual to get his or her
    own counsel. Where an investigation involved only a staff
    member without implicating the Presidency, we would recommend
    that the staff member seek private assistance. Decisions here
    were not always easy to make and were never easy to convey, but
    we felt we had to be careful both for the protection of the
    individual as well as for the limits of our staffing. For
    example, providing legal advice to a potential target could
    both compromise the target's attorney-client privilege as well
    as constitute an abuse of taxpayer funding.
        Also difficult was dealing with issues where our advice was
    not sought, or even, in some circumstances, was studiously
    avoided. There is an old saying that the only meetings the
    White House counsel has to attend are the ones he is not
    invited to. Accordingly, we always had to maintain enough
    flexibility to bird dog the end runs (to mix a couple of
    metaphors). My general advice to everyone was, ``If you are
    really having fun, then you'd better stop what you are doing.''
    I would like to think, for example, that we would have early on
    learned about and shut down the coffee fundraisers in the White
    House. The White House Counsel cannot spy on everything,
    obviously, but something as pervasive as the coffee program
    should not have gone unnoticed.
        It has recently come to my attention that the current White
    House Counsel's office has about three times the number of
    attorneys we had. Naturally I am curious about what they have
    been doing, given the fact that the First Family also has two
    very large and capable law firms on retention, that there do
    not appear to be any burning issues of legal policy pending in
    the agencies or in Congress, and that the investigation of
    White House fundraising was shut down. As someone who is
    interested in regulatory reform, I would take some comfort if
    some of these forty lawyers were assisting OMB in trying to
    achieve EPA compliance with the White House Executive Order on
    regulation. But it is not clear they are doing that, and I
    think the public is entitled to know generally what they are
    doing.

      Public Versus Private Activities in the Bush White House Counsel's
                                     Office

        Senator Campbell. While you were the White House Counsel
    for President Bush, was it possible to draw that fine line
    between the public versus private legal aspects, or was that
    somewhat realistic?
        Mr. Gray. No; I think we were able to draw it. I hope we
    did. I mean, someone could be critical, someone could question
    some of the judgments we made. But I never thought at the time
    that they were especially difficult to make, and I do not think
    we were criticized at any time for the decisions that we did
    make.
        Senator Campbell. During your tenure, were there any times
    in which there were civil lawsuits ongoing that had a tail over
    here in Congress, where you would have to respond to some
    congressional inquiries about those civil lawsuits?
        Mr. Gray. No; nothing like the Paula Jones case. The
    closest I think that you would come, that we came to this, was
    the litigation, some of it private and some of it of course
    governmental, involving one of the sons involved in the S&L
    crisis. That was something we had virtually nothing to do with.
    I was aware of it more from reading the papers than from any
    information from the family.
        It was something that was painful for me to have to avoid
    because one always wants to help, but it was something that I
    had to resist. And of course, I did not have the staff anyway,
    so it was not all that difficult.
        Senator Campbell. You said that you had, as you remember,
    about eight detailees from the agencies?
        Mr. Gray. Well, we had, as I understand it, about four
    permanent detailees that were reimbursable and then two to
    three that came on a 3- to 6-month basis that were not
    reimbursable. So six to seven.
        Senator Campbell. So the four there, their salaries were
    reimbursed by the White House to the agencies and the rest were
    not?
        Mr. Gray. That is correct.

        Internal Controls for Distinguishing Between Public and Private
                                   Activities

        Senator Campbell. In your opinion, what kind of internal
    controls or procedures should the White House have in place to
    more clearly define the private versus the public interest in
    the President's life or a President's tenure in office?
        Mr. Gray. Well, I do not know how you have controls if you
    do not know what, in fact, is happening or has happened. I am
    not aware of all of the details so it would be hard for me to
    give an opinion.
        Senator Campbell. We do not know and may never, but I was
    concerned a little bit that the Justice Department has tried to
    find in their rules that you cannot use taxpayers' money for
    attorneys' fees to defend in private lawsuits. I asked the
    former panel if they thought that would be objected to if we
    put that in statute. How would you view that? Do you think that
    ought to be statutory or just a rule?

       Skeptical of Statutory Attempt to Establish Internal Controls for
                                Counsel's Office

        Mr. Gray. As someone who has obviously worked in the White
    House, I am skeptical of trying to put too much in statutory
    language to micromanage what happens within the White House. I
    think that is a separation of powers problem potentially and I
    think you should be careful about that, in my humble opinion,
    even though of course I am from a different party.
        But sooner or later Republicans will get back in the White
    House and might perhaps regret that kind of micromanagement.
        I do, on the other hand however, think it is perfectly
    appropriate for you to ask questions about how the money is
    being spent. There may be objections to providing answers, but
    I was just struck listening here and thinking about it, 15
    detailees to do vetting. Maybe they are doing work that we had
    done by the Office of Legal Counsel for us, but I do not know
    what I would have done with 15 people. I would have spent most
    of my time managing them and not doing substantive work.
        So I am curious as to what all those 15 detailees were
    doing. We are way past the first year crunch of any
    administration when you have an avalanche of nominees to clear.
    The problem never goes away because people are constantly
    turning over, but the big crunch comes in the first year and it
    diminishes quite significantly thereafter.
        Senator Campbell. Do you remember if you had any procedures
    in place or any printed guidelines in your office to make sure
    those attorneys, whether they were detailees or not, were not
    handling private legal matters internally?
        Mr. Gray. Well, we had pretty good controls on what they
    were doing. We were constrained as to staff. There were things
    that everybody wanted to do that we could not do because we
    were so constrained, and I was--either I or John Schmitz--was
    pretty acutely aware of almost everything they were doing. They
    were not doing private legal work.
        We could not afford, given the time constraints.
        Senator Campbell. Did they report pretty much directly to
    Mr. Schmitz or to you?
        Mr. Gray. Yes; either. John did most of the managing of the
    core staff on judicial nominations. Lee Lieberman Otis, who is
    now a staffer here in the Senate, managed the judicial
    nomination process for me, not as a deputy but that was her
    responsibility.
        Senator Campbell. They reported to you and it was a smaller
    crowd, that is for sure. Did you make them aware of the need
    that they should not be involved in any private legal matters?
    Or was that just sort of accepted and everybody knew that.
        Mr. Gray. I think that was accepted. The only time I think
    the questions called for tricky legal judgment involved the
    first lady. She had a literacy project, as some of you are
    aware. She was very keen on that aspect of her charitable work.
    And we encouraged the hiring of a private lawyer to handle the
    legal affairs of those operations. I suppose that required some
    thought, but it was not like a big issue.

                              Executive Privilege

        Senator Campbell. During your tenure, did you ever get
    involved in the extent that we have now of using executive
    privilege for Secret Service, staff, or family members, or all
    of the other things that we are hearing about?
        Mr. Gray. Well, this has been in the press. A question of
    Secret Service privilege did come up in the context of the
    October Surprise investigation, which posited--the theory
    behind it was that somehow Candidate Bush, Vice President-Elect
    Bush, had flown to Paris to help complicate the hostage
    release. It was a very fanciful theory. To this day I still
    cannot believe so much money and time was spent tracking it
    down.
        At one point they even had him flying a Blackbird, CIA
    Blackbird back from Paris, since there were no----
        Senator Campbell. Himself?
        Mr. Gray. Himself, yes. He was a pilot, after all.
        Senator Campbell. President Bush was a pilot.
        Mr. Gray. He was a pilot. This was something he could do.
    They wanted to show that he had attended a meeting in Paris. We
    were able to show that, through the use of Secret Service logs
    which they did not want to release and we argued that they
    should be released, to prove that he was, in fact, having lunch
    with Justice Stewart's widow which, in fact, he was, and Dick
    Moore and some other people on that particular Sunday.
        We were able to convince the investigators that he could
    not have come back from Paris on the Concorde because it does
    not fly on Sunday. That was when the Blackbird entered into the
    debate. But we did release those records.
        The question of Secret Service privilege is a very tricky
    one. You certainly do not want the Secret Service protected
    from testifying about criminal activity. On the other hand, the
    President does need to have the confidence that they are not
    going to gossip about his family life or his private political
    views.

                  Bush and Clinton Counsel's Offices Compared

        Senator Campbell. Given your tenure in the White House, do
    you see any major differences of how the attorneys functioned
    during the Bush administration and how they are functioning
    now? I know you are not involved in the inner workings of it,
    but just from general observations of things you have read and
    seen?
        Mr. Gray. Well, I have two sort of general observations.
    One is they have a staff that appears to be nearly three times
    the size of ours, and they do not appear to be doing any of
    what I would call the fun things of the office, the fun legal
    policy issues that all of my staff loved to do, it is how I
    enticed them to come work for me, vetting judicial nominees or
    vetting cabinet nominees. Reading FBI files is not what anyone
    considers to be especially fun. That was the meat-and-potatoes
    work of the office.
        And if you got that done right, and you did not make
    mistakes and get embroiled in subsequent controversies, then
    you were able to work on civil rights or the environment or
    trade or other issues that involved legal issues that were more
    fun.
        I do not see this White House Counsel's staff's
    fingerprints on any of those fun legal policy issues. I think
    it is too bad for their own benefit. But it does raise the
    question well, if they are not doing that, what are they doing?
        For example, and this is a personal interest of mine, as I
    said earlier, regulatory reform. We did come in on a number of
    occasions to assist OMB and the Council of Economic Advisors to
    try to put the reins on some of the agency's more
    expansionistic tendencies, especially the Environmental
    Protection Agency.
        I see very little evidence of that today, and I do think
    the White House has a constitutional obligation to try to
    constrain the agencies from exceeding their authority. That is
    not something just the Senate does or something the House does
    or something the judiciary does. The White House has the same
    obligation.
        That was something that we enjoyed doing and I do not see
    the current White House Counsel's Office engaging in that
    activity.

          The Size of the Counsel's Office During the Bush and Reagan
                                Administrations

        Senator Campbell. You alluded to one of my questions, which
    was who is doing the work that they were originally hired to do
    in the agencies if they are not there? That has been a concern
    of mine and I do not think I ever got a definitive answer of
    who covers it while they are gone.
        But let me ask you one last question. You might not be
    qualified to answer this, but I was interested in the
    comparative number that the Reagan administration might have,
    the number of attorneys. Do you happen to know that?
        Mr. Gray. I do not but I think it is comparable to ours.
    There was a period, of course, during the peak of the Iran
    contra document discovery phase when the staff ballooned in
    size, maybe doubled in size, to deal with the document
    production which involved many, many agencies and a great deal
    of declassification work. It was a very difficult period.
        But the staff slimmed down after the brunt of that was
    done, maybe 6 or 8 months later. And when I came in, the
    transition, my predecessor, A.D. Colehouse, had a staff that
    was basically the size that I had, or I inherited from him
    basically the same size staff.
        Senator Campbell. I see. OK, thank you for appearing, Mr.
    Gray. I have no further questions, but, if I could submit them
    in writing. Some of the other members of the committee, who are
    not here this morning, may also have questions.
        Mr. Gray. I will be glad to answer any questions.

                              Subcommittee Recess

        Senator Campbell. We will keep the record open for 2 weeks,
    if there is anybody else that has any input that they would
    like to have inserted in the record.
        With that, I thank you very much for your appearance. This
    subcommittee is recessed.
        [Whereupon, at 10:45 a.m., Thursday, May 7, the
    subcommittee was recessed, to reconvene at 9:40 a.m., Thursday,
    May 14.]

         MATERIAL SUBMITTED SUBSEQUENT TO THE CONCLUSION OF THE HEARING

        [Clerk's note.--The following questions and answers were
    submitted to the House Appropriations Subcommittee on Treasury,
    Postal Service, and General Government to accompany the
    transcript from the March 12, 1998, hearing before that
    subcommittee. This information is included in the hearing
    record at the request of Senator Campbell.]
          Questions Submitted for the Record by Congressman Jim Kolbe
          use of general counsel for private defense of the president
        Question 1. Recent press articles have indicated that staff within
    the Executive Office of the President are being used in the defense of
    the President as it relates to the Independent Counsel's investigation.
    In testimony before this Subcommittee in fiscal year 1995, your
    predecessor indicated that ``no White House staff--specifically
    attorney's as it related to the Whitewater Investigation--were acting
    as lawyers for the President and First Lady where there is no official
    nexus.'' Is there an official nexus between Ken Starr's current
    investigation of the President in the matter of Monica Lewinsky as it
    relates to the President's constitutional, ceremonial or statutory
    responsibilities? Specifically define that nexus.
        Answer. Before responding to the Committee's specific questions, we
    want to make it clear that the lawyers in the Counsel's Office
    represent the President in his official capacity and the Office of the
    President. Any suggestion that the Counsel's Office represents the
    President in his personal capacity is false, and reliance on ``reports
    in the press'' to the contrary gives unwarranted credence to baseless
    speculation.
        First, the allegations in the Lewinsky matter focus on the alleged
    conduct of the President during his tenure in office with respect to a
    White House employee. The Independent Counsel has served the White
    House with subpoenas calling for the production of documents, has made
    informal requests for information, and has interviewed or required the
    testimony of some 40 current and former White House employees. The
    Counsel's Office is responsible for responding, on behalf of the White
    House, to these demands, for assisting White House personnel in
    responding to the OIC, and for determining whether the testimony sought
    from these personnel may implicate confidentiality concerns. Beyond
    these duties, the Counsel's Office is responsible for responding, and
    assisting other senior White House staff to respond, to the avalanche
    of press inquiries that flow from the OIC's investigation every day,
    including determining whether a response is appropriate and, if so, in
    what form, and collecting the information necessary to respond. Thus,
    the ``official nexus'' between the Independent Counsel's investigation
    and the constitutional, statutory and ceremonial responsibilities of
    the President and the Office of the President is obvious and
    undeniable.
        More importantly, investigations like this consume an extraordinary
    amount of public, press and political attention and, therefore, place a
    significant burden on the President's ability to perform his
    constitutional and statutory duties. To allow him to strike the
    appropriate balance in these circumstances, the President is entitled
    to the most knowledgeable, candid and expert advice attainable. His
    senior advisors, including the staff of the Counsel's Office, must
    address how the President can best meet all his official obligations
    while also dealing with the demands on his time that flow from the
    investigation. They must prepare him for the press questions that come
    with virtually every public appearance and formal press conference,
    including, for example, the inquiries during press conferences with
    foreign leaders. One need only look to the period immediately following
    the disclosure of the investigation to see the extent to which the
    press made such inquiries during the President's press conferences with
    Prime Minister Netanyahu, Prime Minister Blair, and Secretary General
    Annan.
        On the domestic front, less than one week after the disclosure of
    the investigation, it was the President's constitutional obligation to
    deliver the State of the Union Address, and his senior advisors,
    including the Counsel's Office, were required to advise him how, if at
    all, to deal with the issue in that setting. More broadly, in the
    legislative area, there have been any number of comments by leaders of
    both Houses, complaining about the adverse effect that the
    investigation is allegedly having on the business of the Congress--
    comments that highlight the interplay between the Lewinsky matter and
    the President's official duties. The senior staff of the White House
    must advise the President on how best to manage the legislative process
    in these, and other, circumstances.
        In all of these settings, and others, it is the responsibility of
    the Counsel's Office to advise both the senior staff and the President
    concerning the status of the investigation, its expected course, the
    demands it can be expected to place on him, and the legal implications
    of any staff proposals or presidential decisions. More specifically,
    with respect to the ongoing investigation, the Counsel's Office must
    advise the President concerning issues relating to potential
    governmental attorney-client and executive privileges.
        Question 2. Current law provides that funds may only be used for
    the ``official'' expenses of the White House Office. Are there
    procedures in place to enforce this requirement? Specifically, what are
    those procedures?
        Answer. The Counsel's Office devotes its resources to performing
    official functions, including the representation of the President in
    his official capacity and of the Office of the President. Thus, as is
    the case with other professional offices in the executive,
    congressional and judicial branches of government, no special
    procedures are necessary to ensure that funds are used for ``official''
    expenses.
        Question 3. When work comes in to the Counsel's office, is this
    work reviewed to determine whether it is official or personal? How is
    that determination made? Who makes it?
        Answer. Work assignments, apart from routine matters for which a
    particular lawyer is generally responsible--e.g., pardons, travel,
    nominations, ethics--are generally made by the Counsel or the Deputy
    Counsels, as those determinations are necessary.
        Question 4. How many current staff are within the office ``Counsel
    to the President''? How many of these staff are ``Counsel''? Within the
    White House Office, are there detailees from the Department of Justice?
    How many? How many serve as ``Counsel''? What are the specific
    responsibilities of the DOJ detailees?
        Answer. See Answer 2, Questions of Chairman Istook. See also,
    Exhibit 1.
        Question 5. In fiscal year 1994, the operating budget for the
    Office of General Counsel was $1,913,092. What is the fiscal year 1998
    operating budget for this office? What is the request for fiscal year
    1999? For the record, provide total obligations, expenditures and FTE
    for the White House Office for fiscal years 1995-1999. Request by
    department (e.g. Chief of Staff, Legislative Affairs, Counsel's Office,
    Public Liaison, etc.). Include a separate line for detailees
    (reimbursable and nonreimbursable) for each year.
        Answer. See Answer 2, Questions of Chairman Istook. With respect to
    the White House Counsel's Office, the anticipated number of employees
    and anticipated expenditures for fiscal year 1999 are not likely to
    change significantly from the two previous fiscal years.
        Question 6. How are workloads tracked within the Office of Counsel
    to the President'? Do the attorneys use something comparable to what is
    used in the private sector such as ``billable hours?''
        Answer. The White House Counsel and the Deputy Counsels assign work
    as the need arises and supervise the conduct of that work, either
    directly or, in the case of investigative matters and nominations,
    through intermediate supervisors. Since there are fewer than 20 lawyers
    on the regular staff of the Office, supervision is accomplished through
    regular personal contact with the lawyer involved, often daily or even
    more frequently. There is no need for staff to track the hours devoted
    to the tasks they perform as part of their official duties.
                   information technology architecture (ita)
        Question 7. Although the EOP has submitted an Information
    Technology Architecture (ITA) for the modernization of EOP's
    information resources, the ITA is still missing a great deal of detail.
    For instance, it is not clear if there are standard procedures in place
    to define each of the 11 EOP organization's technology requirements.
    Are there any such procedures in place? What are they? How have they
    been implemented? Who is responsible for implementing them?
        Answer. The EOP is currently employing procedures called for by
    Clinger-Cohen, OMB, and GAO in the conduct of our work. See Exhibit 10
    for an illustration of these procedures. We have begun work on the
    standards process and standards repository. We are collecting best
    practices for this process, looking at work done in other Federal
    agencies and researching materials we have gathered from the internet,
    GAO, GSA, and NIST. The final procedures/standards is targeted for
    adoption by July, 1998. Volume 2 on the figure will be an ITA
    Management and Implementation Plan. The procedures for updating the ITA
    will be spelled out in that companion document. Work has begun on
    developing the procedures, using small project teams. A description of
    the current teams can be found on page 1-7 of the ITA. The ITMT will
    have responsibility for overseeing the implementation of the new
    procedures.
        Question 8. How were the information requirements of the individual
    organizations within EOP determined and validated?
        Answer. The initial information requirements described in the ITA
    were determined through a comprehensive assessment completed in July,
    1997. They were documented in the Executive Office of the President
    Information Processing Requirements Document and related documents and
    inventories.
        We are currently in the process of completing an assessment of all
    of our software and hardware for Year 2000 compliance. The information
    gathered will permit a further refinement of the ITA ``as is''
    technology baseline. A comprehensive inventory of hardware, COTS, GOTS,
    and custom applications is part of the Y2K assessment. The Y2K team
    used the Requirements Document as the jumping off point for their
    inventory, hence, the inventory of requirements is being validated. The
    Information Technology Management Team will validate the final,
    combined inventory and will determine when and what systems can be
    added to the inventory, that is, the ITMT will fill the role of
    prioritizing the future application portfolio.
        Question 9. What process is in place to ensure that information
    requirements are being driven by EOP's overall strategic plan?
        Answer. EOP has adopted an integrated strategic management approach
    which is composed of three thrusts. The first is Strategic Analysis of
    EOP's environment, expectations, objectives, culture, and resources.
    This leads to Strategic Choice, which generates options, evaluation of
    the options, and selection of a strategy--the Strategic Plan. The third
    phase is Strategy Implementation, which produces tactical plans for
    improving processes, upgrading or replacing technology, and developing
    the people resources required to move EOP ahead. The ITMT will assure
    that all system changes proposed for the EOP Strategic Plan and Budget
    submission truly support the strategic objectives of the EOP. The Team
    will also provide oversight of the implementation of the new
    technologies to assure that they deliver the promised business
    improvements.
        Question 10. Are there specific procedures in place to prioritize
    individual projects? What are they?
        Answer. As mentioned above, the ITMT will prioritize projects
    across the EOP. Small efforts unique to a single agency will continue
    to be funded and managed by that agency. The ITA Management and
    Implementation Plan will contain procedures for submission of the
    agency-specific technology descriptions for inclusion in the overall
    EOP inventory database. The prioritization procedures mentioned in the
    previous questions are being documented and will be available shortly.
          information technology architecture--annual and total costs
        Question 11. In a letter to the Committee last year, you stated
    that the architecture would identify budgetary baselines. I am
    concerned because there is a noticeable lack of cost data included in
    the ITA submitted to the Committee on February 20th. I note that you
    provided a 5 year table on February 28th. The price tag of this
    modernization effort over the next 5 years is $39.3 million. Is this
    the total cost? How were these costs developed? Have they been
    validated?
        Answer. The estimated costs reflect the total investment portfolio
    needed to move the EOP from the current heterogeneous infrastructure
    with its myriad of systems to the planned architecture and
    infrastructure cited in the ITA with one exception. The costs that are
    excluded are those funds needed to upgrade the EOP's physical cable
    plant and communications infrastructure. This upgrade is required in
    order to support the future voice and data communications needs of the
    EOP. The reason for this particular exclusion is due to the fact that
    the buildings are owned by GSA. GSA is expected to forward a request
    for the communications and physical cable plant upgrade under a
    separate budget request.
        The costs were developed using historical procurement data,
    published contractor labor rates for the Washington, D.C. metropolitan
    area, informational vendor quotes, and industry standards for
    formulating Basis For Estimates (e.g. average cost per line of code).
        The costs for 1999 were validated first by establishing the initial
    baseline estimate, and second, by conducting an independent review of
    those data to verify the accuracy of the baseline. The data needed to
    begin the validation process for the Years 2000-2003 will become
    available upon conclusion of the Year 2000 assessment phase. The first
    step will be to validate the baseline estimate, then a second review
    will be performed to verify the baseline. The completion of the Year
    2000 assessment phase is targeted for the end of April, 1998.
        Question 12. It appears that the $12.2 million being requested for
    fiscal year 1999 is a compilation of projects recommended in the
    Logicon report. That report, by its own admission, was unable to
    validate the direct and indirect costs of individual systems. Does the
    ITMT act as an investment review board? Has the Information Technology
    Management Team reviewed and approved the individual projects proposed
    in the 1999 Capital Investment Plan? Did they validate the costs of the
    individual systems? For the record, provide any documentation on the
    review, approval and validation of individual systems and their costs.
        Answer. Yes. As required by its Charter, the ITMT approves new
    information technology investments and evaluates existing projects and
    operational systems to create an IT investment portfolio that best
    supports the EOP agencies' missions and program delivery processes.
        The ITMT discussed and reached a consensus on the ITA projects
    considered to be high priority, that is, those projects specified in
    the 1999 Capital Investment Plan. The reason for the identification of
    those specific projects is because they are considered to have the most
    significant impact on both the infrastructure and the Year 2000
    problem. The priority projects were agreed upon by the ITMT as being
    the critical efforts the EOP should focus its efforts on during fiscal
    year 1999 on December 18, 1997.
        Two cost validation efforts, one to establish the initial baseline
    estimate and one to validate the baseline, were conducted for the
    projects cited in the 1999 Capital Investment Plan.
        The first effort was conducted by the Office of Administration to
    establish the baseline estimate. Historical procurement data, published
    contractor labor rates for the Washington, D.C. metropolitan area,
    informational vendor quotes, and industry standards for formulating
    Basis For Estimates (e.g. average cost per line of code) were used to
    establish the initial baseline estimate for the 1999 Capital Investment
    Plan projects.
        The second cost validation effort was conducted by an independent
    contractor, James Martin Government Consulting. The results of the
    second cost validation cited a project total of $14.8 million (which
    included $1.8 million funded from the fiscal year 1998 Capital
    Investment Plan and $500K funded from the 1998 sustaining budget). The
    cost difference between the initial baseline and second validation
    effort was $300K, or 2.4 percent of the total amount estimated for 1999
    Capital Investment Plan. Therefore, the EOP anticipates a 97.6 percent
    accuracy rate in the costing data for the funds requested in the 1999
    Capital Investment Plan.
                    fiscal year 1999 capital investment plan
        Question 13. Your fiscal year 1999 request includes $6,986,000 for
    generic ``EOP Information Technology''. This is further defined as
    critical tasks necessary to assess, renovate or replace, and test
    mission critical applications. What are the specific projects
    associated with this request?
        Answer. The projects to be renovated consist of 85 Mission Critical
    Custom Applications and their associated hardware and software utilized
    by the Executive Office of the President agencies in performance of
    their daily mission and activities. Thirty-nine percent (39 percent) of
    these systems are mainframe based applications and consist of legacy
    applications written in COBOL, MODEL 204, etc. The remainder of the
    systems are more modern and desktop based.
        Question 14. Of this amount, $4.4 million is being requested for
    ``ADP Contract Labor''. This seems fairly high. How was this contractor
    selected and hired? Is it only one contractor? Are these costs fair and
    reasonable?
        Answer. Final contractor selection for the renovation and testing
    phases of the Y2K effort has not occurred. However, in September 1997,
    Northrop Grumman (NG) was competitively awarded a contract to act as
    the EOP's facilities management contractor with the responsibility for
    providing information technology support to the EOP. The competition
    was conducted under the Department of Transportation's ITOP Contract,
    and Northrop Grumman was selected as the offeror which provided the
    best value to the Government giving appropriate consideration to the
    factors of Technical, Past Performance and Price.
        As the EOP's facilities management contractor, Northrop Grumman
    (``NG'') has the responsibility for providing maintenance support for
    all hardware and software resident on the EOP computer systems. Should
    the EOP decide to fund NG to provide renovation services, it would be
    with the recognition that the software and hardware renovated by them
    would also be supported by them for the next three years. This should
    further incentivize them to ensure that the software and hardware were
    correctly modified given that the support of these systems would be
    their responsibility.
        We are also in the process of selecting an Independent Validation
    and Verification (IV&V) contractor to ensure that the renovated
    software works properly and testing results are in accordance with
    testing plans.
        Government estimates for the labor are based on rates in place for
    current information technology support contractors which are
    representative of labor expense in the Washington DC area. In addition,
    industry estimates for lines of code conversion/renovation were used to
    develop the labor hours required to support the renovation/conversion.
    Some of the EOP legacy systems utilize languages, such as Model 204 and
    Easytrieve that historically are more expensive to renovate or convert.
    In addition, the skill mix required for personnel are more difficult to
    procure; hence, higher rates.
        Question 15. The justification materials state that these projects
    are ``high priority''. What criteria are used to define a project as
    high or low priority?
        Answer. For the fiscal year 1999 Capital Investment Program,
    Critical Priority projects are those projects that have a Y2K
    implication. For example, these projects include the replacement of
    either hardware or software that is not Y2K compliant and cannot be
    made Y2K compliant. Custom applications, such as the Electronic
    Requisition System utilize non-Y2K compliant software, and the cost to
    bring the existing system to compliance would be more than acquiring a
    new Commercial Off the Shelf (COTS) package.
        Question 16. The Administration is also requesting $862,000 for
    ``information support tools for on the road/trip requirements''--
    basically portable computers and software used by the White House
    Communications Agency while on travel with the President. Why is this a
    priority replacement this year? If this equipment is not replaced this
    year, what are the impacts on WHCA? Would communications be hampered in
    fiscal year 1999?
        Answer. The computers and software that are currently being used
    were purchased 5 to 8 years ago. They are not Y2K compliant and cannot
    be economically upgraded to be Y2K compliant (286 generation
    technology). Cannibalization of parts to keep the equipment running
    began 2 years ago, and the original manufacturer (GRID Computers) has
    since ceased manufacturing replacement parts. As a result of the
    cannibalization, the inventory is decreasing and unless new equipment
    is purchased, the equipment will cease to function. We need 6-8 months
    to integrate new hardware and software into the trip packages and train
    personnel. The EOP will not be able to meet the OMB mandate for
    conversion of mission critical applications by 3/99 unless the funding
    for the On the Road/Trip Requirements is funded in fiscal year 1999. In
    addition, the software running on this equipment is not Y2K compliant.
    As we work to evolve to a Y2K compliant, common software environment,
    the software required for this project should be a subset of, and
    purchased with, the Common Software we are developing for deployment
    EOP-wide.
                            five year strategic plan
        Question 17. The ITA states that a 5 year ADP Strategic Plan is
    necessary to support the Capital Investment Plan yet this strategic
    plan is still in the development stage. What is the status of EOP's 5
    Year ADP Strategic Plan? Will this Strategic Plan identify, by fiscal
    year, the component pieces of the architecture?
        Answer. The EOP's Five Year Strategic Plan is under development.
    This strategic plan will in turn be incorporated as part of the ITA,
    and will tie to the levels identified in the initial submittal of the
    architecture. See also Answer 7.
        Question 18. Is there a five year ADP strategic plan that supports
    the request of $12.2 million for the fiscal year 1999 phase of EOP's
    modernization effort? What assurances do we have that the request to
    fund these specific projects fits in to the 5 Year Strategic Plan if
    that plan has not been developed?
        Answer. Detailed analysis has gone into the budget request for the
    $12.2 million for fiscal year 1999. The base document was the Roadmap
    document submitted to Congress in July of 1997. The base criteria for
    selection was either a project directly in support of our Y2K effort or
    critical to the support of our infrastructure. The projects included in
    the fiscal year 1999 request are not technologically complex; rather
    they are basic, simple projects such as Common Software which are
    critical to support an organization undergoing transition. These
    projects will be cornerstones of the five year strategic plan.
        Question 19. Absent a strategic plan, what factors went in to the
    sequencing of projects? In other words, how was it determined that some
    projects would be funded in fiscal year 1999 and that others would be
    delayed to the outyears?
        Answer. As discussed above, the base criteria for selection was
    either a project directly in support of our Y2K initiative or critical
    to the support of our infrastructure. By this criteria, only those
    projects that were the most critical such as Common Software, Help
    Desk, or Electronic Document Management strategy were selected. These
    are very basic projects, and not complex from a technology standpoint,
    but need to be in place as the building blocks for mission survival and
    the cornerstones for the next fiscal year's activities.
                  architectural compliance across eop agencies
        Question 20. In addition to the $12.2 million being requested
    through the Office of Administration, other EOP agencies are requesting
    funds for computer software and hardware--both upgrades and
    maintenance. In total, other agencies are requesting $1.5 million for
    these efforts in fiscal year 1999. Are these maintenance activities and
    upgrades consistent with the architectural blueprint?
        Answer. Yes.
        Question 21. Who ensures compliance with the architecture across
    the EOP?
        Answer. The Information Technology Management Team (ITMT).
        Question 22. Have these proposed equipment purchases--both upgrades
    and maintenance--been reviewed by the ITMT?
        Answer. Yes. On December 18, 1997, the ITMT discussed and reached a
    consensus on the ITA projects considered to be high priority. The
    reason for the identification of those specific high priority projects
    (which comprise the $12.2 million being requested) is because they are
    considered to have the highest impact on both the infrastructure and
    the Year 2000 problem. Since completion of the priority projects is
    essential to establish the foundation needed to implement Year 2000
    solutions while affecting critical infrastructure changes needed to
    stabilize the processing environment, the priority projects cited in
    the 1999 Capital Investment Plan were agreed upon by the ITMT as being
    the critical efforts the EOP should focus its efforts on during fiscal
    year 1999.
        Question 23. Why is the Vice President's office requesting funds
    for ``the next generation of technology'' outside of the appropriation
    for the Capital Investment Plan?
        Answer. The estimated cost under object class 31, equipment, allows
    for the 25 percent life-cycle replacement of old ADP equipment The 25
    percent replacement cycle per year is in keeping with the EOP's overall
    strategy to ensure the timely replacement of equipment that is not Year
    2000 compliant. The Office of the Vice President has over 100 Personal
    Computers (PCS). A 25 percent replacement cycle of 25 PCS per year is
    expected with an average acquisition cost of $2,800.00 per unit. The
    Office of the Vice President also has peripheral equipment that cannot
    support the TCP/IP standard protocol suite cited in ITA, Technical
    Reference Model (Appendix C, Section 1.10 Network Services). Therefore,
    replacement of the antiquated devices is essential to maintain network
    printing services for the OVP while the EOP implements the 1999 Capital
    Investment Plan projects.
                    year 2000--management oversight and cost
        Question 24. Even though the Y2K problem is one based on
    technology, making sure the computers get fixed in time is a management
    issue. As it specifically relates to the position ``Director, Office of
    Administration:'' What is your role in resolving Y2K problems in the
    EOP?
        Answer. The Program Manager for the EOP Year 2000 effort is the
    Deputy Director for Information Management. The program team, which
    consists of dedicated government personnel and contractors, has daily
    meetings and provides the Deputy Director with daily status reports
    which contain information on activities completed and activity planned
    for the following day. As the ultimate responsibility for Year 2000
    activities reside within the Office of Administration, the Director is
    kept informed, and provides direction in cross agency issues or
    problems. In addition, as the Chair of the Information Technology
    Management Team (ITMT), the Director provides the high level business
    strategy for the prioritization of OA systems, and holds the budget for
    the Year 2000 renovation and assessment.
        Question 25. How often, and with whom, do you review status
    reports?
        Answer. In addition to the above daily activities, weekly status
    reports are provided to the Director. The Director is also briefed
    prior to any major deliverable in the assessment schedule. Briefing
    parties may consist of the Deputy Director or the Y2K team itself.
        Question 26. Do these status reports provide you insight into which
    of your core business functions may be in jeopardy?
        Answer. Yes; the EOP is currently completing the assessment phase
    of its custom application programs. These reports have been valuable in
    providing information to the EOP about its enterprise, and have served
    to identify not only the physical inventory, but system owners and
    other critical system data. As the renovation efforts begin, we will
    continue to highlight areas of concern and success.
        Question 27. How confident are you that the EOP will be ready by
    OMB's date of March 1999 or by the time it is critical to EOP's
    operations -which may be before January 1, 2000?
        Answer. With proper funding levels, we are confident that the EOP
    mission critical systems will be operational by March of 1999.
        Question 28. Have you prioritized the systems supporting the EOP's
    mission and core business functions? Have you reviewed the renovation
    and/or replacement schedules to see if they are reasonable? Has the
    ITMT approved your priority list?
        Answer. The EOP prioritized the systems that support mission
    critical and core business functions at the March 31st meeting of the
    ITMT. Based on that prioritization, renovation/replacement schedules
    are being developed and will be reviewed with the ITMT for validation
    and reasonableness of schedule. The ITMT has approved the priority
    list.
        The EOP is currently completing the assessment phase of its custom
    application programs. These reports have been valuable in providing
    information to the EOP about its enterprise, and have served to
    identify not only the physical inventory, but system owners and other
    critical system data. As the renovation efforts begin, we will continue
    to highlight areas of concern and success.
        Question 29. What is the total estimate for Y2K for the EOP?
        Answer.

            Fiscal year                                                 Cost
    1996....................................................        $100,000
    1997....................................................         500,000
    1998....................................................       2,500,000
    1999....................................................      12,800,000
    2000....................................................         500,000
                        --------------------------------------------------------
                        ____________________________________________________
          Total.............................................      16,400,000

                                                  [Dollars in millions]
    ----------------------------------------------------------------------------------------------------------------
                                                                           Capital               Salary/
                          Fiscal year                        Contractor  investment  Deducated   benefits    Total
                                                               studies      plan      FTE \1\      cost       cost
    ----------------------------------------------------------------------------------------------------------------
    1996...................................................  ..........         N/A        0.8       $0.1       $0.1
    1997...................................................        $0.4         N/A        1.5         .1         .5
    1998...................................................  ..........        $2.0        6.0         .5        2.5
    1999...................................................  ..........        12.2        8.3         .6       12.8
    2000...................................................  ..........         0.3        4.0         .2         .5
                                                            --------------------------------------------------------
          Totals...........................................          .4        14.5        N/A        1.5       16.4
    ----------------------------------------------------------------------------------------------------------------
    \1\ ``FTE'' refers to the number of full-time-equivalent staff working on the Y2K issue during that fiscal year.

        Contractor studies refers to consulting contracts for Y2K-related
    studies funded from the Office of Administration current-services-level
    appropriation (instead of being funded through the Capital Investment
    Plan; it is anticipated that most, if not all, fiscal year 1998-fiscal
    year 2000 Y2K contract funding will emanate from the CIP). During
    fiscal year 1997, OA funded two studies from its current-services-level
    appropriation: (1) a $319,337 study to develop a proposed architectural
    blueprint--the first stepping-stone from which we have launched
    subsequent Y2K efforts; and (2) a $44,016 Y2K-related inventory of the
    EOP's commercial off-the-shelf software.
        Capital investment plan refers to the funds appropriated which
    provide ``for the modernization of the information technology
    architecture.'' The CIP exists for the first time in fiscal year 1998,
    with a funding level of $2.0 million; the EOP's request for fiscal year
    1999 is $12.2 million. Our plan is that all of these funds will be
    targeted directly to Y2K issues during fiscal year 1998 and fiscal year
    1999. Although we have not yet formulated our fiscal year 2000 budget
    request, our current expectation is for approximately $0.3 million
    during fiscal year 2000 for Y2K wrap-up of non-mission-critical
    systems. We do anticipate other fiscal year 2000 CIP needs unrelated to
    the Y2K issue.
        Dedicated FTE refers to the number of work-years from Information
    Systems and Technology and other OA staff who are working on Y2K
    issues.
        Estimated salary/benefits costs is an approximation of the cost to
    the government of staff time dedicated to the Y2K effort. The current
    funding allocated for IST staff is $3,171,902; with full staffing of 44
    persons, assuming a 4 percent vacancy rate gives an anticipated FTE of
    42.2. Thus, the average salaries/benefits cost is $75,164. Assuming the
    following numbers of staff dedicated to Y2K efforts per year, here are
    the specific cost estimates multiplying the dedicated FTE times the
    average salary/benefits of $75,164:
        Fiscal year 1996, 3 staff at 25 percent of their time (0.8 FTE);
    $60,131.
        Fiscal year 1997, 3 staff at 60 percent of their time (1.8 FTE);
    $135,295.
        Fiscal year 1998, 8 staff at 75 percent of their time (6.0 FTE);
    $450,984.
        Fiscal year 1999, 11 staff at 75 percent of their time (8.3 FTE);
    $623,861.
        Fiscal year 2000, 4 staff at 75 percent of their time (3.0 FTE);
    $225,492.
        Total cost is a summation of all known cost categories related to
    the Y2K effort.
        Note.--Section 43 of OMB Circular A-11 addresses ``Cost of the year
    2000 activities;'' it states, in part, ``Do not include obligations for
    upgrades or replacements that would otherwise occur as part of the
    normal system life cycle.''
        Question 30. What do you expect from the recently announced
    President's Council on the Year 2000? To date, what has your
    interaction with the Council been?
        Answer. The President's Council provides government-wide guidance
    to our Y2K initiative in much the same manner as the Council provides
    guidance other federal agencies. Since its inception in March, the
    Director and the Deputy Director have met with the head of the
    President's Council, and expect to continue our cooperative
    relationship and dialogue on a bi-monthly basis.
                        year 2000--``exchange partners''
        Question 31. Even if the EOP completes the renovation of
    application systems in its portfolio, the systems may not be operable
    because agreements on sharing data with processing partners both within
    and outside the Federal government may not be in place. If agencies
    cannot process each others data, then the business operations stop. Has
    the EOP identified its critical processing partners with whom it will
    exchange data information? Has the EOP signed any agreements with these
    partners regarding the exchange of data?
        Answer. The EOP is in the process of completing its custom
    application assessment, and as part of that process all critical
    processing partners and external interfaces will be identified.
    However, as part of this ongoing initiative, some critical partners
    have already been identified. One is the DOD Financial Accounting
    Center located in Pensacola, Florida; this is the entity which will
    process our payroll and personnel system. An interagency agreement
    (IAG) has already been signed.
        The second critical interface requirement already identified
    resides in the President's Budget System or MAX. While MAX has many
    components, the data entry piece or the A11 System has external
    interfaces to all Federal agencies, as this is the system which
    provides the mechanism to input budget data. As part of the renovation
    phase of MAX, language for an IAG will be included for dissemination to
    all user agencies.
        As the assessment phase within the EOP completes, part of the
    discovery will include the identification of all critical processing
    partners and external interfaces. Recommendations and/or remedies will
    be suggested for all identified.
        Question 32. How will the EOP ensure that erroneous data from
    outside systems do not contaminate your files?
        Answer. With respect to external interfaces, we are developing a
    solution which ties an enhanced firewall with Y2K software which will
    check for non-Y2K compliant data.
                       white house communications agency
        Question 33. The White House Communications Agency has been
    criticized for its lack of accountability and management problems. In
    order to establish some measure of accountability for the operations of
    this group, the Committee directed the White House to develop a system
    for verifying and tracking all reimbursements made to WHCA. Has the
    interagency agreement between the White House and WHCA allowing for
    reimbursable services been signed? Please provide a copy for the
    record.
        Answer. Yes. See Exhibit 8.
        Question 34. Have you signed a Memorandum of Understanding (MOU)
    outlining the categories of services to be provided by WHCA? Please
    provide a copy for the record.
        Answer. Yes. See Exhibit 9.
        Question 35. The budget justification materials include an estimate
    of $642,000 for capital improvements in fiscal year 1998 and a request
    of $785,000 for capital improvements in fiscal year 1999. Specifically,
    what are these capital improvements?
        Answer. Capital Improvements totaling $642,000, included in fiscal
    year 1998 budget submission: Audio/Video Equipment, $542,000; Photo
    Equipment, $100,000.
        Capital Improvements totaling $785,000, included in fiscal year
    1999 budget submission: Audio/Video Equipment, $731,000; Staging
    Equipment, $54,000.
        Question 36. For the record, describe the specific audio-visual
    services by category: Presidential Travel, Mission Support, and Photo
    Lab.
        Answer. Audio-Visual services by category:
    Presidential Travel (Presidential Audiovisual Events (PAE) Production)
      --Provides a PAE coordinator to oversee quality, planning and
            execution;
      --Audio/video recording of events for archiving/historical purposes;
      --Teleprompter;
      --Video recording/playback of news and other programs;
      --Audio feeds to White House Press Office and Press Filing Center;
      --Public Address support;
      --Lighting for Presidential events; and
      --Cable television distribution.
    Mission Support
      --Personnel training;
      --Facility leases;
      --Utilities; and
      --Facility maintenance.
    Photo Lab
      --Provides film processing of prints and mounts still black and white
            and color photographs.
                                     ______

     Questions Submitted for the Record by Congressman Robert L. Livingston
                     office of the counsel to the president
        Question 1. Could you provide a list of names and titles of all
    personnel employed by, or detailed or in any other manner attached to,
    the Executive Office of the President who are working on any matter
    involving an investigation by any component of the Department of
    Justice, or any Independent Counsel? For each employee, could you
    please state their salary and indicate whether such salaries are paid
    out of appropriations to the Executive Office of the President or other
    Department or Agency accounts.
        Answer. The following members of the Counsel's Office staff, all of
    whom are paid from EOP appropriations, currently spend some portion of
    their time on matters involving investigations by the Department of
    Justice or one or more Independent Counsel. In addition, the Counsel
    and Deputy Counsels are responsible for supervising this work, as they
    do all the work of the Office. Pursuant to the July 1, 1998 Report on
    White House Office Personnel, pursuant to Section 6, Public Law 103-
    270, the information is as follows:

    Special Counsel Lanny Breuer..................................  $107,500
    Associate Counsel Dimitri Nionakis............................    92,000
    Special Associate Counsel Sally Paxton........................    92,000
    Associate Counsel Michelle Peterson...........................    92,000
    Associate Counsel Karl Racine.................................    92,000
    Associate Counsel Michael Imbroscio...........................    75,000
    Paralegal Dimitra Doufekias...................................    33,000
    Paralegal Deborah Falk........................................    33,000
    Paralegal Erin Green..........................................    33,000
    Assistant/Paralegal Brian Smith...............................    33,000

        Question 2. Is any attorney in private practice retained by the
    President or the First Lady receiving any compensation from any
    component of the Federal government? If yes, could you please provide a
    listing of those receiving the compensation, the amount, and the
    services being compensated. Are any of the attorneys participating in a
    joint defense agreement?
        Answer. No.
        Question 3. Have persons employed by, or detailed or in any other
    manner attached to the Executive Office of the President consulted with
    the private attorneys retained by the President or the First Lady or
    their respective law firms? If yes, could you please list such
    consultations, including the date, time, duration and subject matter.
    Did the consultation take place on Federal property?
        Answer. See Answer 7, Questions for the Record, The Honorable
    Ernest Istook.
        Question 4. Are the salaries of volunteers in the Executive Office
    of the President, in whole or part, being paid by the law firm of any
    attorney retained by the President or the First Lady?
        Answer. No.
                                     ______

         Questions Submitted for the Record by Congressman Steny Hoyer
        Question 1. Can you provide for the Committee information on the
    following: number of personnel in the Legal Counsels' office; breakdown
    of lawyers and staff in the Legal Counsels' office; and, overall
    staffing of the Executive Office of the President broken down by
    office.
        Answer. See Exhibits 1 and 7.
        Question 2. What was the fiscal year 1996, fiscal year 1997, and
    fiscal year 1998 operating budget for the Counsels' office?
        Answer. See Answer 2, Questions for the Record, The Honorable
    Ernest Istook.
                                     ______

        Questions Submitted for the Record by Congressman Ernest Istook
                       office of the white house counsel
        Question 1. Please provide an organizational chart of the office of
    the White House Counsel. This chart should include: the names of all
    staff in the office of the White House Counsel; titles; job
    responsibilities; supervisors; where they are stationed; and lines of
    authority.
        Answer. See Exhibit 1.
        Question 2. Please provide a history of the staffing and expenses
    for the office of the White House Counsel, by fiscal year, since
    January 20, 1993, to the present, including the names of all people who
    have worked in the office of the White House Counsel; titles; job
    responsibilities; dates when working for the office of the White House
    Counsel; where they were stationed; and the total amount spent by the
    office of the White House Counsel for salaries and expenses. For
    expenses, please itemize the list.
        Answer. Most White House Office obligations and expenditures are
    made through a central account for the common support costs of WHO
    operations (e.g., telephone service; copier costs, etc.). Only those
    costs directly attributed to a particular office--such as salaries and
    travel costs--are generally allocated to specific offices within the
    White House Office.
        For the White House Counsel's Office, the current number of
    employees and the current expenditures for fiscal year 1998 are not
    significantly different from those of the two previous fiscal years.
    The following is a summary of the major categories of obligations and/
    or expenditures that are attributable to the Counsel's Office, by
    fiscal year:

    ----------------------------------------------------------------------------------------------------------------
                                                                                            Detailee       Travel
                  Fiscal year                  Number of       Personnel       Benefit    obligations/  obligations/
                                             employees \1\   expenditures   expenditures  expenditures  expenditures
    ----------------------------------------------------------------------------------------------------------------
    1994...................................           28        $1,464,706      $328,789       $85,213        $7,878
    1995...................................           29         1,829,950       423,500        38,274        11,259
    1996...................................           33         2,232,343       503,314       ( \3\ )         9,758

    1997...................................           32         2,193,468       497,844       ( \3\ )        14,553
    1998 \2\...............................           34         1,262,741       283,415       ( \3\ )        10,776
    ----------------------------------------------------------------------------------------------------------------
    \1\ Data calculated as of April 20th or thereabouts of each fiscal year.
    \2\ The fiscal year 1998 costs are those actual costs that have been incurred as of April 20, 1998. Note: The
      above costs have not been adjusted for inflation.
    \3\ Detailee obligations/expenditures are now made through a central account, and are no longer attributed to
      specific offices.

        For the individuals or positions in which individuals have served
    in the White House Counsel's Office, see Exhibits 2 & 3.
        Question 3. Please provide any opinions which have been written by
    or for the office of the White House Counsel which outline what is an
    acceptable activity when determining whether legal work is of an
    official or private nature.
        Answer. In 1994, at the time of the appointment of an independent
    counsel to investigate matters related to the President that preceded
    his term of office, the Counsel's Office reviewed the nature of its
    role in relation to such an investigation, though it did not prepare or
    publish a formal opinion. As is the case for every government legal
    office with respect to its agency and agency head, the role of the
    White House Counsel's Office is to provide legal representation to the
    White House and its many officers and employees in their official
    capacity. Consistent with the District of Columbia Rules of
    Professional Conduct, the Counsel's Office represents the White House
    acting through its ``duly authorized constituents''--its officers and
    employees. As the officer who directs the official activities of all
    White House officers and employees, the President is the ultimate
    ``client'' of the Counsel's Office. The President is ``client'',
    however, only in his official capacity as President. Thus, for matters
    that are entirely personal to the President for which he requires legal
    advice, he must retain private counsel, as would be the case for any
    other federal employee. Many matters, including independent counsel
    investigations, have both official and personal aspects that require
    the attention of both official and private lawyers. The Counsel's
    Office examines each issue as it arises to ensure that it addresses
    only those that relate to the performance of official duties of the
    President, White House officers and White House employees--that is,
    issues that have an official nexus.
        Question 4. What mechanism is in place for tracking the work of
    staff of the White House Counsel. Please describe how this mechanism
    works. Please provide a sample copy of the mechanism. Are there
    periodic work reports while tasks are underway? When tasks are
    finished? Please describe the periodic reports. Please provide a sample
    copy of a work report.
        Answer. See Answer, Question 4, Questions for the Record.
        Question 5. For the period beginning January 20, 1993, through the
    present, identify all individuals and/or witnesses whom your office has
    been involved in debriefing or interviewing regarding their actual or
    pending testimony before any Arkansas grand jury; Washington, DC, grand
    jury; or any California grand jury. For each individual and/or witness,
    please provide the following information: the date of the debriefing or
    interview; the location where the debriefing or inter-view took place;
    the person(s) present at the debriefing or interview; the general
    subject matter of the debriefing or interview.
        Answer. This question is identical to one put to the Office of
    White House Counsel by Chairman Burton of the Committee on Government
    Reform and Oversight. This question constitutes an inappropriate
    inquiry into the work of the Counsel's Office. It is entirely proper
    for lawyers--in the public or private sector--to speak with witnesses,
    or their counsel, both before and after their testimony, whether before
    a congressional committee or any other investigative body. Indeed, that
    practice is universally recognized to be a necessary part of any
    lawyer's effective representation of his client, and has been followed
    by Counsel to Republican and Democratic Presidents. Moreover, the
    Independent Counsel, the Justice Department, and, indeed, the
    investigating committees of the Congress have been fully apprised of
    the fact that Counsel's Office speaks with witnesses and their lawyers.
        To begin with, as a rule, all government employees look first to
    agency counsel for representation in matters related to their official
    duties. Where such representation is not available, either because a
    congressional committee has decided that it will not permit White House
    Counsel to represent the employee, or because preliminary discussion
    with the employee suggests that there may be some ethical or legal
    impediment to the representation, or because the employee chooses not
    to be represented by the Counsel's Office, it is the duty of White
    House Counsel to assist the employee to secure personal counsel if the
    employee wishes that assistance.
        Discussion with a witness or a witness's counsel may then occur in
    any number of different settings, all of which are typically treated as
    confidential. Of course, where the Counsel's Office represents an
    employee-witness, we have the same discussions that would occur in any
    attorney-client relationship. Where an employee or former employee is
    represented by private counsel, Counsel's Office typically begins by
    determining whether the witness's testimony may give rise to special
    confidentiality or privilege concerns and whether the witness has, or
    knows of the existence of, documents that have been subpoenaed.
    Counsel's Office must then communicate to the witness's counsel,
    especially when a representative of the Office is not permitted to be
    present for the testimony, whatever guidance may be necessary on issues
    of privilege. In addition, counsel for a witness, particularly if the
    witness is a current or former employee, often will speak with us in
    order to obtain information to ensure his client is fully prepared.
    Finally, we often speak with either the witness or counsel, or both,
    after the witness has testified for the purpose of gathering the
    information necessary to represent our client, the Office of the
    President.
        Beyond the aforementioned concerns, it would be virtually
    impossible to respond to the Committee's request. There are no records
    that would reflect all contacts with witnesses or their counsel during
    the five-plus years and in the multiple forums covered by the request.
    Moreover, a search for any records that did exist would be
    extraordinarily difficult and time consuming. Nonetheless, to the
    extent that it may be relevant to the Committee's concerns to have on
    the record a formal statement that Counsel's Office has spoken, and
    continues to speak, with witnesses or their lawyers during the period
    January 1993 to the present, this will serve as our acknowledgment of
    that practice, as described above.
        Question 6. For the period beginning January 20, 1993, through the
    present, identify all individuals with whom the White House has a joint
    defense agreement. For each such individual, please provide the
    following information: the date of the agreement; the parties to the
    agreement; the general subject matter covered by the agreement; the
    reason necessitating that the White House enter into this agreement.
        Answer. We know of no such agreements.
        Question 7. For the period January 1, 1994, through the present,
    please provide the Committee with a log of all attorney work product,
    including, but not limited to, letter and memoranda, produced by any
    White House attorney and shared with David Kendall, Robert Bennett, or
    any other personal attorney representing the President or First Lady.
    Regarding any such document, please provide the following information:
    the author(s) of the document; the date the document was created; the
    recipient(s) of the document; a description of the general subject
    matter discussed in the document; the reason necessitating that the
    White House share this work product with non-governmental attorneys.
        Answer. Again, this question is identical to one put to the Office
    of White House Counsel by Chairman Burton.
        This inquiry appears to seek information unrelated to the
    appropriations process. Moreover, it would be extremely difficult and
    unreasonably burdensome to identify and collect the materials outlined
    in the question.
        To carry out its duties, Counsel's Office is in regular contact
    with the President's personal counsel to discuss matters in which the
    President's official responsibilities intersect with his
    responsibilities to address any private litigation in which he may be
    involved. Any listing of the sort the Committee seeks would, of
    necessity, implicate confidential communications among lawyers who
    represent the private and official interests of the very same client.
        For example, in the midst of civil litigation like Jones v.
    Clinton, it would be of considerable interest to plaintiff's counsel to
    learn when Mr. Bennett and White House Counsel communicated and on what
    subjects. Putting aside the confidentiality interests the Counsel's
    Office must protect, such a disclosure would impinge directly on the
    President's personal attorney-client privilege and on his attorney's
    work product.
        So that the record is clear, though, let us state again that the
    Counsel's Office does not represent the President in his personal
    capacity. The work product that the Office creates is in fulfillment of
    our responsibility to advise the President in his official capacity.
    The Office's communications with the President's private counsel,
    including the transmission of any work product, are for the purpose of
    addressing the common interests that underlie the representation of a
    unique client--one whose constitutionally assigned duties are daily
    affected by the burdens of personal litigation.
        Question 8. Please list all non-governmental attorneys hired since
    January 1, 1994, for the purpose of assisting your office with issues
    regarding assertions of executive, attorney-client, attorney work
    product, spousal, or other privilege the White House has asserted or
    may assert. For each such individual, please provide the following
    information: the name of the attorney's law firm; the date the
    attorney(s) were hired; the compensation rate of the attorney; the
    amount paid to date to outside attorneys assisting in such matters.
        Answer. This question is also identical to one put to the Office of
    White House Counsel by Chairman Burton. The information is as follows:
        a. W. Neil Eggleston, Howrey & Simon, was appointed a special
    government employee in August, 1995, and more recently on February 18,
    1998. Because counsel is retained by the Department of Justice on
    behalf of the White House, all matters regarding compensation are
    handled by the Department.
        b. Andrew Frey, Mayer, Brown & Platt, was appointed a special
    government employee in September, 1996. Because counsel is retained by
    the Department of Justice on behalf of the White House, all matters
    regarding compensation are handled by the Department.
        Question 9. Please provide the names of any nongovernmental
    attorney hired to assist your office responding to any matter under
    investigation by the Department of Justice or Independent Counsel. For
    each such individual, please provide the following information: the
    name of the attorney's law firm; the date the attorney(s) were hired;
    the compensation rate of the attorney; the amount paid to date to
    outside attorneys assisting in such matters; the general subject matter
    upon which any such attorney worked.
        Answer. This question is also identical to one put to the Office of
    White House Counsel by Chairman Burton.
        There are no attorneys responsive to this question other than those
    listed in response to the preceding question.
        Question 10. Please provide a copy of talking points, memos,
    minutes of meetings, and E-mail used to prepare Ms. Posey for questions
    about the use of the White House Counsel.
        Answer. See Exhibit 4.
                previous information compiled by the white house
        Question 11. A December 13, 1994 ``Task List'' memo created by Jane
    Sherburne lists several items which could be questionable expenditures
    of federal funds. To be fully informed as to why the White House
    expended taxpayer funds to create these documents, I request the
    ``binder with summary and key documents'' for the following items from
    the December 13, 1994 memo: Cisneros, Brown, Hubbell, Ickes,
    Stephanopoulos, State Department (passport file), Archives (abuse of
    personnel systems), SBA (improper electioneering), GSA (Roger Johnson),
    FEC Audit, PIC surplus, Mena Airport, ADFA, Use by Governor Clinton of
    loans to further legislative initiatives, Commodities, Paula Jones,
    Troopers.
        Answer. During the course of various congressional and other
    investigations regarding the entities, individuals, and topics
    described above, the Counsel's Office undoubtedly has had occasion to
    create, receive and produce materials related to some of these areas.
    We are not aware, however, that Ms. Sherburne, or any other member of
    the Counsel's Office, created any ``binder'' or ``key documents'' for
    her task list. Rather, it is our understanding that Ms. Sherburne's
    task list was generated based upon newspaper and other media accounts.
        Question 12. For the above question, please include the following
    information: who created the documents; when they were created; has the
    White House shared this information with anyone? If so, who? When? The
    reason necessitating that the White House compile this information?
        Answer. See Answer to Question 11, immediately above.
        Question 13. The same December 13, 1994 memo lists, under item No.
    21, ``interview Kendall/review Kendall documents.'' Please provide a
    copy of this interview and related documents.
        Answer. See Answer to Question 11, above.
            administration of the executive office of the president
        Question 14. Please provide a breakdown of the funding, since
    January 20, 1993, for the White House Office (WHO) for salaries and
    expenses by fiscal year. This list should breakout each of the WHO
    offices (White House Counsel, Legislative Affairs, etc.) including the
    number of FTE, volunteers, and detailees in each of the WHO offices.
        Answer. See Exhibit 5.
        Question 15. Please provide a breakdown of the number of detailees,
    since January 20, 1993, within the White House Office by fiscal year.
    This list should include the following information: the supplying
    agency; where the detailees were stationed; their title; the length of
    time they were detailed to the WHO; who they worked for in the WHO
    (White House Counsel, Legislative Affairs, etc.).
        Answer. See Exhibit 3.
        Question 16. What contracts in excess of $100,000 has the Executive
    Office of the President entered into since January 20, 1993? This list
    should include the following information: the name of the contracting
    individual/company; the purpose of the contract; the duration of the
    contract; the size, in dollars, of the contract.
        Answer. See Exhibit 6.
        Question 17. The White House IS&T office has the task of keeping
    all electronic records within the White House due to the Armstrong
    case. Please describe the situation created by the Armstrong case in
    the White House IS&T office. Since the Armstrong case began, what has
    the White House expended on this electronic record keeping? How many
    electronic storage tapes has the White House accumulated since the
    Armstrong case began? How many storage tapes does the White House fill
    up per day? What is the cost per storage tape? It is my understanding
    that in the future the cost of storage tapes will increase. If so, to
    what amount? It is my understanding that the White House has reached an
    agreement to begin transferring these storage tapes to the National
    Archives. Please describe this agreement. At what rate is the White
    House able to convert data to be able to transfer it to the National
    Archives? At this rate, when will the White House totally convert the
    backlog of tapes stored within the IS&T office?
        Answer. The Armstrong Court mandated that the Executive Office of
    the President (EOP) establish an automated records management system to
    preserve all electronic mail records and electronic communications
    (such as Internet mail). IS&T initially spent approximately 18 months
    developing the Automated Records Management System (ARMS) to perform
    this function.
        Subsequently, IS&T expended another 6 months developing an
    interface between ARMS and the EOP's new E-mail platform, Lotus NOTES.
    The EOP generates approximately 250,000 electronic records each month.
    All of these records are collected and managed by the ARMS system and
    have been kept on-line since July 14, 1994.
    White House Expenditures for Electronic Record-Keeping Since Armstrong
        Since July 1994, the EOP has expended $8,108,956 in equipment,
    contractor services, space, communications, utilities and supplies to
    implement the Armstrong mandate. Salaries for government personnel
    supporting this effort exceed $1,400,000, and have been paid for by the
    EOP's sustaining budget. In addition, the EOP anticipates having to
    procure new computer hardware before the end of the Administration. The
    current hardware configurations used to support this effort were
    purchased between 1990 and 1993, and failures of the older equipment or
    the equipment's monthly maintenance will become so excessive that the
    EOP will be forced to purchase new hardware to replace these aging and
    much-used systems.
    Number of Stored Electronic Tapes Since Armstrong
        The EOP IS&T office has 25,850 tapes stored either at the IS&T Data
    Center or at an off-site facility. These tapes have an average shelf
    life between 4 and 7 years. To ensure that the tapes remain useable,
    the EOP conducts an annual sample survey of 384 tapes.
    Storage Tapes Usage
        The ARMS system is currently generating approximately 130 tapes per
    week, averaging 20 per day. Historically, since 1994 the EOP has seen a
    700 percent increase in the number of tapes created each week.
        Weekly Tapes Created for ARMS: 1994, 18 per week; 1995, 25 per
    week; 1996, 46 per week; 1997, 81 per week; and 1998, 130 per week--
    Estimate EOP will purchase 6,760 tapes for 1998.
        Projections based on current growth factors: 1999--180 per week,
    9,360 for the year; and 2000--249 per week, 12,948 tapes for the year.
    Current storage costs
        Current storage costs are estimated at $20,280. In addition,
    storage of these tapes will require more tape racks which will require
    additional floor space (at $55/sq. ft.) for an additional expense of
    approximately $5,000/year. As the tape volume increases, additional
    manpower will be required to handle the creation of storage of these
    tapes (estimated to be an additional FTE at an expense of $50-60,000
    per year).
    Future storage costs
        With the growth in the volume of electronic mail and the quantity
    of servers required to support the E-mail and electronic correspondence
    systems, the EOP anticipates having to use faster and larger tapes to
    handle the increase in volume. The new tapes will hold 9 gigabytes of
    data each, and cost $80-90 each depending on the quantity purchased. If
    we migrate to the new tape drives are purchased at an anticipated cost
    of $15,000, it will still cost the EOP $18,720 for tapes at $90.00
    each.
    National Archives Agreement
        The EOP has an agreement with NARA for the reconstruction of
    electronic records from November 1991 to July 1994. Reconstruction of
    these records, which are stored on 15,500 tapes, has recently been
    initiated, and the EOP will proceed with reconstructing the records and
    producing tapes for NARA for electronic mail for the older E-mail
    system (All-in-One) that was used during this time frame. This project
    is expected to be completed in early 1999.
        The EOP does not have an agreement in place with NARA for the
    transfer of ARMS tapes representing the period July 14, 1994 to the
    present. The ARMS system produces tapes that conform to the letter of
    the NARA regulations, and NARA can both read and understand them.
    However, negotiations continue with NARA over technical aspects of the
    contents of these tapes and until such time as NARA and the EOP can
    agree, the EOP continues to produce tapes daily. The inventory of tapes
    is in excess of 10,000 for the ARMS electronic records. At the end of
    the Administration, we expect to deliver tapes to NARA. However, if
    NARA delays or changes the tape formats, the EOP will not be able to
    deliver the approximately 40,000 tapes we expect to produce.
    Conversion Rate of Data for National Archives
        The EOP can only transfer data to the National Archives at the end
    of an Administration in the case of a single term, or at the end of the
    second term. For example, NARA will not accept any Clinton
    Administration material at this time.
        As stated previously the EOP is reconstructing electronic mail
    records for the period 11/91 to 7/94 and will deliver tapes covering
    the period 11/91 to 1/93.
    Anticipated Completion of Conversion of Backlog Tapes
        If NARA requires the EOP to reformat the ARMS tapes, another
    significant reconstruction project will have to be implemented. To
    convert the existing 10,000 tapes and produce new tapes will require
    new software and operations staff to conduct the reformatting and
    production of new tapes. EOP estimates that it will take approximately
    18 months to reconstruct and generate the tapes for the period 7/94 to
    1/98. The longer NARA delays in establishing a new acceptable format,
    the larger the reconstruction process will be. Since the EOP's
    historical data shows a 38 percent increase between 1997 and 1998, if
    one were to project the same 38 percent growth, by the year 2000 we
    will produce almost 13,000 tapes.
                           white house counsel office
        Question 18. Do any of the following people have workstations,
    office space, or administrative support, within the Executive Office of
    the President, including the White House: Robert Bennett, Mickey
    Kantor, David Kendall, Harry Thomason, James Carvell, Harold Ickes. If
    so, what federal government interest is served by this?
        Answer. No.
                  ira magaziner/health care task force lawsuit
        Question 19. During the Health Care Task Force, (HCTF) White House
    lawyers engaged in deceptive and misleading characterizations of the
    people staffing the HTCF. Please provide the following information: a
    list of all White House attorneys who prepared the briefs filed in the
    HCTF case, by brief filed. If these lawyers are still employed within
    the EOP, where are they employed?
        Answer. The Department of Justice represented the White House
    Office in this litigation; hence, attorneys from the Department, and
    not the White House, filed all of the briefs in this matter.
                                     ______

      Questions Submitted for the Record by Congresswoman Anne M. Northup
                              white house interns
        Question 1. How many interns are accepted on staff at any one time?
    How many are paid? How many are volunteers?
        Answer. The White House Intern Program typically has more than 200
    interns each session. All interns are volunteers and thus are not
    compensated for their service.
        Question 2. During the past 4 years, how many interns have
    investigated full time positions at the White House?
        Answer. We do not know the number of interns who have sought full-
    time positions at the White House because the Intern Office does not
    track that type of information.
        Question 3. During the past 4 years, how many of these interns were
    successful in acquiring full time positions in the White House?
        Answer. Informal surveys show that it is not uncommon for support
    staff positions to be filled by former White House interns. The White
    House does not systematically track information on the number of
    interns who gain full-time employment at the White House; thus, we do
    not know the number of current White House staff members who have also
    served as interns.
                              white house protocol
        Question 4. Does the White House have an employee handbook?
        Answer. Yes.
        Question 5. Is there a section on employee fraternization, dating
    and/or sexual harassment? If not, are there regular federal employee
    procedures in effect?
        Answer. The White House Office Staff Manual, most recently re-
    issued in 1997, includes information about the White House Office's
    policy on discrimination and sexual harassment. This information
    summarizes the EOP's ``Sexual Harassment Prevention Policy'' that was
    published by the Assistant to the President for Management and
    Administration in October of 1995. Additionally, the EOP's Office of
    Administration's Human Resources Management Division distributes a
    booklet entitled ``Preventing and Addressing Sexual harassment.''
    Finally, periodic training sessions on this topic have been held for
    EOP employees.
        Question 6. Is there a regular employee evaluation for paid staff.
    After joining the staff, when does first evaluation take place?
        Answer. While many managers and supervisors elect to provide
    regular evaluations for their staff, under Title 3 of the United States
    Code, the White House Office is not required to perform regularly
    scheduled evaluations for staff members.
        Question 7. The President of NOW has called on all elected federal
    officials to sign a form committing to personally restraining
    themselves and all employees from having a sexual relationship with
    interns. Do you expect the White House to sign that form?
        Answer. We have not yet had occasion to review or consider the
    aforementioned proposal.
                                   year 2000
        Question 8. Now that the EOP has an information technology
    architecture, what is the projected time frame for when the EOP
    computer systems will be prepared for the year 2000?
        Answer. All mission critical systems are expected to be operational
    by March 31, 1999.
                      information technology architecture
        Question 9. Prior to 1997 each EOP agency acted independently in
    procuring information technology without considering redundancy,
    interchange ability or support requirements. Funding has been fenced
    until an architectural blueprint was submitted. The blueprint was
    submitted in February 1998. What type of information is included in
    this new system?
        Answer. The initial EOP architecture, or roadmap document, was
    first submitted in July of 1997. The EOP Information Technology
    Architecture model refined and submitted in February of 1998, provides
    a comprehensive description of the current technical infrastructure
    that supports information processing of the EOP. In addition, it
    provides a future technical infrastructure that reflects current and
    emerging user requirements, as well as provides a recommended path or
    ``roadmap'' for getting from the current technical infrastructure to
    the future technical architecture.
        Question 10. Is all of the information available on the system
    available to all personnel?
        Answer. A copy of all architecture information is available to all
    EOP personnel.
                  government performance and result act (gpra)
        Question 11. What measures has the EOP taken to ensure that the EOP
    is operating efficiency and effectively?
        Answer. In its role as the provider of EOP administrative services,
    the Office of Administration (OA) has compiled and distributed monthly
    performance statistics covering a range of its services since 1996.
    Although OA is not covered by GPRA, our intent is to comply fully with
    the spirit of GPRA by continually refining and updating the performance
    measures. We intend to use performance measures as a management tool to
    aid agency staff in the allocation of agency resources, to ensure that
    OA services are responsive to customer concerns, and to focus
    management attention on the agency's effectiveness in achieving its
    objectives.
        Statistics currently collected include:
        Facilities: processing of alterations/repairs/moves; distribution
    of space allocation/rent bills.
        Financial Management: processing of travel vouchers, imprest fund
    claims, requisitions, and accounting transactions; delivery of monthly
    accounting reports and financial analyses.
        General Services: delivery of interoffice mail; delivery of high-
    priority ``red tag'' and courier mail; delivery of certified mail, air
    express, and small packages delivery/cost of print jobs; timeliness of
    composition/design graphics work; office supply order fulfillment and
    timeliness; procurement order timeliness (small purchases, contracts,
    federal supply schedules).
        Human Resources: timeliness and accuracy of personnel transactions;
    timeliness of vacancy announcements, certificates.
        Information Systems and Technology: timeliness of help desk calls.
        Library and Research Services: timeliness of research services;
    timeliness of periodical processing; timeliness of book/CD-ROM
    processing; interlibrary loan request timeliness; acquisitions of
    books; subscription renewals; dissemination of publications.
                                     ______

                                  [exhibit 1]
            Office of Counsel to the President As of April 20, 1998
        Counsel to the President, Charles F.C. Ruff
        Deputy Counsel to the President, Bruce R. Lindsey
        Deputy Counsel to the President, Cheryl D. Mills
    General Matters
        Associate Counsel--Meredith Cabe
        Associate Counsel--Dawn Chirwa
        Special Counsel--Edward Correia
        Associate Counsel--Lisa Hertzer * \1\
    ---------------------------------------------------------------------------
        \1\ The persons designated with an asterisk (*) are Justice
    Department detailees who assist in providing general legal advice (1
    attorney) and in reviewing potential judicial nominees (currently 1
    attorney, 1 paralegal).
    ---------------------------------------------------------------------------
        Associate Counsel--William Marshall
        Special Counsel--Michael Waitzkin
        Senior Counsel--Robert Weiner
    Nominations
        Senior Counsel--Mark Childress
        Attorney-Advisor--Michael O'Connor * (Judicial Nominations)
        Staff Attorney--Stacy Reynolds
    Financial Review and Ethics
        Associate Counsel--Virginia Canter
    Investigations and Litigation
        Special Counsel--Lanny Breuer
        Associate Counsel--Michael Imbroscio
        Associate Counsel--Dimitri Nionakis
        Special Associate Counsel--Sally Paxton
        Associate Counsel--Michelle Peterson
        Associate Counsel--Karen Popp
        Associate Counsel--Karl Racine
    Press and Public Inquiries
        Special Advisor--James Kennedy
        Special Associate Counsel--Adam Goldberg
    Support Staff
        Executive Assistant to the Counsel--Ora Theard
        Executive Assistant to the Deputy Counsel--Melissa Prober
        Executive Assistant to the Deputy Counsel--Melissa Murray
        Executive Assistant--Edward Hughes
        Staff Assistant--Douglas Band
        Paralegal--Jonathan Becker *
        Staff Assistant--Alissa Brown
        Paralegal--Dimitra Doufekias
        Paralegal--Deborah Falk
        Paralegal--Erin Green
        Paralegal--Rochester Johnson
        Staff Assistant--Tanya Miller
        Paralegal--Suzanne Moreno
        Assistant/Paralegal--Brian Smith
        Job Responsibilities.--As of April 20, 1998, the number of regular
    staff was 34, including 19 attorneys performing legal work, 13
    assistants or paralegals, and 2 staff (one of whom is a lawyer by
    training) responsible for responding to press and other public
    inquiries that come to our Office. The White House Counsel and the two
    Deputy Counsels are responsible for the overall management of the
    Office. Of the remaining 16 regular attorneys, 7 were assigned on an
    ongoing basis (together with 4 paralegals) to congressional,
    Independent Counsel, and Justice Department investigative matters, and
    to litigation in which the Executive Office of the President (``EOP'')
    or EOP officials are parties. Six staff lawyers (and one detailee from
    the Justice Department) were responsible for providing general legal
    advice to White House staff on a wide range of matters, including
    legislation, pardons, ethics, privilege, misuse of the President's name
    and image, appropriations, travel, political activity, and other areas
    related to the Office of the President.
        The Senior Counsel for Nominations supervises the background
    clearance process for presidential nominations and appointments,
    including both judicial and nonjudicial nominees; one staff attorney
    assists the Senior Counsel; and, one Associate Counsel supervises the
    financial and conflicts of interest clearance process for presidential
    nominees.
        To assist in the clearance of presidential nominees, agencies have
    historically detailed attorneys to work in the Counsel's Office for
    terms typically ranging from 3 to 6 months; the number of detailees
    varies based upon the volume of candidates to be processed. As of April
    20, 1998, there were six (6) detailees performing the review of the
    background and financial information on potential presidential
    appointees to assist in making recommendations regarding their
    suitability for service. None of these detailees works on any
    investigative matter. These detailees were from the following agencies:
    Department of Health and Human Services, Department of Labor (1),
    Department of Navy (1), Department of Transportation (1), Department of
    Veterans' Affairs (1), and the National Labor Relations Board (1).
        Lastly, it has been the practice in this Administration for the
    Justice Department to detail lawyers and paralegals to the Office to
    assist in the review of potential judicial nominees. One lawyer and one
    paralegal were assigned for this purpose as of April 20, 1998.
        Stations.--Counsel's Office staff are located in the White House or
    the Old Executive Office Building.
        Lines of Authority.--Lawyers listed under the heading
    ``Investigations and Litigation'' report through Special Counsel Breuer
    to the Front Office. Staff responsible for nominations and financial
    review reports to the Front Office through the Senior Counsel for
    Nominations and through the Associate Counsel handling the financial
    and conflicts of interest clearance process. Finally, the lawyers
    listed under the heading ``Other Matters'' report directly to the Front
    Office.
        Summary.--As of April 20, 1998, the staff of the Counsel's Office
    consisted of the following:

    Regular Staff:
        Attorneys.....................................................    19
        Press/public inquiry staff....................................     2
        Assistants/paralegals.........................................    13
    Detailees:
        Attorney (detailed from Justice Department--general legal
          advice).....................................................     1
        Attorney (detailed from Justice Department--judicial
          nominations)................................................     1
        Attorneys (detailed from various agencies--nominations
          clearance)..................................................     6
        Paralegal (detailed from Justice Department--judicial
          nominations)................................................     1
                            -----------------------------------------------------------------
                            ________________________________________________
          Total.......................................................    43
                                     ______

     EXHIBIT 2.--EMPLOYEES OF THE WHITE HOUSE COUNSEL'S OFFICE FROM 1/20/93
                               THROUGH THE PRESENT
                                 [As of 4/20/98]
    ------------------------------------------------------------------------
                      Name/title                     Start date    End date
    ------------------------------------------------------------------------
    Allen, Susan, Paralegal.......................      7/28/97      3/20/98
    Band, Doug, Staff Assistant...................      5/20/96  ...........
    Bohn, Catherine, Staff Assistant..............      9/26/96      3/01/97
    Breuer, Lanny, Special Counsel to the
     President....................................      2/18/97  ...........
    Brown, Alissa, Staff Assistant................      8/18/97  ...........
    Bueno, Edgar, Paralegal.......................      2/05/93      8/04/94
    Burke, Elayne, Staff Assistant................      4/15/93      5/21/93
    Cabe, Meredith, Associate Counsel to the
     President....................................     10/06/97  ...........
    Canter, Virginia, Associate Counsel to the
     President....................................      5/12/97  ...........
    Castello, James, Deputy Counsel to the
     President....................................      3/13/95      3/18/96
    Castleton, Thomas, Special Assistant to the
     Counsel and Document Manager.................      6/16/93      9/19/94
    Cerda, Clarissa, Assistant Counsel to the
     President....................................      1/20/93      7/15/95
    Cerf, Christopher, Associate Counsel to the
     President....................................     12/07/94      4/26/96
    Champagne, Florence, Legal Secretary..........      2/05/93      2/17/95
    Childress, Mark, Senior Counsel for
     Nominations..................................      3/17/98  ...........
    Childs, Mary, Security Assistant..............     10/02/84      2/13/93
    Chirwa, Dawn, Associate Counsel to the
     President....................................      9/05/95  ...........
    Connaughton, Jeffrey, Special Assistant.......     10/03/94     11/14/95
    Correia, Edward, Special Counsel to the
     President for Civil Rights...................      2/03/98  ...........
    Cutler, Lloyd, Special Counsel to the
     President....................................      3/27/94      9/30/94
    Dannenhauer, Jane, Assistant to the Counsel...      1/21/81      3/01/93
    Davis, Lanny, Special Counsel to the President     12/10/96      1/30/98
    Demille Wagman, Deborah, Assistant Counsel to
     the President................................     10/01/94     12/16/94
    Denbo, Jonathan, Security Assistant...........      9/19/95      7/30/96
    Doufekias, Dimitra, Paralegal.................      3/25/97  ...........
    Dudley, Jennifer, Executive Assistant to the
     Deputy Counsel to the President..............      7/17/95     11/08/97
    Eggleston, W. Neil, Associate Counsel to the
     President....................................      9/27/93      9/08/94
    Erichsen, Peter, Associate Counsel to the
     President....................................      3/16/97     11/07/97
    Fabiani, Mark, Special Associate Counsel to
     the President................................      4/03/95     12/09/96
    Falk, Deborah, Paralegal......................      3/10/97  ...........
    Fein, David, Associate Counsel to the
     President....................................      2/13/95     12/21/96
    Fielder, J. David, Special Assistant Counsel
     to the President.............................     10/29/95      3/15/96
        Special Assistant Counsel.................      4/14/96      7/12/96
    Foster Jr., Vincent, Deputy Assistant to the
     President and Deputy Counsel.................      1/20/93      7/20/93
    Goldberg, Adam, Special Associate Counsel.....     12/11/96  ...........
    Gorham, Deborah, Staff Assistant to the Deputy
     Counsel......................................      3/08/93     11/19/93
    Green, Erin, Paralegal........................      3/31/97  ...........
    Holliday, Kimberly, Secretary to the Special
     Counsel to the President.....................      1/04/95      3/29/96
    Hughes, Edward, Executive Assistant...........      4/12/94  ...........
    Imbroscio, Michael, Associate Counsel to the
     President....................................      3/03/97  ...........
    Johnson, Kari, Staff Assistant, Security
     Office.......................................      7/30/90      2/16/93
    Johnson, Rochester, Paralegal.................      3/20/95  ...........
    Kagan, Elana, Associate Counsel to the
     President....................................      7/10/95      1/05/97
    Kaplan, Eloise, Researcher....................     11/17/93      8/13/94
    Kelly, Erin, Legal Assistant..................      1/04/96      7/26/96
    Kennedy, James, Special Advisor to the Counsel      2/01/98  ...........
    Kennedy, William, Associate Counsel to the
     President....................................      2/10/93     11/21/94
    Klain, Ronald, Associate Counsel to the
     President....................................      1/20/93      2/12/94
    Klein, Joel, Deputy Counsel to the President..     12/01/93      4/01/95
    Kopp, Jonathan, Law Clerk.....................     10/18/93     12/10/93
    Krislov, Marvin, Assistant Counsel to the
     President and Special Counsel for Information
     Policy.......................................      2/27/94      3/30/96
    Lehane, Christopher, Special Assistant to the
     Special Counsel to the Presi-  dent..........      7/17/95      1/09/97
    Lindsey, Bruce, Assistant to the President and
     Deputy Counsel to the Presi-  dent...........     10/03/94  ...........
    Lister, Susan, Staff Assistant to the Counsel.      1/20/93      2/26/93
    Livingstone, D. Craig, Assistant to the
     Counsel to the President (Security)..........      2/08/93      6/26/96
    Luna, David, Special Assistant................      9/11/96      3/15/97
    Madsen, Marna, Staff Assistant................      3/27/95      9/14/96
    Markman, Natalie, Staff Attorney..............     10/18/93      2/26/94
    Marshall, William, Associate Counsel to the
     President....................................      1/15/97  ...........
    Massey, Michael, Paralegal/Legal Assistant....      2/27/96      3/21/97
    Mauton Jr., Clifford, Paralegal...............     10/27/93      8/02/97
    Mikva, Abner, Counsel to the President........     10/01/94     11/01/95
    Miller, Jennifer, Assistant to the Associate
     Counsel......................................      1/28/93      4/25/94
    Miller, Tanya, Staff Assistant................      3/02/97  ...........
    Mills, Cheryl, Deputy Assistant to the
     President and Deputy Counsel.................      1/20/93  ...........
    Mixell, Julie, Assistant to the Deputy Counsel     12/01/93      4/01/95
    Moreno, Suzanne, Paralegal....................      3/25/98  ...........
    Murray, Melissa, Staff Assistant..............      5/01/95      3/03/97
        Executive Assistant to the Deputy Counsel.     11/05/97  ...........
    Nemetz, Miriam, Associate Counsel to the
     President....................................      1/04/95      3/14/97
    Neuwirth, Stephen, Associate Counsel to the
     President....................................      1/20/93      7/22/96
    Nionakis, Dimitri, Associate Counsel to the
     President....................................      3/04/97  ...........
    Nolan, Beth, Associate Counsel to the
     President....................................      2/02/93      7/25/95
    Nussbaum, Bernard, Assistant to the President
     and Counsel..................................      1/20/93      4/05/94
    O'leary, Ann, Executive Assistant to the
     Deputy Counsel...............................     11/14/94      7/15/95
    Pappas, Peter, Assistant Counsel..............      1/20/93      1/15/94
    Pascale, Joseph, Researcher...................      3/01/94      2/10/95
    Paxton, Sally, Special Associate Counsel......      3/07/96  ...........
    Peterson, Michelle, Associate Counsel to the
     President....................................      2/09/97  ...........
    Pond, Betsy, Staff Assistant..................      3/22/93      9/04/95
    Poole, Cheryl, Executive Assistant to the
     Special Counsel to the President.............      3/27/94     10/01/94
    Popp, Karen, Associate Counsel to the
     President....................................     12/22/96  ...........
    Prober, Melissa, Executive Assistant to the
     Deputy Counsel...............................     10/06/97  ...........
    Quinn, John, Counsel to the President.........     10/25/95      2/17/97
    Racine, Karl, Associate Counsel to the
     President....................................      5/27/97  ...........
    Radd, Victoria, Associate Counsel to the
     President....................................     12/01/93      2/09/98
    Rapp, Jason, Assistant to the Associate
     Counsel......................................      4/25/94      3/10/95
    Reynolds, Stacy, Researcher...................      4/06/94  ...........
    Rosenberg, David, Researcher/Writer...........      7/06/93     10/29/93
    Ruff, Charles, Counsel to the President.......      2/09/97  ...........
    Schroeder, Robert, Associate Counsel to the
     President....................................     10/01/95      8/08/97
    Sherburne, Jane, Special Associate Counsel to
     the President................................      4/25/94     10/15/94
        Special Counsel to the President..........      1/04/95      1/11/97
    Sloan, Clifford, Associate Counsel to the
     President....................................      6/14/93      3/10/95
    Smith, Brian, Assistant/Paralegal.............      3/10/97  ...........
    Stucke, Dorothy, Staff Assistant..............      2/15/93      9/20/93
    Sweitzer, Cheryl, Executive Assistant to the
     Counsel to the President.....................     12/19/94      2/11/97
    Theard, Ora, Executive Assistant to the
     Counsel to the President.....................      2/23/97  ...........
    Tripp, Linda, Executive Assistant to the
     Counsel to the President.....................      1/30/94      8/21/94
    Waitzkin, Michael, Special Counsel to the
     President....................................      4/14/97  ...........
    Walker, Odetta, Executive Assistant to the
     Deputy Counsel to the President..............      3/20/95      7/26/97
    Wallman, Kathleen, Deputy Counsel to the
     President....................................     11/13/95     11/14/97
    Warren, Renee, Assistant to the Associate
     Counsel......................................      4/03/95      5/28/96
    Weider, Sara, Assistant to the Special Counsel      6/24/96      7/05/97
    Weiner, Robert, Senior Counsel................      2/18/97  ...........
    Wetzl, Lisa, Executive Assistant..............      8/15/93      9/13/95
    Whalen, Kathleen, Associate Counsel to the
     President....................................      2/27/94      4/30/97
    White, Wendy, Associate Counsel to the
     President....................................      2/14/96      3/31/97
    Willey, Kathleen, Staff Assistant.............      4/20/94     10/22/94
    Williams, Natalie, Associate Counsel to the
     President....................................      6/19/95      2/28/96
    Yarowsky, Jonathan, Special Associate Counsel
     to the President.............................      4/03/95      3/31/98
    ------------------------------------------------------------------------

                                     ______

                                EXHIBIT 3.--WHITE HOUSE OFFICE DETAILEES, BY FISCAL YEAR
    ----------------------------------------------------------------------------------------------------------------
                  Title                       Home agency              Office assignment      Start date   End date
    ----------------------------------------------------------------------------------------------------------------
            FISCAL YEAR 1993

    Assistant Counsel to the          Justice...................  General Counsel...........      3/1/93     4/15/93
     President.
    No title........................  Labor.....................  Political Affairs.........      3/9/93      9/4/93
    No title........................  Transportation............  Presidential Personnel....      3/1/93     4/23/93
    No title........................  General Accounting Of-      Presidential Personnel....     2/23/93     9/30/93
                                       fice.
    Director of Correspondence......  Veterans Affairs..........  Correspondence............     2/24/93     3/26/93
    Special Counsel.................  Justice...................  General Counsel...........     8/23/93     2/26/94
    Search Manager..................  No agency.................  Presidential Personnel....     2/19/93     9/30/93
    Security Assistant..............  Defense...................  General Counsel...........     8/18/93     2/18/94
    Assistant to the Special          Labor.....................  Political Affairs.........      3/9/93     9/25/93
     Assistant.
    Search Manager..................  Merit Systems Protection    Presidential Personnel....     8/16/93     2/16/94
                                       Board.
    No title........................  U.S. Senate...............  Presidential Personnel....     2/19/93     9/30/93
    Personal Assistant to the Chief   Commerce..................  Chief of Staff............     5/27/93     9/30/94
     of Staff.
    Executive Assistant.............  Justice...................  General Counsel...........     1/27/93     7/27/93
    Director, White House Photo       Defense Information Agen-   Management and Operations.      2/1/93    12/31/93
     Office.                           cy.
    No title........................  Federal Labor Relations     Presidential Personnel....      1/2/93     9/30/93
                                       Board.
    Assistant to the Deputy Director  Office of Personnel         Presidential Personnel....     9/14/93      1/7/94
                                       Management.
    Staff Assistant.................  Office of Government        General Counsel...........     9/27/93    12/13/93
                                       Ethics.
    Associate Director..............  Equal Employment            Presidential Personnel....     7/12/93     3/30/94
                                       Opportunity Commission.
    No title........................  General Services            Travel and Telegraph           5/24/93    11/22/93
                                       Administration.             Service.
    Attorney........................  Education.................  General Counsel...........     10/5/92    3/31 /93
    Staff Assistant to the Associate  Merit Systems Protection    General Counsel...........     2/24/92     3/31/93
     Counsel to the President.         Board.
    Attorney........................  Housing and Urban           General Counsel...........     4/13/92     3/31/93
                                       Development.
    Special Counsel.................  Labor.....................  General Counsel...........     4/26/93    10/22/93
    Asian Outreach..................  Justice...................  Presidential Personnel....     6/14/93     9/30/93
    No title........................  National Science            Administrative Office.....     2/24/93      4/1/93
                                       Foundation.
    Special Counsel to the President  U.S. Information Agency...  General Counsel...........      3/1/93      9/5/93
    Special Counsel to the President  Commerce..................  General Counsel...........      7/6/93     1/14/94
    Special Counsel to the President  Justice...................  Scheduling and Advance....      2/1/93      4/2/93
    Special Counsel to the President  Environmental Protection    General Counsel...........     3/30/92      9/1/93
                                       Agency.
    Director of Correspondence......  Internal Revenue Service..  Correspondence............     2/24/93     3/26/93
    No title........................  Health and Human Services.  Presidential Personnel....     1/21/93     7/21/93
    No title........................  Commerce..................  Environmental Policy......      3/1/93      3/1/95
    Assistant Counsel to the          Justice...................  General Counsel...........      2/1/93     9/30/93
     President.
    No title........................  General Services            Presidential Personnel....      8/2/93     9/30/93
                                       Administration.
    No title........................  Defense...................  Presidential Personnel....     2/18/93     9/30/93
    Counsel to the President........  Justice...................  General Counsel...........      3/1/93     4/15/93
    No title........................  General Services            Travel and Telegraph           5/24/93    11/22/93
                                       Administration.             Service.
    No title........................  General Services            Travel and Telegraph           5/24/93    11/22/93
                                       Administration.             Service.
    Staff Assistant.................  Justice...................  General Counsel...........     6/14/93     9/30/94

            FISCAL YEAR 1994

    Attorney Advisor................  Transportation............  General Counsel...........     7/11/94    10/11/94
    Special Counsel to the President  Defense...................  General Counsel...........     1/19/94     4/19/94
    Security Assistant..............  Defense...................  General Counsel...........     8/18/93     2/18/94
    Search Manager..................  Merit Systems Protection    Presidential Personnel....     8/16/93     2/16/94
                                       Board.
    Health Care Spokesperson........  Labor.....................  Communications............     1/31/94    11/30/94
    Personal Assistant to the Chief   Commerce..................  Chief of Staff............     5/27/93     9/30/94
     of Staff.
    Correspondence Review/Edit......  State.....................  Correspondence............     2/28/94    12/31/94
    Special Counsel to the President  Defense...................  General Counsel...........      2/1/94      6/1/94
    Special Counsel.................  Defense...................  General Counsel...........      6/1/94     9/30/94
    Attorney Advisor................  Justice...................  General Counsel...........     7/25/94     9/30/94
    Special Counsel.................  Justice...................  General Counsel...........    11/10/93     9/30/94
    Assistant to the Deputy Director  Office of Personnel         Presidential Personnel....     9/14/93      1/7/94
                                       Management.
    Special Counsel.................  Defense...................  General Counsel...........    10/20/93     3/24/94
    Staff Assistant.................  Office of Government        General Counsel...........     9/27/93    12/13/93
                                       Ethics.
    Attorney Advisor................  Federal Trade Commis-       General Counsel...........     3/11/94      9/2/94
                                       sion.
    Associate Director..............  Equal Employment            Presidential Personnel....     7/12/93     3/30/94
                                       Opportunity Commission.
    Staff Assistant.................  Energy....................  Intergovernmental Affairs.      8/8/94     9/30/94
    No title........................  General Services            Travel and Telegraph           5/24/93    11/22/93
                                       Administration.             Service.
    Search Manager..................  Defense...................  Presidential Personnel....     4/18/94     3/30/95
    Assistant to the Deputy Director  Office of Personnel         Presidential Personnel....     1/10/94     4/29/94
                                       Management.
    Staff Assistant.................  Office of Personnel         Presidential Personnel....     1/18/94     6/18/94
                                       Management.
    Presidential Advance............  Commerce..................  Scheduling and Advance....     4/25/94      8/8/94
    Special Counsel.................  Commerce..................  General Counsel...........     11/2/93    12/10/93
    Assistant to the Chief of Staff.  Office of Management and    Chief of Staff............     7/18/94      9/6/94
                                       Budget.
    Assistant to the Chief of Staff.  Office of Management and    Chief of Staff............     7/18/94     8/31/94
                                       Budget.
    Special Counsel to the President  Defense...................  General Counsel...........     3/14/94     6/10/94
    Correspondence Specialist.......  Federal Trade Commis-       Correspondence............     7/25/94    12/31/94
                                       sion.
    Financial Manager Analyst.......  Housing and Urban           Travel Office.............      9/1/94      3/1/95
                                       Development.
    Special Counsel.................  Labor.....................  General Counsel...........     4/26/93    10/22/93
    Staff Assistant.................  General Services            General Counsel...........     1/18/94     3/31/95
                                       Administration.
    Special Counsel to the President  Commerce..................  General Counsel...........      7/6/93     1/14/94
    Attorney-Advisor................  Interstate Commerce         General Counsel...........     4/25/94     10/4/94
                                       Commission.
    Staff Assistant.................  Justice...................  General Counsel...........     12/1/93     9/30/94
    Personnel Specialist............  Commerce..................  Presidential Personnel....     7/13/94    10/13/94
    Assistant to the Chief of Staff.  Office of Management and    Chief of Staff............     7/18/94      9/6/94
                                       Budget.
    Attorney Advisor................  Justice...................  General Counsel...........     7/18/94    10/18/94
    Attorney Advisor................  Agriculture...............  General Counsel...........     6/20/94    12/20/94
    Assistant Counsel to the          Securities Exchange         General Counsel...........      1/3/94      4/1/94
     President.                        Commission.
    Staff Assistant.................  Office of Personnel         Presidential Personnel....     9/30/93     3/30/94
                                       Management.
    Advisor to Director.............  Energy....................  Legislative Affairs.......     8/17/94    10/31/94
    Special Counsel.................  Defense...................  General Counsel...........    10/25/93     2/24/94
    Special Counsel.................  Defense...................  General Counsel...........     4/20/94    10/15/94
    Special Counsel.................  Defense...................  General Counsel...........    11/15/93     1/10/94
    Special Assistant Counsel to the  State.....................  General Counsel...........     6/17/94     9/30/94
     President.
    Paralegal Specialist............  Securities Exchange         General Counsel...........      8/1/94      2/1/95
                                       Commission.
    Senior Program Analyst..........  Agriculture...............  Travel....................     10/1/93      9/9/94
    Special Counsel to the President  Justice...................  General Counsel...........     1/12/94      7/8/94
    Search Manager..................  Equal Employment            Presidential Personnel....     6/27/94    12/27/94
                                       Opportunity Commission.
    Search Manager..................  Agriculture...............  Presidential Personnel....     6/13/94     3/30/95
    Office Manager..................  Energy....................  Political Affairs.........     8/24/94    12/31/94
    Interim National AIDS Policy      Health and Human Services.  Domestic Policy Council...      8/3/94    11/12/94
     Coordinator.
    Assistant to the Chief of Staff.  Office of Management and    Chief of Staff............     7/18/94     9/15/94
                                       Budget.
    Deputy Director of Scheduling...  Energy....................  Scheduling and Advance....     2/22/94    12/31/94
    No title........................  General Services            Travel....................     5/24/93    11/22/93
                                       Administration.
    No title........................  General Services            Travel....................     5/24/93    11/22/93
                                       Administration.
    Search Advisor..................  Agriculture...............  Presidential Personnel....     11/8/93     3/30/95
    Staff Assistant.................  Justice...................  General Counsel...........     6/14/93     9/30/94
    Special Counsel to the President  Defense...................  General Counsel...........      5/9/94      8/9/94
    Search Manager..................  Merit Systems Protection    Presidential Personnel....      4/8/94     10/7/94
                                       Board.
    Special Counsel.................  Justice...................  General Counsel...........     8/23/93     2/26/94
    Special Counsel.................  Defense...................  General Counsel...........     3/14/94     6/11/94

            FISCAL YEAR 1995

    Staff Assistant.................  Justice...................  General Counsel...........    12/01/93    11/30/94
    Special Assistant to the          Interior..................  Legislative Affairs.......     6/14/95     3/30/96
     President.
    Attorney-Advisor................  ICC.......................  General Counsel...........     4/25/94     6/30/95
    Staff Assistant.................  General Services            General Counsel...........     1/18/94     2/10/95
                                       Administration.
    Scheduling the First Lady.......  Education.................  Scheduling and Advance....     2/13/95     8/13/95
    Financial Manager Analyst.......  Housing and Urban           Travel Office.............      9/1/94      4/5/95
                                       Development.
    Staff Assistant (Scheduler).....  Agriculture...............  Scheduling and Advance....     8/15/95     2/15/96
    Attorney Advisor................  Justice...................  General Counsel...........     7/26/95     1/24/96
    Executive Assistant.............  Labor.....................  Cabinet Affairs...........      3/8/95      3/8/96
    Correspondence Specialist.......  Federal Trade Commis-       Correspondence............     7/25/94     10/2/94
                                       sion.
    Attorney-Advisor................  Nuclear Regulatory          General Counsel...........     11/1/94     1/27/95
                                       Commission.
    Attorney-Advisor................  Justice...................  General Counsel...........     3/22/95     9/15/95
    Staff Assistant.................  Labor.....................  Chief of Staff............    10/17/94      1/7/95
    Special Assistant to the          Education.................  Scheduling and Advance....      8/2/95     10/7/95
     President and Presidential
     Scheduler/Coordinator.
    Attorney-Advisor................  Interstate Commerce         General Counsel...........    10/14/94    12/20/94
                                       Commission.
    No Title (Press Scheduler)......  Interior..................  Press Secretary...........      1/9/95      1/5/96
    Search Manager..................  Defense...................  Presidential Personnel....     4/18/94    12/11/94
    Attorney-Advisor................  Labor.....................  General Counsel...........     6/12/95      9/9/95
    Special Counsel.................  Justice...................  General Counsel...........    11/10/93     10/5/94
    Attorney-Advisor................  Justice...................  General Counsel...........     7/25/94    10/14/94
    Executive Assistant.............  Interior..................  General Counsel...........      5/8/95    10/14/94
    Attorney........................  U.S. Attorney's Office....  General Counsel...........      2/6/95      8/4/95
    Search Manager..................  Office of Personnel         Presidential Personnel....      9/5/95      3/1/96
                                       Management.
    Correspondence Review/Edit......  State Dept................  Correspondence............     2/28/94    12/31/94
                                                                                                 7/27/95     3/29/96
    Secretary/Office Manager........  Surface Mining............  General Counsel...........     4/12/95    11/10/95
    Attorney-Advisor................  Treasury..................  General Counsel...........     4/17/95      9/1/95
    Confidential Assistant to the     Commerce..................  Counselor to the Presi-        5/27/93    12/20/95
     Counselor.                                                    dent.
    Health Care Spokesperson........  Labor.....................  Communications............     1/31/94     7/30/94
    Attorney-Advisor................  Transportation............  General Counsel...........     7/11/94     3/31/95
    Associate Counsel to the          Justice...................  General Counsel...........    12/12/94      6/9/95
     President.
    Attorney........................  FCA.......................  General Counsel...........      2/6/95      5/5/95
    Scheduler for the First Lady....  Interior..................  Scheduling and Advance....    10/15/94      2/1/95
    Gift Analyst....................  State.....................  Gift Unit.................     6/19/95     10/6/95
    Search Manager..................  Merit Systems Protection    Presidential Personnel....      4/8/94    10/21/94
                                       Board.
    Staff Assistant.................  Justice...................  General Counsel...........     6/14/93     10/1/94
    Search Manager..................  Office of Personnel         Presidential Personnel....     7/25/95    12/29/95
                                       Management.
    Search Manager..................  Agriculture...............  Presidential Personnel....     11/8/93    11/23/94
    Executive Assistant.............  Education.................  Scheduling and Advance....    10/27/94     1/10/95
    Search Manager..................  Commission on Civil         Presidential Personnel....    10/24/94     4/24/95
                                       Rights.
    Attorney-Advisor................  Housing and Urban           General Counsel...........      3/6/95      6/4/95
                                       Development.
    Attorney Advisor................  Justice...................  General Counsel...........     10/5/94    12/31/94
    Deputy Director of Scheduling...  Energy....................  Scheduling and Advance....     2/22/94     3/31/94
    Press Office Assistant..........  Bank of the US............  Chief of Staff............     12/1/94    12/16/94
    Interim National AIDS Policy      Health and Human Services.  Domestic Policy Council...      8/3/94    11/12/94
     Coordinator.
    Attorney-Advisor................  Justice...................  General Counsel...........     1/17/95     7/14/95
    Staff Assistant.................  Justice...................  General Counsel...........    12/12/94      6/9/95
    Special Assistant to the          Small Business              Scheduling and Advance....     4/24/95     7/30/95
     President and Scheduler/Events    Administration.
     Coordinator.
    Office Manager..................  Energy....................  Political Affairs.........     6/13/94     9/30/95
    Special Assistant to the          Agriculture...............  Presidential Personnel....     6/13/94     9/30/95
     President and Associate
     Director.
    Spokesperson, Summit of Ameri-    Bank of U.S...............  Chief of Staff............     12/1/94    12/16/94
     cas.
    Legal Secretary.................  Federal Trade Commission..  General Counsel...........     10/3/94     3/31/95
    Search Manager..................  Equal Employment            Presidential Personnel....     6/27/94     11/4/94
                                       Opportunity Commission.
    Paralegal Specialist............  Securities and Exchange     General Counsel...........      8/1/94     3/31/95
                                       Commission.
    Accountant......................  Housing and Urban           Travel Office.............     11/4/94     3/31/95
                                       Development.
    Special Counsel.................  Defense...................  General Counsel...........     4/20/94    10/15/94
    Search Manager..................  Agriculture...............  Presidential Personnel....     6/12/95     3/30/96
    Advisor to Director.............  Education.................  Legislative Affairs.......     8/17/94    10/31/94
    Attorney........................  Securities and Exchange     General Counsel...........     5/15/95    11/30/95
                                       Commission.
    Attorney-Advisor................  Agriculture...............  General Counsel...........      8/7/95      2/7/96
    Attorney-Advisor................  Agriculture...............  General Counsel...........      6/2/94    12/20/94
    Event Coordinator (Presidential   Interior..................  Scheduling and Advance....    10/13/94     1/14/95
     Schedules).
    Attorney-Advisor................  Justice...................  General Counsel...........     7/18/94     1/18/95
    Special Assistant to the          Labor.....................  Cabinet Affairs...........     6/22/95     9/30/95
     President.
    Attorney........................  Merit Systems Protection    General Counsel...........     10/3/94    12/31/94
                                       Board.
    Personnel Specialist............  Commerce..................  Presidential Personnel....     7/13/94    10/13/94
    Attorney-Advisor................  Justice...................  General Counsel...........     7/10/95    10/13/95
    Deputy Director.................  Health and Human Services.  Intergovernmental Affairs.      6/5/95    12/23/95

            FISCAL YEAR 1996

    Assistant Deputy Director.......  U.S. Agency for             Presidential Personnel....     5/13/96     9/30/96
                                       International Development.
    Special Assistant to the          Interior..................  Legislative Affairs.......     6/14/95     9/30/96
     President.
    Attorney-Advisor................  Education.................  General Counsel...........      2/4/96      5/3/96
    Attorney-Advisor................  Commerce..................  General Counsel...........     5/13/96     5/24/96
    Staff Assistant (Scheduler).....  Agriculture...............  Scheduling and Advance....     8/15/95     1/26/96
    Attorney-Advisor................  Justice...................  General Counsel...........     7/26/95     2/26/96
    Executive Assistant.............  Labor.....................  Cabinet Affairs...........      3/8/95     4/14/96
    Presidential Scheduler..........  Agriculture...............  Scheduling and Advance....    10/30/95     12/8/95
    Detailee to the Office of         Education.................  Scheduling and Advance....      8/5/96      3/8/97
     Schedul-  ing.
    Special Assistant to the          Education.................  Scheduling and Advance....      8/2/95     10/7/95
     President and Presidential
     Scheduler/Coordinator.
    Special Assistant to the Deputy   Labor.....................  Deputy Chief of Staff for      6/27/96     9/23/96
     Chief of Staff.                                               Policy.
    Senior Press Advance............  Interior..................  Press Secretary...........      1/9/95      1/5/96
    Special Assistant to the Deputy   U.S. Information Agency...  Deputy Chief of Staff for      4/22/96     9/30/96
     Chief of Staff.                                               Policy.
    Attorney-Advisor................  Justice...................  General Counsel...........      9/3/96    11/15/96
    Attorney-Advisor................  Labor.....................  General Counsel...........     5/13/96     8/23/96
    Search Manager..................  Occupational Safety and     Presidential Personnel....      4/9/96      9/5/96
                                       Health Administration.
    Staff Assistant.................  Agency for International    Scheduling and Advance....     1/18/96     7/31/96
                                       Development.
    Search Manager..................  Office of Personnel         Presidential Personnel....     10/2/96     11/8/96
                                       Management.
    Attorney-Advisor................  Treasury..................  General Counsel...........      3/4/96      8/2/96
    Correspondence Review/Edit......  State.....................  Correspondence............     7/27/95     3/25/96
    Attorney-Advisor................  Federal Trade Commis-       General Counsel...........    10/23/95     4/19/96
                                       sion.
    Secretary/Office Manager........  Surface Mining............  General Counsel...........     4/12/95     11/3/95
    Special Assistant to the Deputy   Agriculture...............  Presidential Personnel....      4/1/96     9/30/96
     Director.
    Confidential Assistant to the     Commerce..................  Counselor to the Presi-        10/2/95     9/30/96
     Counselor.                                                    dent.
    Director........................  U.S. Information Agency...  Public Liaison............    11/29/95    12/15/95
    Attorney-Advisor................  Justice...................  General Counsel...........     2/26/96      6/6/96
    Search Manager..................  Office of Personnel         Presidential Personnel....     3/28/97     5/30/97
                                       Management.
    Attorney-Advisor................  Transportation............  General Counsel...........     11/6/96      5/3/96
    Staff Assistant.................  State.....................  Gift Unit.................     7/16/96     3/28/97
    Special Assistant...............  Commerce..................  Cabinet Affairs...........      2/1/96     9/30/96
    Gift Analyst....................  State.....................  Gift Unit.................     6/19/95     3/31/96
    Attorney-Advisor................  Federal Trade Commis-       General Counsel...........     2/12/96     4/19/96
                                       sion.
    Special Assistant to the          Treasury..................  Legislative Affairs.......     2/28/96     5/31/96
     President.
    Logistical Management Specialist  State.....................  Administrative Office.....     2/28/96     4/28/96
    Staff Assistant.................  Justice...................  General Counsel...........      6/3/96     9/30/96
    Staff Assistant.................  Transportation............  General Counsel...........    10/30/95     4/19/96
    Search Manager..................  U.S. Arms Control.........  Presidential Personnel....     8/28/96     3/28/97
    Associate Counsel to the          Justice...................  General Counsel...........     1/16/96     3/15/97
     President.
    Special Assistant to the          Agriculture...............  Presidential Personnel....     10/1/95     10/1/96
     President and Associate
     Director.
    Attorney-Advisor................  Justice...................  General Counsel...........     6/12/96    12/31/96
    Search Manager..................  Agriculture...............  Presidential Personnel....     6/12/95    11/26/95
    Attorney-Advisor................  Federal Highway             General Counsel...........     5/13/96     9/20/96
                                       Administration.
    Attorney-Advisor................  Defense Information         General Counsel...........     6/10/96     9/30/96
                                       Systems Agency.
    Attorney........................  Securities and Exchange     General Counsel...........     5/15/95     12/1/95
                                       Commission.
    Attorney-Advisor................  Energy....................  General Counsel...........     11/1/95      3/8/96
    Search Manager..................  Agriculture...............  Presidential Personnel....    12/11/96      6/9/97
    Search Manager..................  Agriculture...............  Presidential Personnel....      3/8/96     9/30/96
    Deputy Director.................  Health and Human Services.  Intergovernmental Affairs.     10/1/95    12/23/95
    Attorney-Advisor................  Agriculture...............  General Counsel...........      8/7/95     3/22/96
    Scheduler, First Lady...........  Housing and Urban           Scheduling and Advance....      2/5/96     9/27/96
                                       Development.
    Attorney-Advisor................  Agriculture...............  General Counsel...........     6/20/94     3/29/96
    Special Assistant to the          Labor.....................  Cabinet Affairs...........     6/22/95    12/20/95
     President.
    Attorney-Advisor................  Justice...................  General Counsel...........     7/10/95    12/29/95

            FISCAL YEAR 1997

    Assistant Deputy Director.......  U.S. Agency for             Presidential Personnel....     5/13/96     3/28/97
                                       International Development.
    Special Assistant to the          Interior..................  Legislative Affairs.......     6/14/95     3/31/98
     President.
    Correspondence Director.........  Veterans Affairs..........  Presidential Personnel....      2/4/97     7/30/97
    Staff Assistant, Correspondence.  Labor.....................  Presidential Personnel....     12/9/96     4/21/97
    Transition Search Manager.......  U.S. Information Agency...  Presidential Personnel....     12/9/96      6/6/97
    Staff Assistant.................  Treasury..................  Chief of Staff............     1/14/97     9/30/98
    Detailee to the Office of         Education.................  Scheduling and Advance....      8/5/96     3/14/97
     Schedul-  ing.
    Attorney-Advisor................  Veterans Affairs..........  General Counsel...........    11/21/96     5/16/97
    Special Assistant...............  Labor.....................  Public Liaison............     2/13/97     9/30/98
    Search Manager..................  Agriculture...............  Presidential Personnel....      1/6/97      7/3/97
    Deputy National Security Advisor  State.....................  National Security Affairs.    12/23/96     4/19/97
     and Deputy Assistant to the
     President for National Security
     Affairs.
    Special Assistant to the Deputy   Labor.....................  Deputy Chief of Staff for      6/27/96     9/23/96
     Chief of Staff.                                               Policy.
    NSC Assistant...................  U.S. Agency for             National Security Affairs.      3/2/97     3/14/97
                                       International Development.
    Special Assistant to the Deputy   U.S. Information Agency...  Deputy Chief of Staff for      4/22/96     1/20/97
     Chief of Staff.                                               Policy.
    Transition Search Manager.......  Justice...................  Presidential Personnel....     12/9/96      5/9/97
    Search Manager..................  State.....................  Presidential Personnel....      5/7/97    11/30/97
    Staff Assistant.................  Agriculture...............  Presidential Personnel....     8/22/97     3/27/98
    Staff Assistant for Special       Labor.....................  Presidential Personnel....     9/17/97     9/30/97
     Projects.
    Scheduler.......................  Justice...................  Scheduling and Advance....     6/30/97     7/12/97
    Search Manager..................  Federal Highway             Presidential Personnel....     10/3/96     3/28/97
                                       Administration.
    Attorney-Advisor................  Justice...................  General Counsel...........      9/3/96    11/15/96
    Attorney-Advisor................  Treasury..................  General Counsel...........    11/27/96     5/23/97
    Attorney-Advisor................  Housing and Urban           General Counsel...........    10/15/96     4/15/97
                                       Development.
    Search Manager..................  Office of Personnel         Presidential Personnel....     10/2/96     11/8/96
                                       Management.
    Office Manager..................  Equal Employment            Presidential Personnel....     12/6/96     5/16/97
                                       Opportunity Commission.
    Assistant for APA Outreach......  Education.................  Presidential Personnel....      1/3/97      7/1/97
    Staff Assistant.................  Agriculture...............  Presidential Personnel....     12/9/96     5/30/97
    Transition Search Manager.......  Commerce..................  Presidential Personnel....    12/16/96     5/30/97
    Special Assistant for             Labor.....................  Presidential Personnel....     3/12/97      9/5/97
     Correspondence.
    Attorney-Advisor................  Justice...................  General Counsel...........     2/18/97     9/19/97
    Lead Search Manager.............  Small Business              Presidential Personnel....     2/27/97     8/22/97
                                       Administration.
    Attorney-Advisor................  Federal Trade Commis-       General Counsel...........    11/25/96     5/23/97
                                       sion.
    Attorney-Advisor................  National Archives.........  General Counsel...........    11/18/96     3/14/97
    Attorney-Advisor................  Navy......................  General Counsel...........    11/15/96    12/13/96
    Attorney-Advisor................  Agriculture...............  General Counsel...........    11/18/96     5/23/97
    Special Assistant to the Chief    Environmental Protection    Chief of Staff............      9/8/97      9/8/98
     of Staff.                         Agency.
    Attorney-Advisor................  Labor.....................  General Counsel...........      9/8/97    11/26/97
    Staff Assistant.................  Education.................  Presidential Personnel....     6/23/97      1/9/98
    Special Assistant to the Deputy   Housing and Urban           Presidential Personnel....      8/4/97     3/27/98
     Director.                         Development.
    Attorney-Advisor................  Agriculture...............  General Counsel...........      6/4/97     8/22/97
    Senior Advisor..................  Office of Science and       Chief of Staff............      6/2/97     9/12/97
                                       Technology Policy.
    Attorney-Advisor................  Navy......................  General Counsel...........    11/20/96     4/22/97
    Search Manager..................  Agriculture...............  Presidential Personnel....      2/4/97      6/2/97
    Special Assistant to the Deputy   Agriculture...............  Presidential Personnel....      4/1/96     3/28/97
     Director.
    Transition Search Manager.......  Commerce..................  Presidential Personnel....    12/16/96      6/9/97
    Search Manager..................  Office of Personnel         Presidential Personnel....     3/28/97     5/30/97
                                       Management.
    Attorney-Advisor................  Labor.....................  General Counsel...........    11/21/96     5/14/97
    Attorney-Advisor................  Commerce..................  General Counsel...........     3/24/97     3/27/98
    Attorney-Advisor................  Justice...................  General Counsel...........      1/5/97     2/13/97
    Staff Assistant.................  State.....................  Gift Unit.................     7/16/96     3/28/97
    Search Manager..................  U.S. Agency for             Presidential Personnel....    12/23/96     5/12/97
                                       International Development.
    Staff Assistant.................  Justice...................  General Counsel...........     2/18/97     8/15/97
    Attorney-Advisor................  Treasury..................  General Counsel...........    11/19/96     3/31/97
    Director of Special Proj-  ects.  Labor.....................  Cabinet Affairs...........    10/17/96     9/30/97
    Assistant for Information         Merit Systems Protection    Presidential Personnel....     5/27/97    11/19/97
     Systems.                          Board.
    Staff Assistant for Special       Health and Human Services.  Presidential Personnel....     9/23/97     9/30/97
     Projects.
    Executive Assistant.............  Labor.....................  Public Liaison............     4/23/97    10/31/97
    Staff Assistant.................  Veterans Affairs..........  Presidential Personnel....     6/17/97     3/27/98
    Scheduler.......................  Treasury..................  Scheduling and Advance....      7/2/97     3/25/98
    Attorney-Advisor................  Social Security             General Counsel...........     5/28/97    12/31/97
                                       Administration.
    Attorney-Advisor................  National Archives and       General Counsel...........      9/8/97      9/8/98
                                       Records Administration.
    Attorney-Advisor................  Justice...................  General Counsel...........      9/4/97     3/27/98
    Attorney-Advisor................  Justice...................  General Counsel...........     7/25/97     3/27/98
    Transition Search Manager.......  Federal Labor Relations     Presidential Personnel....     12/9/96     4/25/97
                                       Board.
    Staff Assistant.................  Justice...................  General Counsel...........      6/3/96     1/17/97
    Transition Search Manager.......  Defense...................  Presidential Personnel....     12/9/96     5/30/97
    Search Manager..................  Federal Emergency           Presidential Personnel....     1/13/97     5/21/97
                                       Management Agency.
    Search Manager..................  Office of Personnel         Presidential Personnel....     1/15/97      7/1/97
                                       Management.
    Scheduler for the President.....  Interior..................  Scheduling and Advance....     3/25/97     4/18/97
    Scheduling Desk, Office of First  Education.................  Scheduling and Advance....    11/12/96     6/13/97
     Lady.
    Search Manager..................  U.S. Arms Control.........  Presidential Personnel....     8/28/96     3/28/97
    Assistant for African-American    Agriculture...............  Presidential Personnel....    12/23/96     3/14/97
     Outreach.
    Associate Counsel to the          Justice...................  General Counsel...........     1/16/96     3/15/97
     President.
    Special Assistant to the          Agriculture...............  Presidential Personnel....    11/18/96     5/19/97
     President and Associate
     Director.
    Staff Assistant.................  Energy....................  Presidential Personnel....    11/18/96     5/19/97
    Search Manager..................  National Transportation     Presidential Personnel....    12/18/96     4/12/97
                                       Safety Board.
    Staff Assistant.................  Labor.....................  Presidential Personnel....     1/24/97     4/13/97
    Attorney-Advisor................  Justice...................  General Counsel...........    11/25/96     3/21/97
    Search Manager..................  U.S. Information Agency...  Presidential Personnel....     2/12/97      8/1/97
    Staff Assistant.................  Office of Personnel         Presidential Personnel....     5/12/97      1/9/98
                                       Management.
    Search Manager..................  Justice...................  Presidential Personnel....     5/13/97    12/31/97
    Search Manager..................  Defense...................  Presidential Personnel....      8/4/97      2/6/98
    Associate Counsel to the          Justice...................  General Counsel...........      7/7/97      5/1/98
     President.
    Attorney-Advisor................  Transportation............  General Counsel...........      6/2/97    12/31/97
    Staff Assistant for Special       Agriculture...............  Presidential Personnel....     9/23/97     9/30/97
     Projects.
    Attorney-Advisor................  Veterans Affairs..........  General Counsel...........     4/21/97    10/24/97
    Senior Advisor for AIDS Policy..  Health and Human Services.  Domestic Policy Council...     2/19/97      7/1/97
    Attorney-Advisor................  Energy....................  General Counsel...........     6/10/97     3/27/98
    Search Manager..................  National Transportation     Presidential Personnel....     6/16/97     9/12/97
                                       Safety Board.
    Staff Assistant for Special       U.S. Agency for             Presidential Personnel....     9/19/97     12/5/97
     Projects.                         International Development.
    Search Manager..................  U.S. Agency for             Presidential Personnel....      6/5/97      8/1/97
                                       International Development.
    Staff Assistant.................  Education.................  Scheduling and Advance....     10/1/96    11/21/96
    Attorney-Advisor................  Justice...................  General Counsel...........     6/12/96      2/3/97
    Attorney-Advisor................  Labor.....................  General Counsel...........    11/20/96     5/14/97
    Search Manager..................  National Endowment for the  Presidential Personnel....      1/6/97      6/2/97
                                       Arts.
    Assistant for Asian Pacific Out-  Justice...................  Presidential Personnel....     12/9/96     5/16/97
      reach.
    Attorney-Advisor................  Defense Information         General Counsel...........     6/10/96     3/28/97
                                       Systems Administration.
    Attorney-Advisor................  Securities and Exchange     General Counsel...........    11/14/96     5/11/97
                                       Commission.
    Attorney-Advisor................  Energy....................  General Counsel...........    11/18/96      2/1/97
    Transition Search Manager.......  Agriculture...............  Presidential Personnel....    12/11/96      6/9/97
    Attorney-Advisor................  Justice...................  General Counsel...........    11/25/96     5/23/97
    Attorney-Advisor................  Treasury..................  General Counsel...........    11/19/96     5/23/97
    Office Manager..................  Housing and Urban           Presidential Personnel....     12/9/96     5/30/97
                                       Development.
    Special Assistant to the          Labor.....................  Cabinet Affairs...........     6/22/95     9/30/97
     President.
    Transition Search Manager.......  Defense...................  Presidential Personnel....     12/9/96     3/31/97
    Attorney-Advisor................  Navy......................  General Counsel...........     3/12/97     6/16/97
    Attorney-Advisor................  U.S. Customs..............  General Counsel...........     6/23/97    12/31/97
    Staff Assistant for Special Proj- Commerce..................  Presidential Personnel....     9/24/97     9/30/97
       ects.
    Placement Assistant.............  Labor.....................  Presidential Personnel....     8/14/97     9/30/98
    Assistant for Correspondence....  Housing and Urban           Presidential Personnel....     5/13/97    12/31/97
                                       Development.
    Attorney-Advisor................  Housing and Urban           General Counsel...........      6/2/97     3/27/98
                                       Development.
    Attorney-Advisor................  Justice...................  General Counsel...........      6/2/97     3/27/98
    Attorney-Advisor................  Health and Human Services.  General Counsel...........     5/14/97     9/30/97

            FISCAL YEAR 1998

    Special Assistant to the          Interior..................  Legislative Affairs.......     6/14/95     3/31/98
     President for Legislative
     Affairs.
    Attorney-Advisor................  National Labor Relations    General Counsel...........      2/9/98     6/12/98
                                       Board.
    Search Manager..................  State.....................  Presidential Personnel....      5/7/97    11/30/97
    Staff Assistant.................  Treasury..................  Chief of Staff............     1/14/97     9/30/98
    Executive Assistant to the        Labor.....................  Public Liaison............     2/13/97     9/30/98
     Director.
    Staff Assistant.................  Agriculture...............  Presidential Personnel....      9/3/97     3/27/98
    Attorney-Advisor................  Justice...................  General Counsel...........    12/22/97     3/27/98
    Associate Director for Education  Education.................  Domestic Policy Council...      3/9/98     7/18/98
     Policy.
    Attorney-Advisor................  Justice...................  General Counsel...........      6/2/97    11/17/97
    Attorney-Advisor................  Labor.....................  General Counsel...........      9/8/97    11/26/97
    Special Assistant to the Chief    Environmental Protection    Chief of Staff............      9/8/97     9/30/98
     of Staff.                         Agency.
    Attorney-Advisor................  Veterans Affairs..........  General Counsel...........     1/20/98     5/22/98
    Attorney-Advisor................  Transportation............  General Counsel...........     1/16/98      5/8/98
    Scheduling Desk.................  Education.................  Scheduling and Advance....      2/9/98      5/9/98
    Staff Assistant.................  Education.................  Scheduling and Advance....     6/23/97      1/9/98
    Special Assistant to the Deputy   Housing and Urban           Presidential Personnel....      8/4/97     3/27/98
     Director.                         Development.
    Assistant for Information         Merit Systems Protection    Presidential Personnel....     5/27/97    11/19/97
     Systems.                          Board.
    Attorney-Advisor................  Social Security             General Counsel...........     5/28/97    12/10/97
                                       Administration.
    Attorney-Advisor................  Justice...................  General Counsel...........      6/2/97     3/27/98
    Staff Assistant.................  Education.................  Scheduling and Advance....     2/17/98     5/19/98
    Attorney-Advisor................  Commerce..................  General Counsel...........     3/24/97     3/27/98
    Attorney-Advisor................  National Archives and       General Counsel...........      9/8/97     11/6/97
                                       Records Administration.
    Staff Assistant for Special Proj- Justice...................  Presidential Personnel....    10/29/97    11/13/97
       ects.
    Staff Assistant.................  Veterans Affairs..........  Presidential Personnel....     6/17/97     3/27/98
    Attorney-Advisor................  Justice...................  General Counsel...........      9/4/97     3/27/98
    Executive Assistant to the        Labor.....................  Public Liaison............     4/23/97    10/31/97
     Director.
    Staff Assistant.................  Office of Personnel         Presidential Personnel....     5/12/97      1/9/98
                                       Management.
    Scheduler.......................  Treasury..................  Scheduling and Advance....      7/2/97     3/25/98
    Director of Special Projects....  Labor.....................  Cabinet Affairs...........    10/17/96      4/3/98
    Search Manager..................  Justice...................  Presidential Personnel....     5/13/97    12/31/97
    Attorney-Advisor................  Justice...................  General Counsel...........     7/25/97     3/27/98
    Associate Counsel to the          Justice...................  General Counsel...........      7/7/97      5/1/98
     President.
    Attorney-Advisor................  Transportation............  General Counsel...........      6/2/97    10/31/97
    Search Manager..................  Defense...................  Presidential Personnel....      8/4/97      2/6/98
    Attorney-Advisor................  Veterans Affairs..........  General Counsel...........     4/21/97    10/24/97
    Search Manager..................  Justice...................  Presidential Personnel....    12/29/97     6/26/98
    Attorney-Advisor................  Energy....................  General Counsel...........     6/10/97     3/27/98
    Special Assistant to the          Agriculture...............  Presidential Personnel....     10/1/95     9/30/98
     President and Associate
     Director.
    Staff Assistant for Special Proj- U.S. Agency for             Presidential Personnel....     9/19/97     12/5/97
       ects.                           International Development.
    Attorney-Advisor................  U.S. Customs..............  General Counsel...........     6/23/97    10/31/97
    Attorney-Advisor................  Navy......................  General Counsel...........     1/15/98     7/10/98
    Placement Assistant.............  Labor.....................  Presidential Personnel....     8/14/97     9/30/98
    Scheduler.......................  Energy....................  Scheduling and Advance....      3/9/98      3/9/99
    Assistant for Correspondence....  Housing and Urban           Presidential Personnel....     5/13/97      1/9/98
                                       Development.
    Attorney-Advisor................  Labor.....................  General Counsel...........    10/28/97     4/24/98
    Staff Assistant.................  Justice...................  General Counsel...........    12/15/97     6/12/98
    Attorney-Advisor................  Housing and Urban           General Counsel...........      6/2/97     3/27/98
                                       Development.
    Special Assistant to the          Labor.....................  Cabinet Affairs...........     6/22/95      5/9/98
     President.
    Attorney-Advisor................  Justice...................  General Counsel...........      6/2/97     3/27/98
    Search Manager..................  Commerce..................  Presidential Personnel....     3/30/98     9/30/98
    Attorney-Advisor................  Health and Human Services.  General Counsel...........      4/6/98      4/9/99
    Attorney-Advisor................  Justice...................  General Counsel...........      4/8/98     9/30/98
    ----------------------------------------------------------------------------------------------------------------

                                  [exhibit 4]
                                 Talking Points
        Staff in the Counsel's Office devote their time to addressing the
    legislative, constitutional, and policy agenda of the President, in
    addition to the daily counseling responsibilities for the White House.
        The Counsel's Office is obligated to ensure compliance with
    numerous requests for documents and information from various
    investigative entities, including congressional committees, independent
    counsel offices, the Justice Department, private litigants, etc. Since
    1995, the Counsel's Office has had a team of up to 6 attorneys and 3
    paralegals devoted to responding to requests from investigative
    entities. The other attorneys and staff in the office handle the
    routine matters of the Counsel's Office.
    Investigating Entities
        The House and Senate earmarked more than 16M to investigate the
    President in 1997,\1\ while OIC (Starr) has spent more than 40M looking
    into Whitewater and recent allegations.\2\ Five congressional
    committees, a federal grand jury and the Justice Department have
    investigated, and in some instances continue to investigate, campaign
    finance matters.\3\
    ---------------------------------------------------------------------------
        \1\ The Commercial Appeal, June 10, 1997.
        \2\ Newsday, February 7, 1998.
        \3\ St. Petersburg Times, March 7, 1997.
    ---------------------------------------------------------------------------
        Budgets of some of the investigative bodies:
        Burton: 3.8M budget exclusively for campaign finance investigation
    (1997); 7.9M reserve fund for investigation (1997); and 11.7M regular
    budget for Committee operations.\4\
    ---------------------------------------------------------------------------
        \4\ The New York Times, April 7, 1997.
    ---------------------------------------------------------------------------
        Thompson: 4.5M budget exclusive for campaign finance investigation
    (1997).\5\
    ---------------------------------------------------------------------------
        \5\ The Commercial Appeal, June 10, 1997.
    ---------------------------------------------------------------------------
        Justice Dept.: Unlimited budget (annually).\6\
    ---------------------------------------------------------------------------
        \6\ Arkansas Democrat-Gazette, November 1, 1997.
    ---------------------------------------------------------------------------
        OIC (Starr): 40M already spent \7\ and an unlimited budget.\8\
    ---------------------------------------------------------------------------
        \7\ Newsday, February 7, 1998.
        \8\ USA Today, November 14, 1997.
    ---------------------------------------------------------------------------
       Facts Regarding Congressional Investigations and the White House
                                Counsel's Office
        In 1997 alone, the White House responded to nearly 600 requests for
    documents and other information made by the Thompson and Burton
    committees.
        In fulfilling those requests, the White House turned over close to
    a quarter-million pages of material to the two committees.
        Nearly 60 current and former White House employees were made
    available for interview and deposition testimony before the Thompson
    Committee. Nearly 60 such employees were available to the Burton
    Committee.
        Other congressional investigations involving the White House have
    included those headed up by:
      --Congressman Leach;
      --Congressman McIntosh (where 40,000 documents were turned over, and
            20 current and former White House employees were made available
            to the committee); and
      --Senator D'Amato (49 subpoenas issued, 60 days of hearings over 14
            months).
        In this 105th Congress, no fewer than 26 congressional
    investigations into Democratic activities have been completed, are
    underway, or are planned. Only one investigation examined Republican
    abuses.
        All of these inquiries were presaged in 1994 when, according to the
    Washington Post (9/20/96), ``a month before the 1994 elections that
    made him House speaker, Newt Gingrich summed up in one word the time-
    tested power that he and his Republican oversight committees would
    bring to bear on the Clinton Administration: subpoena. And subpoena
    they did, hauling hundreds of government officials before investigative
    panels . . . .'' And an April 1996 memorandum to Republican committee
    chairmen urged them to compile information on ``examples of dishonesty
    or ethical lapses in the Clinton administration.'' In that same year,
    Newt Gingrich's press secretary said the presidency could be ``severely
    crippled'' by such inquiries and by Ken Starr (Washington Post, 9/20/
    96).
        Meanwhile, most staff members of one of the committees
    investigating the President--the House Government Reform and Oversight
    Committee--saw their pay increase during 1997 by at least 50 percent.
    By year's end, the Committee was spending money at a rate of $1 million
    a month, compared to $400,000 a month at the beginning of 1997 (yet,
    only eight hearings were held during the year).
        The House Government Reform and Oversight Committee has access to
    $11.7 million ($3.8 million budget, $7.9 million reserve fund). It has
    a staff of more than 50 Republican investigators. The Senate
    Governmental Affairs Committee has a budget of $4.3 million for its
    campaign finance investigation, and they spent $3.5 million. It has a
    staff of 60 Republican investigators.
                                   GAO Audit
        GAO Audit.--Apart from the personal records of the President
    relating to guests, GAO has had complete access to all records and
    materials, including all overtime records. The audit is proceeding and
    GAO has indicated to us that it hopes to complete traditional audit of
    the Executive Residence this month.
        Overnights.--GAO has indicated that, despite its inability to
    discern any costs associated with overnight guests, the Chairman's
    specifically requested GAO to verify the names of guests who spent the
    night at the White House. GAO requested to interview people to
    determine if there were records apart from personal records that could
    be used. GAO learned through these interviews that none of the
    Executive Residence staff had such non-personal records.
        Interviews.--The White House committed to providing GAO with the
    opportunity to interview staff to inquire regarding overnight guests
    and has fulfilled that commitment: Pursuant to GAO's request, the White
    House arranged interviews with, and GAO interviewed: Chief Usher,
    Administrative Officer, Maitre'd, Social Secretary, and Head
    Housekeeper.
        USSS.--Pursuant to GAO's requests, we checked with the USSS
    regarding their records and they indicated they did not retain any
    records reflecting overnight guests and we conveyed this information to
    GAO in January.
        Personal Records--GAO indicated that it was not seeking the
    personal materials of the First Family. We informed GAO that we would
    review the personal records to determine how to assist in the
    Chairman's request for GAO to verify the individuals who spent the
    night at the White House as guests of the First Family.
        As recently as one week ago, we informed GAO that we were making
    progress and expected to be able to address their needs by next week.

                                                                       26 CONGRESSIONAL INVESTIGATIONS INTO DEMOCRATIC ACTIVITIES
                                                                                     [Only one examined GOP abuses]
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                 Member                      Body                       Committee                             Subcommittee, if any                            Subject of investigation
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Thompson, Fred \1\..............  Senate...........  Governmental Affairs...................  ...........................................  General investigation.
    Hatch, Orrin....................  Senate...........  Judiciary..............................  ...........................................  DOJ's investigation.
    McCain, John....................  Senate...........  Commerce...............................  ...........................................  Commerce Department, Franklin Haney & Portals Bldg
                                                                                                                                                (Wash. Post, 2/27/98).
    Shelby, Richard.................  Senate...........  Intelligence...........................  ...........................................  CIA involvement, FBI overlooking Chinese intelligence
                                                                                                                                                reports.
    Collins, Susan \1\..............  Senate...........  Governmental Affairs...................  Investigations.............................  General investigation.
    Burton, Dan \1\.................  House............  Government Reform and Oversight........  ...........................................  General investigation.
    Hyde, Henry.....................  House............  Judiciary Committee....................  ...........................................  Impeachment proceedings.
    McIntosh, David \1\.............  House............  Government Reform and Oversight........  National Economic Growth, Natural Resources  WHODB.
                                                                                                   and Regulatory Affairs.
    Hoekstra, Peter \1\.............  House............  Education and the Workforce............  Oversight and Investigations...............  Teamsters scandal.
    Barton, Joe \1\.................  House............  Commerce...............................  Oversight and Investigations...............  Molten Metal.
    Kolbe, Jim \1\..................  House............  Appropriations.........................  Treasury, Postal Service and General         Use of White House for political events.
                                                                                                   Government.
    Solomon, Gerald.................  House............  Rules..................................  ...........................................  Investigating Clinton's meetings with a Russian arms
                                                                                                                                                dealer, whether Huang leaked documents, whether a
                                                                                                                                                special committee should be formed.
    Livingston, Robert..............  House............  Appropriations.........................  ...........................................  Investigating WH spending on scandal press, legal
                                                                                                                                                office (Wash. Times, 3/9/98).
    Livingston, Robert..............  House............  Appropriations.........................  ...........................................  Investigating if the INS was used for political
                                                                                                                                                purposes.
    Mica, John......................  House............  Government Reform and Oversight........  Civil Service..............................  Possible violations of Hatch Act involving Ickes and
                                                                                                                                                Gore.
    Gilman, Ben.....................  House............  International Relations................  ...........................................  Role of China and Indonesia.
    Goss, Porter....................  House............  Intelligence...........................  ...........................................  Whether intelligence information was compromised by
                                                                                                                                                Huang and whether foreign governments have tried to
                                                                                                                                                influence U.S. elections.
    Leach, Jim......................  House............  Banking and Financial Services.........  ...........................................  WH coffee involving banking regulators and bankers.
    Bliley, Thomas..................  House............  Commerce...............................  ...........................................  Commerce Department trade missions.
    Talent, James...................  House............  Small Business.........................  ...........................................  Controversies at Commerce.
    Hansen, James \1\...............  House............  Resources..............................  National Parks and Public Lands............  Grand Staircase--Escalante, Hudson dog track (Mnpls.
                                                                                                                                                Star-Trib., 1/6/98).
    Specter, Arlen..................  Senate...........  .......................................  ...........................................  Chairman Burton said Specter would examine
                                                                                                                                                allegations FBI agent Wickham resigned rather than
                                                                                                                                                turn over his confidential sources on China (Hrgs.,
                                                                                                                                                12/10/97).
    Murkowski, Frank................  Senate...........  Energy.................................  ...........................................  Politicization of Interior Department (USA Today, 12/
                                                                                                                                                11/97).
    Stook, Ernest...................  House............  Appropriations.........................  Treasury and Postal Service................  Political activities of DNG's White House
                                                                                                                                                ``volunteers.''
    Everett, Terry \1\..............  House............  Appropriations.........................  Veterans Affairs...........................  Arlington Cemetery.
    Faircloth, Lauch................  Senate...........  Appropriations.........................  Foreign Operations.........................  Travoltagate--whether President pushed actor John
                                                                                                                                                Travolta's pet project on Scientology in exchange
                                                                                                                                                for favorable portrayal in ``Primary Colors'' (NY
                                                                                                                                                Post, 3/2-6/98).
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ Investigation or hearings in progress or completed.

        [Clerk's note.--The article from The Hill titled ``Burton Hikes
    Salaries of Staff'' could not be printed in the hearing record.]
                                     ______

                                  [exhibit 5]
        Two attachments are included as part of Exhibit 5:
        (1) A copy of the already transmitted report on fiscal years 1993
    and 1994 expenditures--as of January 31, 1995; and
        (2) A report on fiscal years 1995, 1996, 1997, 1998 expenditures
    and fiscal year 1999 request--as of March 31, 1998.

       White House Office Obligations and Expenditures--December 31, 1994

                                Fiscal year 1993

    Security Office.........................................   $4,025,171.82
    Immediate Office of the President.......................      599,969.86
    Chief of Staff..........................................      764,891.51
    Domestic Policy.........................................    1,150,263.41
    National Security Affairs...............................      356,415.64
    Communications..........................................    2,412,984.38
    Intergovernmental Affairs...............................      651,003.36
    Cabinet Affairs.........................................      248,409.21
    Legislative Affairs.....................................    1,564,153.05
    Press Secretary.........................................      311,404.34
    Staff Secretary.........................................    3,429,216.08
    Scheduling..............................................    1,553,858.20
    Counsel's Office........................................    1,317,406.81
    Special Activities & Initiatives........................    1,085,034.89
    Management & Administration.............................   15,912,186.88
    Office of the First Lady................................      990,485.13
    Presidential Personnel..................................    4,389,918.69
    Issue Analysis..........................................       25,000.00
    National Economic Council...............................      374,223.12
    Public Liaison..........................................      762,540.92
    Political Affairs.......................................      394,710.71
    National Service........................................      439,192.50
                        --------------------------------------------------------
                        ____________________________________________________
          Grand Total.......................................   42,758,440.51

    Fiscal year 1993 total includes one-time supplemental funding for
    Presidential transition.
    ---------------------------------------------------------------------------

                                Fiscal year 1994

    Immediate Office of the President.......................   $1,083,546.55
    Chief of Staff..........................................    1,126,570.56
    Domestic Policy.........................................      746,554.10
    National Security Affairs...............................      408,130.59
    Communications..........................................    3,704,508.62
    Intergovernmental Affairs...............................      746,359.54
    Cabinet Affairs.........................................      473,578.63
    Legislative Affairs.....................................    1,588,985.31
    Staff Secretary.........................................    1,864,270.35
    Scheduling & Advance....................................    2,088,170.81
    Counsel's Office........................................    1,913,092.41
    Management & Administration.............................   13,578,250.99
    Office of the First Lady................................      946,239.30
    Presidential Personnel..................................    1,666,247.03
    National Economic Council...............................      569,004.35
    Public Liaison..........................................    1,229,465.48
    Political Affairs.......................................      605,348.83
    National Service........................................        4,046.38
    Correspondence..........................................    4,271,642.39
    The President...........................................       25,025.00
                        --------------------------------------------------------
                        ____________________________________________________
          Grant Total.......................................   38,639,037.22

    Please note: Functions and organizations change throughout the year as
    needs arise.
    ---------------------------------------------------------------------------

      White House Office Obligations and Expenditures--as of March 31, 1998

                                Fiscal year 1995

    Immediate Office of the President.......................        $765,336
        Detailees...........................................          34,470
                        --------------------------------------------------------
                        ____________________________________________________
          Subtotal, Immediate Office of the President.......         799,806
                        ========================================================
                        ____________________________________________________
    Chief of Staff..........................................       1,853,178
    Communications..........................................       1,733,486
    Cabinet Secretary.......................................         387,816
        Detailees...........................................           3,640
                        --------------------------------------------------------
                        ____________________________________________________
          Subtotal, Cabinet Secretary.......................         391,456
                        ========================================================
                        ____________________________________________________
    Scheduling and Advance..................................       1,980,248
    General Counsel.........................................       2,265,332
        Detailees...........................................          38,274
                        --------------------------------------------------------
                        ____________________________________________________
          Subtotal, General Counsel.........................       2,303,606
                        ========================================================
                        ____________________________________________________
    Management and Administration...........................      15,809,025
    Presidential Personnel..................................       1,246,500
        Detailees...........................................          61,576
                        --------------------------------------------------------
                        ____________________________________________________
          Subtotal, Presidential Personnel..................       1,308,076
                        ========================================================
                        ____________________________________________________
    Correspondence..........................................       3,077,869
    National Security Affairs...............................         414,145
    National Economic Council...............................         581,161
    Legislative Affairs.....................................       1,660,029
    Staff Secretary.........................................       1,778,045
    Public Liaison..........................................       1,308,522
    Intergovernmental Affairs...............................         721,211
    Political Affairs.......................................         702,394
    Office of the First Lady................................       1,024,394
    Domestic Policy.........................................         994,752
    Office of the Press Secretary...........................         986,287
                        --------------------------------------------------------
                        ____________________________________________________
          Grand Total.......................................      39,427,690

                                Fiscal year 1996

    Chief of Staff..........................................      $1,971,306
    Communications..........................................       1,316,184
    Scheduling and Advance..................................       1,901,728
    General Counsel.........................................       2,757,239
    Management and Administration...........................      13,971,693
        Detailees...........................................         322,292
                        --------------------------------------------------------
                        ____________________________________________________
          Subtotal, Management and Administration...........      14,293,985
                        ========================================================
                        ____________________________________________________
    Presidential Personnel..................................       1,124,130
    Correspondence..........................................       2,944,959
    Oval Office Operations..................................         887,489
    National Security Affairs...............................         433,152
    National Economic Council...............................         672,501
    Cabinet Affairs.........................................         418,291
    Legislative Affairs.....................................       1,759,033
    Staff Secretary.........................................       2,009,699
    Public Liaison..........................................       1,445,450
    Intergovernmental Affairs...............................         716,869
    Political Affairs.......................................         865,869
    Office of the First Lady................................       1,106,543
    Domestic Policy.........................................       1,096,171
    Office of the Press Secretary...........................       1,539,757
                        --------------------------------------------------------
                        ____________________________________________________
          Grand Total.......................................      39,260,355

                                Fiscal year 1997

    Chief of Staff..........................................      $1,765,532
    Scheduling and Advance..................................       1,980,039
    General Counsel.........................................       2,706,055
    Management and Administration...........................      14,667,705
        Detailees...........................................         338,815
                        --------------------------------------------------------
                        ____________________________________________________
          Subtotal, Management and Administration...........      15,006,520
                        ========================================================
                        ____________________________________________________
    Presidential Personnel..................................       1,201,564
    Correspondence..........................................       2,958,161
    Oval Office Operations..................................         803,824
    National Security Affairs...............................         544,408
    Strategic Planning and Communications...................       1,451,109
    National Economic Council...............................         651,414
    Cabinet Affairs.........................................         457,772
    Legislative Affairs.....................................       1,846,511
    Staff Secretary.........................................       2,014,497
    Public Liaison..........................................       1,419,835
    Intergovernmental Affairs...............................         684,515
    Political Affairs.......................................         681,409
    Office of the First Lady................................       1,217,974
    Domestic Policy.........................................       1,059,595
    Office of the Press Secretary...........................       1,544,144
    Office of the Special Envoy.............................         180,942
                        --------------------------------------------------------
                        ____________________________________________________
          Grand Total.......................................      40,175,820

                              Fiscal year 1998 \1\

    Chief of Staff..........................................        $902,346
    Scheduling and Advance..................................       1,226,115
    General Counsel.........................................       1,458,291
    Management and Administration...........................      10,219,222
        Detailees...........................................         459,031
                        --------------------------------------------------------
                        ____________________________________________________
          Subtotal, Management and Administration...........      10,678,253
                        ========================================================
                        ____________________________________________________
    Presidential Personnel..................................         591,557
    Correspondence..........................................       1,451,588
    Oval Office Operations..................................         344,835
    National Security Affairs...............................         235,896
    Strategic Planning and Communications...................         779,696
    National Economic Council...............................         257,065
    Cabinet Affairs.........................................         222,352
    Legislative Affairs.....................................         846,575
    Staff Secretary.........................................         988,760
    Public Liaison..........................................         659,743
    Intergovernmental Affairs...............................         350,549
    Political Affairs.......................................         382,198
    Office of the First Lady................................         574,804
    Domestic Policy.........................................         577,389
    Office of the Press Secretary...........................         733,763
    Office of the Special Envoy.............................         186,458
    Special Activities and Initiatives......................          13,315
    WHCA Non-Telecommunication Support......................       9,494,000
                        --------------------------------------------------------
                        ____________________________________________________
          Grand Total.......................................      32,955,548

    \1\ Fiscal year 1998 reflects data through 3/31/98.
    ---------------------------------------------------------------------------

                              Fiscal year 1999 \2\

    Management and Administration...........................     $42,244,000
    WHCA Non-Telecommunication Support......................      10,100,000
                        --------------------------------------------------------
                        ____________________________________________________
          Grand Total.......................................      52,344,000

    \2\ Consistent with prior years, fiscal year 1999 was prepared as a
    single budget. Costs are allocated to respective departments as they
    arise in connection with assigned activities and projects.
    ---------------------------------------------------------------------------
                                     ______

                                  [exhibit 6]

    ----------------------------------------------------------------------------------------------------------------
                                                                                                            Total
       Contracts listed by agency/vendor                   Purpose                      Period of         estimated
                                                                                       performance          cost
    ----------------------------------------------------------------------------------------------------------------
    Office of National Drug Control Policy
     (ONDCP):
        Gallup............................  Survey Data..........................    09/11/95-11/11/95      $118,000
        Evidence Based Research...........  Statistical Research.................    07/03/95-09/03/95       150,000
        Heritage..........................  Guard Service........................    10/01/95-09/30/00     2,900,000
        Porter-Novelli....................  Consulting Service...................    09/16/97-09/16/99       929,000
        National Academy of Sciences......  Research.............................    04/22/97-12/31/98       897,000
        TWD...............................  ADP Support Services.................    01/01/97-12/30/98     3,000,000
        Carrpark..........................  Parking Spaces.......................    01/01/98-12/31/00       167,000
        National Academy of Sciences......  Research.............................    02/04/98-06/01/00     1,400,000
    Office of Management and Budget (OMB):
        Computech.........................  ADP Support Services.................    09/20/96-09/21/01     6,000,000
        IMC...............................  ADP Support Services.................    11/01/95-11/02/00     3,000,000
        Kinetic Technology................  ADP Support Services.................    07/03/97-07/03/02     1,000,000
    Office of Administration (OA):
        Sand Creek........................  Employee Assistance Program..........    03/31/95-09/30/98       125,000
        Chrysler..........................  Vehicle Lease........................    01/01/95-09/30/97       265,000
        SAS...............................  Software License.....................    10/01/94-09/30/97       154,000
        IMC...............................  ADP Services.........................    02/26/96-02/25/01     3,000,000
        Desktop Data......................  Wire Service.........................    10/01/96-09/30/98       188,000
        Northrop-Grumman..................  ADP Facility Operations..............    10/01/97-09/30/02    50,000,000
        Chrysler..........................  Vehicle Lease........................    10/01/97-09/30/02  ............
        Digital Equipment.................  Lease of ADP Facility................    01/24/96-05/28/97       937,000
        Pulsar Data Systems...............  ADP Hardware.........................    02/09/93-09/30/96     6,500,000
        IBM...............................  ADP Hardware.........................    01/21/93-02/21/93       173,000
        Anderson & Assc...................  Telephone Consultant.................    05/01/93-05/01/94       117,500
        AT&T..............................  Telephone System.....................    07/01/93-06/30/03     6,400,000
        Bell Atlantic.....................  Telephone Service....................    07/01/93-06/30/03     6,800,000
        Innovative Interfaces.............  Library Automation...................    09/30/93-03/31/99       332,000
        Advanced Integrated Tech..........  ADP Maintenance......................    03/01/94-09/30/95       371,000
        Subsystem Tech....................  Help Desk Support....................    03/29/94-09/30/98     2,300,000
    United States Trade Representative
     (USTR):
        Computer Dynamics.................  ADP Support Services.................    10/01/94-04/15/95       255,000
        TWD...............................  ADP Support Services.................    06/01/96-05/30/01     3,000,000
        Deloitte & Touche.................  Trade Consultant.....................    09/09/93-02/28/94       483,000
        Desktop Data......................  Wire Service.........................    10/01/96-09/30/98       131,000
    White House (WH):
        US Newswire.......................  Wire Service.........................    04/01/95-05/01/98       566,000
        ISI...............................  Software Maintenance.................    02/01/96-09/30/98       327,000
        Resumix...........................  Automated Personnel System...........    02/04/93-09/30/95       349,500
        ABR Assoc.........................  Mailing Services.....................    08/12/93-02/11/94       326,000
    ----------------------------------------------------------------------------------------------------------------

                                                               EXHIBIT 7.--EXECUTIVE OFFICE OF THE PRESIDENT 1997 AND 1998 STAFFING LEVELS
                                                                                         [Target versus onboard]
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Fiscal year 1997 target/auth.      September 30, 1997, onboard      Fiscal year 1998 target/auth.        April 21, 1998, onboard
                                                             ---------------------------------------------------------------------------------------------------------------------------------------
                         Agency/account                                     Other                             Other                             Other                             Other
                                                               Onboard   government    Total     Onboard   government    Total     Onboard   government    Total     Onboard   government    Total
                                                              personnel   employees   onboard   personnel   employees   onboard   personnel   employees   onboard   personnel   employees   onboard
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    White House Office......................................        400          30        430        391          63        454        400          30        430        396          38        434
    Office of Administration................................        192  ..........        192        174  ..........        174        192  ..........        192        174           2        176
    Special Assistant to the President......................         21          11         32         20           5         25         21          11         32         21           8         29
    Special Residence of the Vice President.................          1  ..........          1          1  ..........          1          1  ..........          1          1  ..........          1
    Office of Policy Development............................         31           8         39         29           6         35         31           8         39         29           6         35
    Council of Economic Advisers............................         35  ..........         35         29           4         33         35  ..........         35         32           3         35
    National Security Council...............................         60          88        148         41         115        156         60          88        148         43         111        154
                                                             ---------------------------------------------------------------------------------------------------------------------------------------
          Subtotal..........................................        740         137        877        685         193        878        740         137        877        696         168        864
    Council on Environmental Quality........................         19           3         22         18           1         19         23           3         26         19  ..........         19
    Executive Residence at the White House..................         89  ..........         89         88  ..........         88         89  ..........         89         88  ..........         88
    Office of National Drug Control Policy..................        124          30        154        102          30        132        124          30        154        114          30        144
    Office of Science and Technology Policy.................         39  ..........         39         31           4         35         39  ..........         39         33           2         35
                                                             ---------------------------------------------------------------------------------------------------------------------------------------
          Total, Cumulative.................................      1,011         170  \1\ 1,181        924         228      1,152      1,015         170  \2\ 1,185        950         200      1,150
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ Fiscal year 1997 target, 1,181; fiscal year 1997 average, 1,118.
    \2\ Fiscal year 1998 target, 1,185; fiscal year 1998 average (as of 4/21/98), 1,151.

                                     ______

                                  [exhibit 8]
           White House Office Interagency Agreement Fiscal Year 1998
    Agreement No.: I8BWCAB01A0
    Agreement between White House Communications Agency (hereinafter
            Servicing Agency) and White House Office (hereinafter Customer
            Agency):

        Authority.--This agreement is entered into under the authority of
    the National Defense Authorization Act for fiscal year 1997, Public Law
    104-201, Section 912, 110 Stat. 2422, 2623 (codified at 10 U.S.C.
    section 111 nt); 31 U.S.C. section 1346(b); 601 of the Economy Act of
    1932, as amended, 31 U.S.C. SS 135-36; and the authorizing legislation
    of these two agencies.
        Services to be Performed.--The Servicing Agency agrees to provide
    services as reflected herein, as requested by the Customer Agency.
    Services performed are in accordance with the Memorandum of
    Understanding between the White House Communications Agency and the
    White House Office. The initial estimated amount of this agreement is
    as follows.

    Stenographic Services Support...........................        $306,000
    Newswire Services Support...............................         635,000
    Audiovisual Services Support............................       3,553,000
                        --------------------------------------------------------
                        ____________________________________________________
          Total.............................................       4,494,000

        Period of Agreement.--This agreement will commence on October 1,
    1997 and will remain in effect until terminated by both parties. The
    paragraphs delineate the understanding and terms of this agreement. The
    agreement will remain in effect as long as the availability of funds is
    provided to the Servicing Agency. This agreement may be modified with
    the consent of all participating units.
        Financial Provisions.--The Customer Agency has established an
    estimated amount of $4,494,000 for services provided under this
    agreement. The Office of Administration, Financial Management Division,
    has assigned a document control number to this agreement. Payment for
    services will be made on a monthly basis, or as agreed upon by the
    parties herein.
        Termination.--If termination of services is desired prior to the
    expiration of this agreement the Customer Agency will request, in
    writing, deactivation of the account, citing the appropriate account
    numbers and date of termination.
        Delegation of Authority.--The Customer Agency hereby authorizes the
    Servicing Agency to provide services on a reimbursable basis. The
    Servicing Agency will provide the services and be reimbursed by the
    Customer Agency. The Customer Agency will reimburse the Servicing
    Agency for any non-telecommunications support provided to the White
    House by the Servicing Agency that results in additional cost to the
    Servicing Agency. Costs associated with common use infrastructure are
    non-reimbursable, except for support provided solely for the benefit of
    the White House.
        Billing Instruction.--Cost transfers are done transferring charges
    from WHCA's Direct to Reimbursement accounts. A voucher for Transfer
    between Appropriations and/or Funds (SF 1080 billing) is prepared based
    on the cost transfers by the Defense Finance and Accounting Services
    (DFAS) and forwarded to the White House for information only. Costs
    will automatically be charged to the accounting classification provided
    by WHO thru DFAS.
        Accounting Classification.--The accounting classification is to be
    provided by the Customer Agency to the servicing Agency at the
    beginning of each fiscal year.
        Accounting Classification to charge is as follows:

    Agency Location Code: 11010001
    Appropriations No.: 1180110
    Index Code: B115A
    Object Class: 251103

    Fiscal year 1998 Interagency Agreement between: the White House Office
            (hereinafter Customer Agency) and the White House Communication
            Agency (hereinafter Servicing Agency)
    To: Reimburse the Department of Defense for Military Personnel

        Authority.--This agreement is entered into under the authority of
    the National Defense Authorization Act for fiscal year 1997, Public Law
    104-201, Section 912, 110 Stat. 2422, 2623 (codified at 10 U.S.C.
    section 111 nt); 601 of the Economy Act of 1932, as amended, 31 U.S.C.
    SS 1535-36; and the authorizing legislation of these two agencies.
        Services to be Performed.--This agreement establishes the financial
    arrangements between the White House Office (WHO) and the White House
    Communication Agency (WHCA) to reimburse the Department of Defense for
    the military personnel costs associated with providing non-
    telecommunications services to WHO through the WHCA.
        Services performed are in accordance with the Memorandum of
    Agreement between the Department of Defense and the White House Office.
    The initial estimated amount of this agreement is as follows:

    Military Personnel, Army................................      $2,100,000
    Military Personnel, Navy................................       1,700,000
    Military Personnel, Marine Corps........................         100,000
    Military Personnel, Air Force...........................       1,100,000
                        --------------------------------------------------------
                        ____________________________________________________
          Total.............................................       5,000,000

        Period of Agreement.--This agreement will commence on October 1,
    1997, and will remain in effect until September 30, 1998. The
    paragraphs of this agreement delineate the understandings and terms of
    this agreement. This agreement may be modified with the consent of all
    participating parties to this agreement.
        Financial Provisions.--The Customer Agency has established an
    estimated amount of $5,000,000 for services provided under this
    agreement. The Office of Administration, Financial Management Division,
    has assigned a document control number to this agreement. Payment for
    services will be made on a monthly basis, or as agreed upon by the
    parties herein.
        Termination.--If termination of services is desired prior to the
    expiration of this agreement the Customer Agency will request, in
    writing, deactivation of the account, citing the appropriate account
    numbers and date of termination.
        Billing Instructions.--This document grants Defense Finance and
    Accounting Services Operating Location Pensacola (DFAS-PE) authority to
    charge the White House Office (WHO) accounting classification below
    monthly for non-telecommunications military personnel assigned to White
    House Communications Agency (WHCA). At the end of the month, the White
    House Communications Agency will provide DFAS-PE and the White House
    Office with a monthly report listing all personnel assigned to
    reimbursable positions. DFAS-PE will bill WHO monthly based upon
    monthly actual non-telecommunications-related personnel strength
    reports generated from WHCA.
        DFAS-PE will prepare vouchers for Transfer Between Appropriations
    (SF1080 billing) based on monthly detailed reports of non-
    telecommunication personnel assigned to WHCA at the end of each month.
    The SF1080 forms should be forwarded to the White House Office for
    information only. DFAS-PE may automatically charge the accounting
    classification below without prior approval from WHO. Upon review of
    either party, payments may be adjusted to correct errors.
        Accounting Classification.--The accounting classification is to be
    provided by the Customer Agency to the Servicing Agency at the
    beginning of each fiscal year.
        Accounting Classification to charge is as follows:

    Agency Location Code: 11-01-0001
    Appropriations Code: 1180110
    Index Code: B125A
    Object Classification: 253200
                                     ______

                                  [exhibit 9]
     Memorandum of Understanding Between the White House Office (WHO) and
                        the Department of Defense (DOD)
        1. Authority: This Memorandum of Understanding (MOU) is entered
    into under the authority of the National Defense Authorization Act for
    fiscal year 1997, Public Law 104-201, Section 912, 110 Stat. 2422, 2633
    (codified at 10 U.S.C., section 111 nt); Section 601 of the Economy Act
    of 1932, as amended, 31 U.S.C. Sec. Sec.  1535-1536; and the
    authorizing legislation of these two agencies.
        2. Purpose: This MOU outlines the agreement involving non-
    telecommunications support services to be provided by the White House
    Communications Agency (WHCA) to the White House Office (WHO)for which
    WHO will reimburse WHCA and military personnel appropriations.
        3. Compliance Oversight: WHCA will execute WHO funds and maintain
    Government property in accordance with governing DOD policies,
    instructions, standards, and any applicable statutes.
        4. Reimbursable Costs:
        a. WHCA will provide non-telecommunications support services to WHO
    on a reimbursable basis. The WHO will reimburse WHCA for all actual
    costs incurred by WHCA for non-telecommunications support services
    provided to WHO. The mechanism for identifying these costs is covered
    in Paragraph 8a and 8b of this MOU.
        b. Military personnel costs incurred by the DOD in providing non-
    telecommunications support services will be charged using the annual
    military standard composite pay rates determined by the Military
    Departments. The military composite standard pay rates will be computed
    in accordance with Chapter 6, Appendix I, ``Military Composite Standard
    Pay'' of the DOD Financial Management Regulation, Volume 11A. Military
    fringe benefits (that is, other personnel support costs) will be
    charged on the basis of a percentage of military pay costs and billed
    as part of direct costs. The applicable percentage will be in
    accordance with Chapter 6, Appendix I, ``Military Composite Standard
    Pay'' of the DOD Financial Management Regulation, Volume 11A.
        5. Categories of Support Provided: WHCA will provide the following
    categories of support:
        a. Presidential Audiovisual Events (PAE) Production Support;
        b. Photographic Lab and Services Support;
        c. Stenographic Services: WHCA will provide service through March
    31, 1998, when the stenographic contract expires. On April 1, 1998, the
    WHO will issue the stenographic contract directly;
        d. Newswire Services: WHCA will provide service through September
    30, 1998, when the Newswire contracts expire. On October 1, 1998, the
    WHO will issue the newswire contracts directly;
        e. Other Non-telecommunications Support: Other similar non-
    telecommunications support services appropriate to further the
    statutory, constitutional, and ceremonial duties of the President and
    Vice President.
        6. Requests for Services: For all routine non-telecommunications
    tasks performed by WHCA, WHO may provide WHCA with verbal requests. For
    other similar non-telecommunications support (paragraph 5e, above), the
    WHO will provide WHCA with advance notice, additional information, and/
    or written confirmation of the request to enable WHCA to adequately
    plan for those tasks and to track both services and funds expended in
    accomplishing those tasks.
        7. Period of MOU: This MOU will commence on October 1, 1997, and
    will remain in effect until either party provides the other a 1-year
    termination of services notification. The paragraphs of this MOU
    delineate the understandings and terms of this MOU and may be modified
    with the consent of both parties. Each party to the MOU will review the
    terms and conditions annually in concert with the interagency
    agreements (IAG) referenced below.
        8. Financial Provisions: The financial provision of the MOU will
    address the following two categories:
        a. Budget: The WHO will request non-telecommunications support
    services and approve annual funding levels to the WHCA for non-
    telecommunications support services during the normal DOD and WHCA
    budget cycle. The WHO will provide WHCA with projections of future non-
    telecommunications support requirements so that WHCA can develop
    reimbursable estimates. Each year before July 31, WHCA must provide a
    budget estimate for the cost of these non-telecommunications support
    services for the upcoming President's Budget. Included in this estimate
    will be any new initiatives, system upgrades, and major projects.
        b. Funding: At the beginning of each fiscal year, WHO will
    establish IAG's with WHCA and/or DOD to cover the actual costs of
    procurement, operations, and personnel related to non-
    telecommunications support services for that fiscal year. If additional
    funds are needed, the IAG's can be amended to provide the additional
    funding. WHCA and DOD will notify WHO of projected unused funds by
    August 1 of the fiscal year and will return the funds before the end of
    the fiscal year.
        c. The IAG's will define billing and payment procedures.
        9. Property Accountability: WHCA will retain accountability and
    responsibility for the inventory of all equipment, supplies, and
    materials purchased to support WHO. WHCA will maintain property in
    accordance with DOD property management and accountability policies and
    instructions.
        10. Documentation: WHCA will maintain a complete file of all cost
    and service reports, all written requests for services, and detailed
    cost support data.
        11. Reporting Requirements: Each month WHCA will provide a report
    to WHO detailing monthly costs and services by each category of
    support.
        12. Management Controls: Both WHCA and WHO will implement internal
    management control procedures to ensure resources are executed in full
    compliance with governing public laws and DOD policies and with a
    minimum of risk of fraud, waste, and abuse of these resources.
        13. Approvals: David J. Kelley, Lieutenant General, Director,
    Defense Information Systems Agency; John R. Dankowski, White House
    Office.
    [GRAPHIC] [TIFF OMITTED] T13MY07.012

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 1999

                                  ----------

                             THURSDAY, MAY 14, 1998

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:40 a.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)
    presiding.
        Present: Senators Campbell, Faircloth, and Kohl.

                           DEPARTMENT OF THE TREASURY

                    Bureau of Alcohol, Tobacco and Firearms

    STATEMENTS OF:
            JOHN W. MAGAW, DIRECTOR
            GALE ROSSIDES, ASSISTANT DIRECTOR, TRAINING AND PROFESSIONAL
                DEVELOPMENT

                           NONDEPARTMENTAL WITNESSES

    STATEMENTS OF:
            EDWARD N. KONDRACKI, CHIEF, LA CROSSE POLICE DEPARTMENT, LA
                CROSSE, WI
            CHIEF DEPUTY SHERIFF CUYLER WINDHAM, CUMBERLAND COUNTY
                SHERIFF'S OFFICE, FAYETTEVILLE, NC

                                Opening Remarks

        Senator Campbell. Good morning. The Treasury Subcommittee
    will be in session. I apologize for being a little late. We
    have a bunch of conflicts today, the usual set of circumstances
    here, as my Senator colleagues know.
        Today we will learn more about a program sponsored by the
    Bureau of Alcohol, Tobacco and Firearms [ATF] to help States
    and local communities educate our youngsters about alternatives
    to gangs. Unfortunately, gang activity has increased in our
    country in recent years. The ATF has developed a program to
    give our children the tools they need to be able to resist the
    temptation to belong to a gang.
        The Gang Resistance Education and Training [GREAT] Program
    is only 6 years old, but has already grown from a pilot program
    in Arizona to classrooms all over the United States. There are
    GREAT programs now in Puerto Rico, Canada, and overseas
    military bases.
        I certainly want to thank the ATF for responding to this
    subcommittee's recommendation that they expand the GREAT
    Program into Indian country where there's been an increase
    steadily in gang activity over the past 10 years.
        The ATF estimates that about 1 million children are
    receiving GREAT training. According to the National Institute
    of Justice, the GREAT Program is having a positive effect on
    student activities and behaviors and is deterring them from
    involvement in gangs. As a side benefit of that program, of
    course, the graduates seem to be doing a better job in
    communicating with their parents, their teachers, and getting
    better grades.
        Last year, Congress appropriated $13 million for the GREAT
    Program, $2 million more than the President requested. Of that,
    $10 million goes to State and local agencies in the form of
    grants to assist them in providing the offices and the officers
    to conduct this training in local classrooms.
        With us this morning are John Magaw--nice to see you, Mr.
    Magaw--Director of the ATF, along with Gale Rossides, the ATF
    Assistant Director for Training and Professional Development.
    They will tell us more about the GREAT Program and how local
    communities can participate.
        We will also hear from Edward Kondracki, the Chief of the
    La Crosse, Wisconsin Police Department. The chief has been
    involved in the GREAT Program for a number of years and can
    speak from firsthand experience on how well the program works.
        In addition, Chief Deputy Sheriff Cuyler Windham of the
    Cumberland County, NC, Sheriff's Office will express his
    interest and desire that the GREAT Program be expanded into his
    area.
        And last, but most certainly not least, we will have an
    opportunity to listen to youngsters who have graduated from the
    GREAT programs and some of their instructors, too. I will
    introduce them as they come to the second panel. I also would
    like to acknowledge that we have many visitors, including
    parents and supporters of these youngsters, in our audience
    today and we certainly welcome them here, too, and thank them
    for the support they have given to our law enforcement agencies
    and certainly the youngsters themselves.
        We will also, although they will not be a panel, I
    understand we have a GREAT class here from the city of
    Baltimore with four of their instructors and we welcome you to
    this hearing, too.
        With that, I yield to Senator Kohl for an opening
    statement.

                           Statement of Senator Kohl

        Senator Kohl. Thank you, Mr. Chairman, for your continued
    appreciation for and commitment to crime prevention programs.
    We have worked hard in the past to preserve these programs and
    to educate our colleagues about the value of a balanced
    anticrime strategy. I look forward to working closely with you
    again this year to give prevention the investment it deserves,
    both through the GREAT Program and the Commerce, Justice,
    State, and judiciary bill.
        I would like to take this opportunity to welcome our guests
    from La Crosse, WI, who have come to share their GREAT
    experiences with us today. I especially want to thank La Crosse
    Police Chief Ed Kondracki for joining us today. Chief Kondracki
    is to be commended for his work to combat youth violence in the
    La Crosse area.
        Chief Kondracki is a strong supporter of boys' and girls'
    clubs, and 2 years ago, we created a new community police
    center. It is unique because the building that now houses
    community policing programs is a former warehouse that was used
    for various criminal activities in the past.
        There is no better example of how you can turn a
    neighborhood around and make a difference in the community. We
    know La Crosse is a potential candidate for consideration as a
    future Midwest training facility. Given the success of their
    efforts, I urge members of the decisionmaking committee to
    reward La Crosse for their work.
        Just a few brief points about GREAT. First, it sends the
    right message: Stop gang violence. It is the type of violence
    that intentionally separates children from their parents at a
    time in their lives which demands the closeness and patience of
    parental guidance. It is the type of violence that creates gun-
    toting 10-year-old children, quick on the draw, and showing no
    remorse when they kill.
        It is the type of violence that has spread beyond our big
    cities to smaller areas like La Crosse and Green Bay, WI, and
    the Menomonee Indian Reservation in northeastern Wisconsin.
        Second, GREAT uses the right messenger, law enforcement
    officers themselves who often tell us, ``We need more
    prevention.'' Through their enthusiastic participation in
    GREAT, they put their words into action.
        And third, GREAT works. Preliminary studies show that it
    reduces delinquency, gang membership, and drug use. These
    ongoing evaluations provide a good model for further
    investments in prevention that are both responsible and
    worthwhile. Mr. Chairman, programs like GREAT add balance to
    ATF's mission.
        I look forward to hearing about GREAT's accomplishments and
    what we can do to support it in the future. Thank you, Mr.
    Chairman.
        Senator Campbell. Thank you. Senator Faircloth.

                         Statement of Senator Faircloth

        Senator Faircloth. Thank you, Mr. Chairman, for holding
    this hearing. I think it is necessary to hold it because the
    GREAT Program is a wonderful proactive program designed to
    discourage our young people from becoming involved in gangs.
        Surveys show that violence in our schools is the No. 1
    education-related concern, and we have shown that we have been
    losing the war on school violence. Just last month, the
    Washington Post reported that nearly twice as many teenagers
    reported gangs in their schools in 1995 as they did in 1989, a
    50-percent increase, when no increase is acceptable.
        School administrators from my home State have found that
    gangs and violence go hand-in-hand. When the young couple gangs
    and violence with drug use and weapons, we have a total formula
    for disaster. An example of this was the shooting in Jonesboro,
    AR. A 13-year-old who was accused of shooting down four
    students and a teacher was said to have belonged to a so-called
    blood gang, which clearly indicates this is not a problem
    confined to the major cities. You cannot get much rural than
    Jonesboro, AR. So it is all over.
        Fortunately, programs like the GREAT Program have educated
    our children about the perils of gangs and offer alternative
    ways to resolve conflicts rather than through violence. Four
    communities in North Carolina, my home State, have participated
    in GREAT so far, Asheville, Winston-Salem, Wilmington, and
    Salisbury. I commend them for their leadership in the area.
        Some may say that small involvement in the GREAT Program
    means there is little gang activity in their State. I believe
    we should not wait until there is evidence of a gang before we
    start using GREAT in a school district. We must continue to be
    proactive and educate our young people about the dangers of
    gangs. If we wait until there is a problem, it is too late. We
    could be facing the Arkansas-type situation.
        Thank you, Mr. Chairman. I would also like to recognize
    Deputy Cuyler Windham from Fayetteville, NC, who is testifying
    here today. I welcome him here and look forward to his
    testimony and that also of the other members testifying.
    Cuyler, thank you for being here.
        Mr. Windham. Thank you, Senator.
        Senator Campbell. With that, we will start in the order
    that I introduced you with Director Magaw first and Gale
    Rossides second, Chief Kondracki and Sheriff Windham last.
    John, go ahead.

                           Statement of John W. Magaw

        Mr. Magaw. Mr. Chairman, I appreciate the opportunity to
    discuss the merits of our school-based gang prevention program
    known as GREAT. With me is our Assistant Director for the
    Office of Training and Professional Development, Gale Rossides,
    whose office oversees the GREAT Program within ATF.
        We will be very short in our comments because the most
    important witnesses are the young people and their instructors.
        Since the inception of the GREAT Program in 1991, over
    3,300 police officers from over 1,400 agencies have been
    trained to teach the core curriculum in the classroom. These
    uniformed officers have taught well over 1 million children in
    50 states, the District of Columbia, Puerto Rico, and Guam.
    They have taught America's children about the critical concepts
    of gang resistance, successful conflict resolution, self-
    esteem, dealing with peer pressures, and quality of life
    expectations.
        There is a GREAT national policy board which consists of
    the police chief in Phoenix, AZ; the Director of the Federal
    Enforcement Training Center; and the Director of ATF. We have
    recently expanded that national board to include the sheriff of
    Orange County, FL; the police commissioner of Philadelphia, PA;
    and the chief of police in Portland, OR. As Senator Kohl
    referred, we will be adding a Midwest representative at our
    meeting next month in Phoenix.
        These agencies will set up and administer regional training
    sites while bringing added value to our national policy
    considerations because of the variation of their cities' size
    and population. This composition will better service the
    expansion needs of areas all over the country.
        The board also actively seeks relationships with
    organizations that are already in position such as the boys'
    and girls' clubs, the Boy Scouts of America, the National Youth
    Sports Program, the Police Athletic League, and I could go on
    with others.
        GREAT offers a meaningful opportunity to literally save
    lives, the life of the young person who may be at risk of going
    down the wrong path, if you will, and the lives of his or her
    potential victims.
        Researchers at the University of Nebraska have studied the
    effectiveness of GREAT among 5,900 children in 11 communities.
    Their preliminary results indicate that the graduates of GREAT
    show lower levels of delinquency and risk-taking behavior and
    higher levels of self-esteem, perceived educational
    opportunities, of antigang attitudes.
        In a continuing effort to verify that this program is doing
    what we think it is, the study is continuing now on a
    longitudinal basis.
        The men and women of ATF are proud of our association with
    the students of GREAT and the law enforcement officers who make
    the program work. Mr. Chairman, that concludes my statement.
    Assistant Director Rossides also has a short statement.

                               Prepared Statement

        Senator Campbell. Thank you, Mr. Magaw. We will insert your
    prepared statement in the hearing record.
        [The statement follows:]
                      Prepared Statement of John W. Magaw
        Mr. Chairman, permit me to thank you and the distinguished Members
    of this Subcommittee for the consistent support you have provided the
    Gang Resistance Education and Training Program, known as GREAT, and for
    the present opportunity to discuss the merits of this school-based gang
    prevention initiative.
        With me is our Assistant Director for the Office of Training and
    Professional Development, Ms. Gale Rossides, whose office oversees the
    GREAT program for ATF.
        Since the inception of GREAT in 1991, over 3,300 police officers
    from over 1,400 agencies have been trained to teach the core curriculum
    in the classroom.
        These uniformed officers have taught well over one million children
    in 50 States, the District of Columbia, Puerto Rico, and Guam--the
    critical concepts of gang resistance, successful conflict resolution,
    self-esteem, dealing with peer pressure, and quality of life
    expectations.
        During this fiscal year, ATF is funding 33 law enforcement agencies
    that previously did not receive Federal assistance for GREAT. This
    funding was made possible by the $2 million added by Congress for
    direct support of local GREAT programs.
        GREAT's National Policy Board, consisting of the Police Chief of
    the Phoenix, Arizona Police Department, the Director of the Federal Law
    Enforcement Training Center, and the Director of ATF--has recently
    expanded to include the Sheriff of Orange County, Florida; the Police
    Commissioner in Philadelphia, Pennsylvania; and the Chief of Police in
    Portland, Oregon.
        We will be adding a Mid-West representative as well.
        These agencies will set up and administer regional training sites
    while bringing added value to national policy considerations for the
    program. This composition will better service the needs of all areas of
    the country.
        The Board also actively seeks relationships with organizations such
    as the Boys and Girls Club, the Boy Scouts of America, the National
    Youth Sports Program, and the Police Athletic League.
        Additionally, we have created a National Quality Assistance Network
    to ensure the continued integrity of GREAT; and created an Internet-
    based Clearinghouse to provide a single source for assistance and
    referral.
        GREAT offers a meaningful opportunity to literally save lives--the
    life of the young person who may be at risk of going down the wrong
    path--and the lives of his or her potential victims.
        Researchers at the University of Nebraska studied the effectiveness
    of GREAT among 5,935 children in 11 communities. Their preliminary
    results indicated that the graduates of GREAT show lower levels of
    delinquency and lower levels of risk-taking behavior--and higher levels
    of self-esteem, perceived educational opportunities, and anti-gang
    attitudes.
        In a continuing effort to verify the data and results, the study is
    continuing on a longitudinal basis.
        AFT takes great pride in our association with the graduates and
    officers present today and the many more fine individuals they
    represent.
        Mr. Chairman, that concludes my statement. Ms. Rossides will now
    present a brief history and discuss the curriculum and how it is
    managed. Thank you.

                           Statement of Gale Rossides

        Senator Campbell. Gale, if you'd like to proceed?
        Ms. Rossides. Good morning. The Gang Resistance Education
    and Training Program began as a partnership between local law
    enforcement and ATF who developed the nine-lesson middle school
    curriculum. Since then, a shorter third and fourth and fifth
    and sixth grade curriculum, as well as a summer component, have
    been developed.
        The program involves training officers to become successful
    classroom instructors. The instructional format for the
    officers' training provides a spirit of cooperation from
    modeling each lesson of the curriculum and requires officers to
    present a lesson through the use of role plays and group
    exercises.
        Some of the topics that the students are presented include
    an introduction which allows a student to develop a rapport
    with the officer and learn about the program, and other topics,
    including crime and victims, cultural sensitivity, conflict
    resolution, and goal-setting. Each lesson builds upon the
    previous lesson and reinforces the concepts of reducing gang
    involvement and youth violence.
        For a moment, I will describe some of the structure in
    managing the program. The national policy board sets the
    overall direction for the program. Then below that body is the
    national training committee. Each agency board member has a
    subordinate assigned to this committee who meets to deal with
    the day-to-day issues involved in the operation of the GREAT
    training.
        ATF's roles include the responsibility for managing the
    cooperative agreements to fund local communities and pay for
    the evaluation of the program and the delivery of officer
    trainings. GREAT is designed to strengthen the effectiveness of
    its classroom lessons at the end of the school year.
        With cooperation from the community, parents, law
    enforcement agencies, we supplement the GREAT curriculum with a
    summer program. In addition to a well-rounded and structured
    environment during the summer, the children enjoy recreational
    games, outings, and community service projects.
        In summary, the success of the GREAT Program is founded on
    the mutual commitment of law enforcement and education agencies
    who unite to provide children with accurate knowledge about
    gang involvement, to provide them with the skills necessary to
    resolve conflicts peacefully, and to understand the need to set
    goals.
        The dedication of the parents, the police, and the school
    agencies is an essential part to the program's success, and the
    Bureau and its partners are thoroughly committed to this
    program. Again, I thank you for the support that you've
    provided for the GREAT Program.
        We would like to show you an excerpt of a video taken in a
    classroom setting. It is an excerpt of a role-play exercise.
    The GREAT officer is actually playing the role of the student
    and the student is acting as the principal. At the end, a
    student in the class summarizes his experiences with GREAT.
        Following this panel, it will be our pleasure to have you
    hear from the officers and students who have traveled here to
    give testimony about their GREAT experiences.
        [Videotape played.]
        Senator Campbell. I know that did not show the whole thing,
    but because of time constraints, we would like to spend a
    little more time with the youngsters when they have their
    panel, so we will just end with that part of the presentation.
        Ms. Rossides. Thank you.
        Senator Campbell. Did you have further comments, Gale?
        Ms. Rossides. No, sir; I did not.

                               Prepared Statement

        Senator Campbell. Thank you, Ms. Rossides. We will insert
    your prepared statement in the hearing record.
        [The statement follows:]
                     Prepared Statement of Gale D. Rossides
        Thank you Director Magaw. Good morning, Mr. Chairman and members of
    the Subcommittee.
        The Gang Resistance Education and Training (GREAT) program began in
    fiscal year 1992 as a partnership between police officers and ATF
    special agents, who developed a nine-lesson middle school curriculum,
    with the goal of reducing gang involvement and youth violence. Since
    then, a shorter third/fourth and fifth/sixth grade curriculum, as well
    as a summer component, have been developed.
        The GREAT Program helps children become responsible members of
    their communities. The Program involves training officers to become
    successful classroom instructors by ensuring a supportive learning
    environment that causes students to become enthusiastic.
        The instructional format for the officers' training provides a
    spirit of cooperation for modeling each lesson of the curriculum and
    requires officers to present a lesson which is the keystone to the
    Program's success. Other strengths of the training program include its
    use of role-play technique and group exercises.
        Now, let me review briefly some of the topics that are presented to
    the students.
        The first class is an Introduction, which allows the students to
    become acquainted with the program and the officer. Other classes
    include: ``Crime/Victims'' which covers the impact that crime has on
    victims and neighborhoods; ``Cultural Sensitivity'' is where students
    examine their own cultures and learn to appreciate cultural differences
    and how they impact the community; ``Conflict Resolution'' is taught as
    a six-step process in two sessions; and ``Goal Setting'' encourages
    students to realize the importance of setting goals in life.
        Each lesson builds upon the previous lesson and reinforces the
    concepts of reducing gang involvement and youth violence.
        Now, let me describe the structure of the Program and how it is
    managed.
        The National Policy Board meets to review recommendations and set
    the direction of the program. Below that body is the National Training
    Committee. Each agency board member has a subordinate assigned to this
    Committee who meets to deal with the day-to-day issues regarding GREAT
    Officer Training, the curriculum, and the effectiveness of the program.
        ATF's roles include responsibility for managing Cooperative
    Agreements that serve to fund communities; and we pay for the
    evaluation of the program and the delivery of officer trainings.
        GREAT is designed to strengthen the effectiveness of its classroom
    lessons at the end of the school year. In cooperation with the
    community, law enforcement agencies can supplement the GREAT curriculum
    with a summer Program. In addition to a well-rounded and structured
    environment, youth enjoy recreational games, outings and community
    service projects.
        In summary, the success of the GREAT Program is founded on the
    mutual commitment of law enforcement and education agencies to unite in
    common goals: To provide children with accurate knowledge about gang
    involvement; to provide children with the skills necessary to resolve
    conflicts peacefully; and to understand the need to set goals.
        The dedication of the police and school agencies is an essential
    ingredient to the Program's success. The Bureau and its partners are
    thoroughly committed to this innovative, comprehensive gang and
    violence prevention program.
        Again, thank you for the support that you have provided for the
    GREAT Program. Now, we will show you an excerpt of a video taken in a
    classroom setting for a role-play exercise. The GREAT Officer is
    playing the role of the student and the student is acting as the
    principal. At the end, a student summarizes his GREAT experience.
        Following this panel, it will be our privilege to have you hear
    from the officers and students who have traveled here to give testimony
    about their experiences with GREAT.

                        Statement of Edward N. Kondracki

        Senator Campbell. OK. Chief, if you would like to proceed?
        Mr. Kondracki. Senator Campbell, members of the
    subcommittee, Senator Kohl and Senator Faircloth----
        Senator Faircloth. Chief, if you don't mind, would you pull
    the microphone a little closer to you?
        Mr. Kondracki. All right.
        Senator Faircloth. Thank you.
        Mr. Kondracki. Thank you for this opportunity to talk to
    you about this important issue of gangs. As you could see in
    the film and the comments by the young man, gangs, drugs, and
    violence are a concern to our young people in our classrooms
    across the country.
        I have had the opportunity to be the chief of police in the
    city of La Crosse for the last 5 years, and that is a city of
    53,000 people. We have 94 sworn police officers. Prior to that,
    I spent 28 years in the city of Milwaukee Police Department,
    which is the 10th largest municipal police agency in the
    country, employs 2,800 employees, and polices a community of
    about 1 million.
        I also teach community policing around the country for
    Northwestern University and I have taught police administration
    at Marquette University. All of this has given me the
    opportunity to personally see the gang situation evolve both in
    large and small communities.
        What I have seen is quite disturbing. The Office of
    Juvenile Justice Assistance predicts that if current trends
    continue, violent crime by young people is expected to double
    in this country by the year 2010.
        After 33 years in policing in both medium and large-sized
    police departments, I am convinced that any effort to reverse
    this disturbing trend requires a partnership between schools,
    the police, the community, parents working together. I have
    provided you with a handout of the city of La Crosse's gang
    strategy and in it, it emphasizes community, education,
    alternatives, and enforcement.
        Enforcement is only one-quarter of our strategy since we
    feel that that is about how much time we spend enforcing the
    law and we need to look at the other aspects of a communitywide
    approach.
        The GREAT Program is a cornerstone of the city of La
    Crosse's antigang strategy. It is that kind of a program. We
    call it community policing. Community policing is sweeping the
    country. The GREAT Program truly differs from any other program
    that I have had the occasion to see.
        It has three major components. One is a parent component.
    The other is a school component. It pertains to a classroom
    curriculum. The third component is a summer program. In La
    Crosse, we are providing 300 students each day for 5 weeks with
    an alternative opportunity. We are addressing parents through
    our Another Way Program.
        Senators, I can tell you that parents, with tears streaking
    down their faces, have told me that they have never seen a
    program as effective as the three components of GREAT when they
    are working together.
        In our community, we saw a 45-percent increase in juvenile
    arrests over the course of 3 years. We saw a 15 percent annual
    increase in juvenile arrests. I am happy to say that since the
    beginning of the GREAT Program, we have reversed that trend
    and, in fact, arrests have begun to decline.
        We have been involved in GREAT now since 1994. We have also
    noticed that the number of young people who claim to be gang
    members in La Crosse has gone down. We have seen the presence
    of graffiti, which is considered the most obvious sign of gang
    activity, decrease in our city. We have also seen gang-related
    shootings decrease in our city.
        After teaching community policing around the country for
    the last 10 years, I have never seen a more effective program
    than the GREAT Program. I am concerned, however. I am concerned
    about the fact that only 5 percent of the police departments in
    the United States employ more than 100 employees. That means
    that 95 percent of the police departments in our country have
    less than 100 police officers, most have less than 50, and many
    have less than 10.
        Policing in the United States is about small agencies. What
    we are seeing is a migration of gangs. The national trend is
    for gangs to move from larger communities to smaller
    communities. They are doing it primarily to escape crime. The
    irony is that many families moving to cities like La Crosse and
    other small and medium-sized communities are bringing young
    people with them who have already been integrated into the gang
    philosophy.
        Our challenge then for the 95 percent of our smaller
    agencies is to see to it that we address that gang philosophy
    and mentality early on. I believe that is why we have been as
    successful as we have in La Crosse.
        I applaud Director Magaw of the ATF and his staff for their
    leadership. Without the GREAT Program and without their
    leadership, none of this, I believe, would be possible.
        I would like to take this opportunity to encourage you to
    expand funding for the GREAT Program. There is no more cost-
    effective program. When we consider the $33 billion that has
    been set aside in the crime bill, I think we need to be more
    proactive in funding programs like GREAT. The ATF needs
    sufficient funding to assist police agencies of all sizes
    across our country.
        We can reverse this trend, the trend toward youth violence.
    GREAT is already doing it. Now we need to bring this program to
    every community, large and small, in the country.
        Senators, at times, I feel a little bit like a voice crying
    in the wilderness, if you will. My message is a simple one.
    Community policing works. GREAT is community policing at its
    best. The challenge to law enforcement nationally is that of
    meeting increased demands with limited and often diminishing
    resources.
        I would encourage you to fund this program so that police
    agencies of every size can bring the GREAT Program to their
    communities, and that is only possible by increasing the amount
    of funding that is going to ATF and the GREAT Program. Thank
    you.
        Senator Campbell. Thank you. Sheriff, if you would like to
    continue.

                          Statement of Cuyler Windham

        Mr. Windham. Thank you, Mr. Chairman, Senator Faircloth,
    Senator Kohl. I am here today to basically ask that funding be
    allowed so my department can continue the school program that
    we have. In Cumberland County, NC, we are basically charged
    with protecting the schools. We have the school resource
    officers and we also teach DARE in the schools.
        About 2 years ago, we started trying to identify if we had
    a gang problem. Much to our amazement, we determined we had 25
    to 30 different types of gangs in our county. Some of these are
    small community gangs. Some of them refer to nationally known
    gangs such as the Crips and the Bloods I think everybody has
    heard about.
        They may belong to them or they may not. It does not make
    any difference if they are gang members or if they are wanna-be
    gang members. We refer to people that do not belong to a
    national gang a lot of times as wanna-bes. But if they consider
    themselves a part of a gang or if they consider themselves a
    local gang and if they hurt somebody or they kill somebody, you
    are just as dead as if they belonged to the Crips and the
    Bloods.
        So we have set out to try to do something about gang
    activity in our county. The people that we have assigned to the
    schools, we do not have the GREAT Program at this point, but
    the officers that we have assigned to our schools have come to
    us, the sheriff who is here today supporting this, and myself
    as the chief deputy and asked us to try to get some training in
    GREAT. That is our intention in the future.
        Now, you have before you, I think, some photographs of gang
    graffiti that we have taken in the county. Some of it is on the
    streets and some of it are actually from the schools, high
    schools, and middle schools. You also have before you a paper
    that was put out February 27, 1998, by one of the schools in
    our county.
        One of the things that kind of touches on me from this
    paper and in this paper, on the last page, they refer to
    interviewing an individual by the name of T.C. T.C. says, ``I
    feel people are safer when they are in gangs than they do when
    they are on their own or in their own family. I also feel that
    a gang is a real family, look out for each other.''
        Unfortunately, that is what we are finding a lot when we
    are studying the gang problem in our county. A lot of the young
    people feel like they are safer. They feel like they have more
    of a family with gangs than they do at home and that is why
    they are turning to gangs.
        That is why I think the GREAT Program would be such a great
    program for us in trying to teach the young people to stay away
    from gangs and the dangers of gangs. I have one other thing
    I'll mention.
        On February 6 of this year, of 1998, we received a letter
    to Sheriff Butler, and it is addressed, ``Dear Sheriff
    Butler''--and this is a letter pertaining to a gang that we
    know that operates in our county.

        I am writing this letter seeking help for families living--

        And I am going to leave out names and addresses.

        Living on a certain street in our county. On Sunday, May 3,
    1998, I was visiting my mother. She lives with another daughter
    who is her caretaker. Mama is bedridden. She is recovering from
    a recent heart attack.
        About 3:30 p.m. Sunday, the phone rang. It was a neighbor
    calling and was telling me that a group of young white male
    skinheads had come to her home on a certain street and
    terrorized her family by spray-painting devil symbols on the
    trees in her yard and throwing handfuls of white powder dust in
    her front yard.
        We were not physically harmed and they moved on. Just as I
    was telling the nature of the phone call is when we heard what
    sounded like a platoon of soldiers. We looked out the front
    window and saw three white male skinheads running through
    Mama's front yard. They were wearing white short-sleeved shirts
    and white t-shirts and dark trousers.
        They were all clean-cut and wore no hats or no disguises.
    The men did not come to the door nor harm us. One threw a
    handful of what appeared to be white powder dust in the
    driveway in front of Mama's cars. They did not damage the two
    cars parked in the yard. They were moving real fast.
        The next few minutes, they left Mama's house and had gone
    down the driveway to another road. There two men sprayed white
    painted signs on the shoulder of the road by Mama's mailbox in
    white spray paint. The signs by the mailbox look like this.

        And she gives in this letter a symbol that is for
    skinheads.

        The symbol drawn on the pavement near the mailbox looked
    like this.

        Which is also another one.

        They did not stop there. They kept going on to another
    street.

        The point I want to make with this letter is, I do not know
    if these people belong to national skinheads or whether they
    are just wanna-bes in our community, but this lady says in this
    letter, ``We were terrified. When we dialed 911, the phone
    operator asked several questions,'' and so forth.
        But she made a point in this letter. ``Sheriff Butler, I am
    counting on you and your deputies to come out and talk with
    myself,'' and she gives names, ``and the other God-fearing
    people who live in that neighborhood of Cumberland County. I
    will testify in court when you find these young men and charge
    them that terrified our community and bring them to court for
    defacing our property.''
        Again, I just point out the fact that how terrorizing gangs
    are becoming. I know we read a lot about it in a lot of the
    larger areas. Our county is approximately 300,000 people. We
    are about 30 miles down the road from Senator Faircloth.
        Basically, I am here to point out that we have a problem.
    We think GREAT would be a good program for us to integrate with
    our DARE Program and our school resource officers to try to
    teach the young people to stay out of the gang situation. I
    thank you very much for being here today.

                               Prepared Statement

        Senator Campbell. Thank you, Mr. Windham. We will insert
    your prepared statement in the hearing record.
        [The statement follows:]
                  Prepared Statement of Cuyler L. Windham, Sr.
                      gangs in the cumberland county area
        In the Cumberland County North Carolina area, gangs are loosely
    organized. Some are part of larger structures known as Gangster
    Disciples, which are networked nationwide. But, most are loosely knit
    groups with several leaders. Most of them are non-traditional gangs and
    ``wanna-be's'', however, these gangs are the hardest to track because
    of their untraditional behavior. These gangs change their gang name and
    rules. They do not pattern their conduct to the gangs that we are aware
    of, such as the ``Crips'', ``Bloods'', ``People'', and ``Folk
    Nations'', et cetera. That's what makes it difficult to work gangs in
    our area. We have crimes committed that we're sure are gang related,
    however it is difficult to prove.
        The spread of gangs in our area can be attributed to at least four
    factors. First, parents desiring to protect their gang-culture-
    saturated children from the hometown gang's influence, send them to
    reside with relatives across the country. Occasionally this strategy
    works, but many times it merely transplants the gang culture into a new
    community. Secondly, contributing to the gang activity in Cumberland
    County is Fort Bragg, with its numerous military transfers from all
    over the country into our area. As a result, Cumberland County ends up
    with gang members from other areas who start their gang activity here.
    Children who were introduced into the gang lifestyle by association,
    end up starting gangs or gang ``wanna-be's'' in our area. The third
    contributing factor would be the illegal drug market, this being due to
    the fact that we are easily accessible from I-95 and I-40. Drugs,
    weapons and stolen property are the biggest moneymaker for gangs.
    Fourth, the news media, movies and music industries contribute largely
    to the gang problem in our area as well as throughout the nation.
        Graffiti is one of the first signs of gang activity. Cumberland
    County has located gang style graffiti on walls in our high schools,
    middle schools, on businesses, streets, and vacated buildings. Gang
    style graffiti has also been discovered in many of our neighborhoods.
    The neighborhoods which have been targeted are primarily low and middle
    income areas. The gang graffiti helps us identify different gangs,
    their territory and their rivals. In some cases gang graffiti has
    enabled us to know what a particular gang has done or is planning to
    do. Gang graffiti often times shows gang members by their monikers or
    nicknames. This occasionally aids us in identifying various gang
    members. The graffiti that has been discovered in the Cumberland County
    area, which includes Fort Bragg, Fayetteville, Hope Mills, Spring Lake,
    Stedman and the townships of Linden, Godwin, and Falcon has enabled us
    to identify ``Crip'' sets, ``Blood'' sets, ``Latin Kings'',
    ``Gangsters'' ``Disciples'', ``LaFamilia'', and other non-traditional
    gangs which associate themselves with the ``Folk Nation'' and ``People
    Nation''.
        Some communication by gang members is done through graffiti, hand
    signs or signals, tattoos, various colored bandannas, phonic alphabet,
    and by the use of gang slang terms.
        There are many identifiers of gang affiliation. For example,
    clothing, colors, hand signs, and tattoos. All of these gang
    identifiers have been found in the Cumberland County area, in our
    schools, on the streets and in our neighborhoods.
        Gangs are creating problems in many of our neighborhoods by illegal
    drug sales, damage to property, assaults, personal robberies, break-
    in's, larcenies and intimidation of residents.
        Several of our schools are experiencing problems with suspected and
    self-admitted gang members. The problems that most often occur are
    trespassing, assaults, intimidations, defacing school property and
    disruption of school functions.
        Most of the ``wanna-be'' gang members hang out at our skating
    rinks, Putt-Putt Miniature Golf Courses, shopping malls and shopping
    center parking lots. The hard-core gang members hang around streets and
    street corners of known or suspected illegal drug dealing areas in our
    county. Mobile home parks also experience problems related to gang
    activity.
        Several of the homicides committed in Cumberland County have had
    numerous reported gang members as possible suspects. Fort Bragg
    Military Police have made drug related arrests where the suspects were
    gang affiliated. They have confiscated drugs, weapons and vehicles on
    several occasions. There have been assaults, larcenies, robberies, home
    invasions, drive and walk-by shootings that were believed to be drug
    related, however ``street talk'' has given credit to these offenses
    being gang related. It is difficult to obtain information on the hard-
    core gangs because of the code of silence and unfortunately, citizens
    are fearful of giving information to law enforcement on these gangs.
    Hard core gang members would rather go to jail for a crime they didn't
    commit, rather than tell on anyone from their gang. Within the last
    year, we have noticed a behavior change in most of our gangs. Their
    behavior has turned more low-key, in order not to attract attention to
    themselves. This allows them to conduct their business without
    interference from law enforcement. We believe that this behavior change
    is due to the fact that gang members from larger known gang affiliated
    cities are educating our local gangs.
        Numerous street gangs have been identified in Cumberland County
    through information received by other law enforcement agencies, the
    local community, and self-admitted gang members. Those gangs identified
    are as follows:

    Gangster Disciples

    Black Gangster Disciples

    Eight Trey Gangsters

    21st Street Crips

    212 Crips

    Rollin 60's

    East Side Crips

    Deep Creek Road Boys

    West Side

    LaFamilia

    Old Shaw Crips

    Latin Kings

    Deuces

    The Brownside Bloods

    Insane 60's

    Eight Ball Nation

    Folk

    Hoover 107

    Locos Latinos

    Evergreen Posse

    Bloods

    Village Green Posse

    Hoover 8 Ball

    Hoover Gangster Crips

    Vice Lords

    Folk Nation

    Skinheads

    The Seabrook Bloods

    Frats

    Latin 57

    Blue Devil 64

    Little Mafia

    Insane Gangster Disciples

    Crips

    Sunset Posse

    Hell's Angels

    Outlaws

        We have encountered numerous juveniles who have branded themselves
    with gang related symbols by using coat hangers or wire. They formed
    the design with the material, heated the metal, and then burned the
    design into their skin. Some have homemade tattoos. Information has
    been received from some parents and self-admitted members about severe
    ``beat-ins''. ``Beat-ins'' are used in most gangs to initiate new
    persons into the gang, however, there are reported cases where females
    are sexed into the gang to avoid beatings. There are other ways to
    obtain gang membership. Occasionally, gangs may require persons
    interested in gang membership to commit a crime of the gang's choosing
    in order to become a member.
        Not all gangs are involved in drug trafficking and violence. Some
    steal vehicles and other items to make money for the gang.
        The Cumberland County Gang Intervention Unit works closely with the
    Fayetteville and Hope Mills Police Departments and military authorities
    to identify gang activity in the Cumberland County area. Presently we
    are working with the Violent Crimes Task Force in the attempt to target
    the larger gangs at work in our area.

                      Characteristics of the GREAT Program

        Senator Campbell. Thank you, all of you. I have a couple of
    questions. I am sure my colleagues do, too.
        Chief, I was looking through this book, as all of us were,
    and I was really interested in some of the facts and
    descriptions. Let me just read a couple things that I just
    jotted down while I was looking through that book and listening
    to testimony.
        If we were to describe a group of people that had regular
    meetings; that had stable leadership with some adults involved;
    that paid dues; mostly males; had a similar language; they had
    a similar dress code, including colors, in parentheses; they
    had similar interests; they were involved in that group for
    recognition or stature or love or understanding or respect or
    so on, we could be describing Boy Scouts or we could be
    describing a football team or something of that nature, but we
    are describing gangs.
        Clearly, one has a positive image and one has a negative
    image and it is, I guess, all our duty as Americans to try to
    substitute the positive for the negative in terms of leadership
    and uniform, all that kind of stuff.
        I would just be interested in your feedback from that
    observation, that there are so many similarities between good
    groups when you are trying to define criteria or
    characteristics, and bad groups.
        Mr. Kondracki. Senator, one of the three components of our
    GREAT Program is the Another Way Program, and that is designed
    to involve parents and it is also an effort to get kids out of
    gangs. It is reactive. We hear so much today about proactive
    programs and other ways designed to help those kids who are
    already in gangs.
        One of the ways that program evolved is when one of our
    gang officers, frankly, said he had a dream. He said he dreamt
    that he heard a gang organizer attracting young people by
    promising them that they would have safety, that they would
    have respect, and that they would have love. He said, ``You
    know, why can't we do the same thing?'' Unfortunately, kids
    join gangs for all the right reasons. That is, those are very
    positive things you have pointed out.
        GREAT tends to fill the gap as an extended family. The
    Eisenhower Commission pointed out that the causes of crime were
    a breakdown in the family, a breakdown in employment, and a
    breakdown in the neighborhoods. If that is true, GREAT is
    filling a void by operating as an extended family and by
    helping to teach kids the self-respect and the problemsolving
    skills and giving them the peer recognition that they so much
    need, but however, in a very positive, positive way.
        One of the people you are going to hear today, Sue Yang,
    who is one of our GREAT graduates, will tell you personally how
    her participation completely reversed her life for her and how
    positive GREAT has been in her particular situation.
        Senator Campbell. Well, the reason I mentioned that is
    because you do not know me and my background, but I can tell
    you that the kids who are going to be testifying, I was one of
    those youngsters, high school dropout on the streets running
    with bad groups that ended up in reformatories and so on.
        It was because of sports and a number of other positive
    replacement symbols and activities, I think I got my life
    straightened out. So I know it can be done, except it certainly
    has to come from adult leadership and community involvement.
        I noticed also in your book you mentioned some of the
    groups that you work with, NYSP, DARE, and so on. Does your
    police department also work with the Police Athletic League? It
    was not listed in here.
        Mr. Kondracki. We did in Milwaukee. We find that the
    National Youth Sports Program in our community is addressing
    those very same kinds of issues, and what we are doing, through
    a partnership with the University of Wisconsin in La Crosse, we
    are reaching out to some 300 at-risk kids for a 5-week period
    every single day during the summer.
        I think that the Police Athletic League is a very important
    program and I am happy to say, though, that the National Youth
    Sports Program is filling that void in our community.

                                Funding Criteria

        Senator Campbell. Thank you. Director Magaw, any positive
    program gets more and more requests to expand it with certain
    justification. We appropriated $10 million last year for grants
    to communities who need to participate in GREAT. Will that
    amount be sufficient to meet all the criteria of participation
    and requests?
        Mr. Magaw. Well, it is growing so fast, Mr. Chairman, that
    those funds do not meet the requests. We had 198 requests from
    cities all over America and we have been able to fund 33
    additional of those.
        Senator Campbell. This was 198 additional requests?
        Mr. Magaw. Yes; and we were able to fund 33 additional ones
    over the ones last year. We fund 107 programs right now, but
    that leaves 165 of those requests that we were unable to fund.
        Senator Campbell. It is really unfortunate that we do not
    see the bigger picture of those community activities that we
    cannot fund for those youngsters, some day we may be funding
    more in terms of prison cells. I know you have a feeling about
    that, as Senator Kohl and I both.
        The ATF has established criteria for who want to receive
    these Federal funds so they can offer the GREAT training.
    Apparently it talks about percentage of subcategories, scores,
    and so on. What does that mean in simple, laymen's terms?
        Mr. Magaw. Well, 4 years ago when I came to ATF, Mr.
    Chairman, there really were no criteria, and this is our first
    cut at criteria to try to be fair across the country with the
    limited amount of resources. How many gang members do you have
    in relationship to your population? What do you say the gang
    problem is? These forms are filled out by the communities that
    come in.
        We attach points to each one of the particular areas of
    judgment, and then when those points are totaled up, depending
    on the number of points, is the amount of funds that can be
    allotted to that community under these criteria. Every
    community that applied, the 198 that applied, a certain amount
    of funds were, by using this criteria, approved, but at 33, we
    ran out of money.

                               GREAT Instructors

        Senator Campbell. We will try to help with that. When you
    look for people that participate as instructors, officers/
    instructors, do you look for a certain kind of an individual?
    Is it just basically screened from volunteers that want to do
    that, or do you go out and try and recruit special people that
    you think would have a sensitivity to youngsters and an ability
    to work with them?
        Mr. Magaw. There is so much interest in the communities,
    for instance, in your State of Colorado, the Colorado State
    Patrol. There is more interest in their ranks, there is way
    more interest than they have slots to fill, and the quality of
    those instructors coming out of there.
        Not all who enter the program pass this instructor program,
    and so, there is a filtering at the department level, for
    instance, the Colorado State Patrol, and then when they come to
    the training program, there is additional filtering.
        There is a double filtering in the actual training program
    and that filtering is, No. 1, let's say you had four or five
    Colorado State patrolmen in there and one was not measuring up,
    they would then take care of that usually themselves;
    otherwise, the program would take care of it. I just use that
    example with the Colorado State officers.
        Senator Campbell. For the instructor officers, is it part
    of the requirement that they live in the area where they are
    instructing?
        Mr. Magaw. That is up to the individual communities. For
    instance, if you would take Portland, OR, for example, the
    chief there felt that this program was so important that he
    gave up more officers to the training program than he could
    really afford.
        What he does now is he works them 2 months in a particular
    school doing the training program, and then the two units
    rotate. A group comes in off the street in that same community
    and comes into the school, so that when they see these
    youngsters on the street, they not only see them in the
    classroom, they then see them on the street.
        In the videotape that you just saw, the officer had a
    jacket on, but underneath that was his Prince George's County,
    MD, uniform, and that is so important to have these youngsters
    see that a police officer is warm, they are caring.
        Senator Campbell. I think it would be important not only to
    see them in a structured classroom, but off duty or at least
    outside of that classroom, too, as a working human being.
        Mr. Magaw. The closest to that that I am specifically aware
    of is Portland, OR.
        Senator Campbell. Thank you. Senator Kohl, did you have
    some questions?

                            Fiscal Year 1999 Request

        Senator Kohl. Thank you, Mr. Chairman. Director Magaw, in
    fiscal year 1998, the GREAT Program received $3 million for
    administrative expenses and $10 million for dispersements
    through grants to local governments for the GREAT Program.
    Director Magaw, what is being requested for fiscal year 1999?
        Mr. Magaw. In 1999, the funding of the budget that is in
    there now is $10 million in grants and $3 million in the
    administrative costs. The total for 1999 is $15 million. It was
    $15 million and it was reduced at OMB by $2 million.
        Senator Kohl. Well, as I understand it, in 1998, the
    program got $13 million, $3 million for administrative expenses
    and $10 million for dispersements. For 1999, is it the same
    number or are you requesting more?
        Mr. Magaw. In 1999, we requested $2 million more. And
    again, Senator, it is not what this program needs, but in a
    budget year where the whole government is trying to reduce and
    trying to have a practical application, I only put forward what
    I think I have an opportunity to receive under the
    circumstances.
        We increased it by $2 million for 1999 and that was
    rejected. But my initial response is I would ask for $40 or $45
    million, but I know the end result, so I try to be practical so
    that the rest of my budget is accepted as being practical.

                          Youth Gun Crime Interdiction

        Senator Kohl. All right. Director Magaw, I also want to
    take a moment to ask about another program targeting youth
    violence that is yielding some solid results. Yesterday, 13
    indictments were handed down in Milwaukee against individuals
    allegedly involved in setting up nearly $1 million in drug
    deals.
        The accused are members of a Los Angeles-based street gang
    with operatives in Milwaukee. What is interesting about these
    indictments is that they stem from joint work by the ATF and
    the Milwaukee Police Department through a Federal program, the
    youth gun crime interdiction initiative. This program has used
    Federal resources to help local police track guns to their
    source and, in this case, led to further charges against these
    individuals.
        Director Magaw, I would like to hear your perspective on
    this program and how do you think it is working in Milwaukee
    and throughout the United States? How do you think we can
    replicate these types of success stories like we had in
    Wisconsin yesterday?
        Mr. Magaw. I think the secret, Senator, is the combined
    coordination and that is what has happened here in Milwaukee,
    not only with the Milwaukee Police Department, but the
    surrounding communities and counties. Also, the gun dealer in
    Milwaukee suspected that something was wrong here in this
    initial purchase last August, called ATF.
        We immediately involved the local police departments,
    started an investigation, and it went from Milwaukee to Los
    Angeles to Winston-Salem, NC, to Minneapolis to San Diego to
    Utah, and drugs were being transported throughout that segment
    of the country and then dispersed even more there.
        As you know, just a day or two ago, there were a number of
    arrests made all over the country at the same time. All of our
    agents all across the country go into local law enforcement and
    say, ``How can we help?''
        We understand that that is our charge from not only the
    Senate, but also the House. So this is how these cases are
    made, bringing the best of all resources together and that is
    what has happened here in the communications networks with ATF
    and other agencies.
        ATF was able to be helpful with the national net of
    communication to help tie it together from California to Utah
    to North Carolina and that is where we think our expertise is
    helpful and that is where we try to spend our resources.

                              Parental Involvement

        Senator Kohl. All right, thank you. Ms. Rossides, I would
    like you to describe the nature of parental involvement, the
    extent to which there is parental involvement, how they learn,
    how they participate, and what kind of an impact they have on
    the GREAT Program.
        Ms. Rossides. Well, the involvement of the parents is an
    essential part of the success of the program and from the
    beginning, the officers who are going to teach in the
    particular class spend time, as an orientation, with the
    parents, telling them exactly what the program is going to
    cover.
        They actually involve the parents in a lot of the homework.
    The homework gets the children in touch with their families,
    their extended families, their community issues, and the
    parents are encouraged to participate in those.
        At any given time, the parents are welcomed in the
    classroom to observe. They participate in the graduation and it
    really is a total involvement of the parent, even siblings for
    some of the children, even siblings are with the children
    today.
        Senator Kohl. You say they participate in graduation. What
    is the length of this program?
        Ms. Rossides. It is 9 weeks and then the graduation is
    usually--each community does it differently, but it is held as
    a real celebration.
        Senator Kohl. How much time is spent during these 9 weeks?
        Ms. Rossides. The classroom session is usually 1 hour and
    that----
        Senator Kohl. One hour a week?
        Ms. Rossides. Right, while they are in the school
    classroom.
        Senator Kohl. And it is taught by a police officer?
        Ms. Rossides. That is right.
        Senator Kohl. The same police officer throughout the 9
    weeks?
        Ms. Rossides. Yes.

                         GREAT Program Accomplishments

        Senator Kohl. Chief Kondracki, would you state once again
    why you think the GREAT Program is successful, why you think it
    deserves our funding? Have you had an opportunity to check back
    with graduates of the GREAT Program to confirm your conviction
    that it is a program that deserves our continuing funding?
        Mr. Kondracki. Senator Kohl, we have seen a drastic
    reduction in gang activity in La Crosse, and two of our
    students are here, two of the graduates, to talk personally
    with their own testimonials about that success. When I entered
    law enforcement in 1965, my father had spent 33 years with the
    Milwaukee Police Department and had retired as a police
    captain.
        We talked about the hazards of policing. In 1965, you could
    not remember when the last police officer had been killed.
    Today you cannot remember all their names. I think as we look
    at Law Enforcement Memorial Day, that we have to remember how
    gangs and drugs and violence have played into that escalation.
        When I came to La Crosse, they had never heard of a drive-
    by shooting. We have experienced those drive-by shootings and,
    frankly, they have been reduced with the inception of GREAT. We
    have funded our program in part through a grant from the Office
    of Refugee Resettlement and that grant is running out.
        Frankly, I think the more appropriate source of funding
    would be the crime bill. As our grant from the Refugee
    Resettlement runs out, I am concerned that we are going to lose
    our program. We have done bake sales and chile cookoffs and
    everything like that.
        When I hear Director Magaw mention that if the world could
    be the way you would want it, that $40 or $45 million would
    fund this kind of program nationally, I think, if I can be so
    bold as to state that $40 or $45 million, I believe, is a drop
    in the bucket, with all due respect, when we look at the $33
    billion set aside for the crime bill.
        As a practitioner who has been in the field for 33 years, I
    cannot tell you how cost effective it is and the direct results
    that we are seeing from GREAT. It is community policing at its
    best, so I would urge you to consider whatever funding possible
    so that every community can combat this problem.
        To fight gangs only in the large communities when we see
    this migration, by dealing with it in the surrounding
    communities, we can stop its spread. It is like fighting a
    forest fire. You prevent the spread of it and ultimately put
    out the fire.
        Senator Kohl. Thank you. Thank you, Chief Kondracki. Thank
    you, Mr. Chairman.
        Senator Campbell. Senator Faircloth.

                  Dissemination of Information to the Schools

        Senator Faircloth. Thank you, Mr. Chairman. Mr. Magaw, how
    are we disseminating the information to the schools so they can
    become a part of the GREAT Program? How can schools find out
    about it and are they finding out about it? How do we do it?
        Mr. Magaw. I think there are probably very few schools
    throughout the country that are not aware of it, and basically
    it is spread by local law enforcement, and through national
    conferences that the ATF attends for both educators and law
    enforcement officers.
        So that is the way it is spread. We do not have a national
    advertisement program. We do have some booklets that we put out
    and we send them to the different States and the communities,
    but we have done no major videotapes that are sent to all the
    schools and law enforcement agencies.
        The reason that we are now just expanding and want to
    expand to all regions of the country is that only, in the last
    2 years, has the program begun to get the kind of support
    throughout the country that it should.
        It was a brand new program. We wanted to test phase it. We
    wanted to make sure that it did work. We wanted universities to
    study it and look at it. So it is really right now to the point
    where it is ready to explode throughout the country. In order
    to be prepared to handle that, should the Congress approve such
    expansion, we expanded our GREAT board to represent all the
    regions of the country.

                        GREAT Program in North Carolina

        Senator Faircloth. I notice there were only four towns in
    North Carolina that were participating and I was just wondering
    if they were aware of what it could do and what it might do.
        Mr. Magaw. The sheriff may be better able to answer that
    question.
        Senator Faircloth. Sheriff, how did you all find out about
    it?
        Mr. Windham. Senator, we have known about the GREAT Program
    for, I do not know, 2 or 3 or 4 years. One of the problems we
    had and probably the way some of the other departments look at
    it also, is that we already have programs in the schools, the
    DARE Program and the school resource officer, which ties up a
    pretty good percentage of our manpower.
        Until recently, I did not realize that we could use those
    officers to also teach this program, and I think most of us
    were looking at the fact that we just did not have the manpower
    to institute new programs. But the 1 hour a week, we hope, can
    be taught by that school resource officer who is in the school
    for a full schoolday every day, unless he really has a busy
    schedule, and we hope that he or she will be able to teach 1
    hour a week to teach the GREAT Program.
        Our problem now is finding the funding to send these people
    away somewhere to get them trained. The original training
    center, I think for the Southeastern United States, is in
    Orlando, FL. So we have probably got, if we try to institute it
    in all of our high schools and middle schools, 25 to 30 people
    that we are going to have to have trained, or either we are
    going to have to try to bring the training to Fayetteville.
        Senator Faircloth. Thank you, Mr. Chairman. I see my time
    is up.
        Senator Campbell. I thank you and appreciate this panel
    being here. John, nice to see you again.
        Mr. Magaw. Nice to see you, sir. Thank you.
                           NONDEPARTMENTAL WITNESSES

    STATEMENTS OF:
            SARAH MARIE BARAY, STERLING, CO
            SGT. SCOTT FRIEND, COLORADO STATE PATROL, STERLING, CO
            OFFICER WILL BAKER, MESA COUNTY SHERIFF, GRAND JUNCTION, CO
            JOSH HALBERT, GRAND JUNCTION, CO
            OFFICER ROGER BARNES, LA CROSSE POLICE DEPARTMENT, LA CROSSE,
                WI
            SUSAN YANG, LA CROSSE, WI
            CHRISTOPHER HENDERSON, LA CROSSE, WI
            SGT. DAREN SIMEONA, NAVAJO INDIAN TRIBAL POLICE, WILLOW ROCK,
                AZ
            GABRIEL TOWNE, WILLOW ROCK, AZ
            BERNELL YAZZIE, WILLOW ROCK, AZ

                           Introduction of Witnesses

        Senator Campbell. We will now hear from our stars of the
    day. The second panel will be comprised of Sarah Marie Baray of
    Sterling, CO, along with Sergeant Scott Friend of the Colorado
    State Police. We will hear from Josh Halbert of Grand Junction,
    CO, with Officer Will Baker of the Mesa County Sheriff's
    Office.
        We will hear from Susan Yang and Christopher Henderson of
    La Crosse, WI, and Officer Roger Barnes of the La Crosse Police
    Department. We will hear from Gabriel Towne and Bernell Yazzie
    of Willow Rock, AZ, along with Sgt. Daren Simeona of the Navajo
    Indian Tribal Police. I thank you for appearing. You might have
    to pull a few more chairs up there. Please do that and then we
    will proceed.
        We are very happy to see you youngsters and the officers,
    too, today. I happen to be a person who believes that you can
    do anything you want in America if you are inclined to believe
    in it. For you youngsters, this may be your first time visiting
    Washington, probably the first time visiting the Senate.
        You may not know how it works, but I think I can speak for
    all of the Senators on this panel. We were not born Senators.
    We come from many, many different lifestyles and different
    kinds of childhoods. Mine, as some of my friends know, was not
    too good.
        I want to tell you of a poem I learned when I was 18 years
    old when I decided I did not want any more trouble with the
    law. That poem has stuck me with me since I was 18, Senator,
    and it goes like this. ``Young people, as you pass by, as you
    are now so once was I. As I am now, so you shall be. Prepare
    your path and follow me.''
        And it means if you see things that you think that you may
    not have a chance of ever becoming, maybe a police officer,
    maybe a teacher, maybe a college instructor or a scientist, you
    can do it. You can do it. If you are really concerned and you
    really want to, you can do it with the help of the adults that
    are sitting behind you there at the panel. I know you can do
    it.
        Let's start first with Sarah Marie Baray and we will just
    proceed and I will call your name and if you would like to go
    ahead and make a statement, do not be uncomfortable. We do have
    a little bit of a time limit because we are supposed to be out
    of here by noon and we want to ask you some questions, too. So,
    Sarah, if you would go ahead? You need to pull that microphone
    right over in front of you and speak directly into the
    microphone.

                         Statement of Sarah Marie Baray

        Ms. Baray. Dear Senators. My name is Sarah Baray and I am
    14 years of age and I live in Sterling, CO. I have lived in
    this rural community all my life.
        Senator Campbell. Pull it over a little closer, please,
    Sarah.
        Ms. Baray. I am sorry. I am glad I had the chance to be a
    part of the GREAT Program. When I started this class in March,
    Sergeant Friend noticed my name, Baray. The sergeant knew some
    history about my family. Some of my cousins and family members
    do not have the best reputation in my community and I felt
    embarrassed.
        This program made me think about the right choices I need
    to make for myself and I know I want a good reputation in my
    community. The main thing I learned from the GREAT Program was
    about choosing good friends and knowing when to think for
    myself. During class, Sergeant Friend set up situations where
    we would have to decide if we were faced with a problem.
        We practiced working out problems and came up with
    different steps to use if somebody asked us to do something
    wrong. It also helped me learn how to choose friends and what
    to look for in a person. I am learning to choose friends that
    are better for me to be hanging around with.
        I think I could use the steps I learned from the GREAT
    Program because I could use the methods when I get into a
    problem. I can work myself through the steps of the GREAT
    Program and make the right choice. As I get these steps in my
    head, I think I could teach my family and friends to make the
    right choices.
        The program needs to continue because other students need
    to learn what we have learned. All the students need to learn
    to make the right choices. Thank you.
        Senator Campbell. Sergeant Friend, I think I did that in
    reverse. I think I was supposed to call on you first, but
    nevertheless, we are glad you are here. Go ahead and if you
    have some comments, make them.

                           Statement of Scott Friend

        Sergeant Friend. Good morning, Senators. The Colorado State
    Patrol is fairly new to the GREAT Program. Under the direction
    of my chief, Colonel Westfall, we started about a year ago and
    have built our program to 28 instructors statewide. Our program
    is a partnership with seven law enforcement agencies.
        This year we will teach between 5,000 and 6,000 children
    this GREAT curriculum. I was instrumental in getting GREAT
    started within our organization and was given the opportunity
    to coordinate it statewide. From the onset, I was impressed
    with the GREAT Program. I listened to the overview of GREAT
    from the Bureau of Alcohol, Tobacco and Firearms and I knew the
    Colorado State Patrol needed to be involved.
        Even more strongly, I felt a personal calling to do this
    program. I called around the United States and talked with
    current GREAT instructors and tried to learn all that I could.
    I was increasingly impressed with GREAT the more I
    investigated. I was ecstatic the day I learned that the
    Colorado State Patrol was receiving funding.
        I would like to tell you about what GREAT has done for our
    officers, for our agencies, for our communities, and most of
    all, for our youth. First of all, what are the benefits to the
    law enforcement officer?
        The officer goes through 2 weeks of instructor training. He
    is taught the art of instruction, classroom management, public
    speaking, and numerous other essentials that ensure every
    officer's success in the classroom. The most important gift
    taught to an officer is the feeling he can make a difference in
    a child's life.
        The officer is graduated from the instructor's school and
    he leaves there feeling truly empowered. He knows that what he
    has can and will make a difference in the life of someone's
    daughter, someone's brother, someone's neighbor. No longer do
    our officers only react and respond to calls for service when
    they are on duty. Now they have an opportunity to make a
    difference on the front end to help prevent problems before
    they occur in our communities.
        Essentially what we have done is given officers another
    weapon, one that they do not wear on their belts. The teachers
    in Sterling, where I am from, recognize now the impact the
    GREAT Program wields. It was not always this way. Before we
    started to teach, the middle school teachers were reluctant to
    give up their precious teaching time to another program.
        We were only allowed into the seventh grade. By the time we
    were halfway done, however, the sixth and eighth grade teachers
    were begging us to teach their students, also. This is how it
    is all over Colorado. The demand for this curriculum in the
    classroom is far greater than what our few instructors can
    provide.
        What has GREAT done for law enforcement agencies? GREAT has
    put us back in touch with our communities. The problems our
    society faces, the devastation of youth violence and drug abuse
    are just that. They are society's problems. They are not just
    law enforcement's problems.
        This program has given various law enforcement agencies the
    opportunity to build partnerships with each other, with
    schools, with businesses, and with the community as a whole. We
    take advantage of every opportunity to give an overview of the
    program to civic organizations, businesses, and others. GREAT
    shows the community that law enforcement officers truly do care
    and that they are willing to invest their hearts and souls in
    leaders of tomorrow.
        How has GREAT helped our communities? From almost the first
    days of our country's history, our strength has come from our
    cultural diversity. It is only when we recognize and embrace
    this belief that our communities can live up to their
    potential.
        GREAT enables the students to see the constructive power
    that can come from embracing cultural diversity and the
    destructive power that can come from prejudice. What better way
    to bring our communities together than teach the benefits of
    diversity.
        Even though the GREAT Program is just finishing up its
    first year in Sterling, CO, we have already seen an impact on
    crime. One surprising statistic is that vandalism is down by 34
    percent the first quarter of 1998. It is, however, the
    individual who stands to gain the most from the GREAT Program.
    This program has so much to offer. Who among us does not need
    to have the skills of conflict resolution or goal-setting? I
    doubt there is anyone here today who has not had to use these
    skills on a daily basis, and yet, so many of our youth do not
    possess these skills.
        GREAT teaches them the necessary skills to resolve the
    inevitable conflicts that they will encounter. It is only by
    overcoming the hurdles of conflict that they can then go on to
    the empowering skill of goal-setting. GREAT helps the
    individual take a look at his life's dream and assists him in
    striving for and reaching that dream.
        I can personally attest to the incredible feeling that
    comes when I have seen a student come alive with hope when he
    knows that his life dream is attainable. It is that hope, that
    hope of something better, something more, something higher that
    keeps us reaching. Hope is our society's bridge to a brighter
    tomorrow.
        If we stop teaching GREAT today, I can honestly say that we
    have made a difference and that we have been a success. I have
    brought along with me a student to whom I have taught the
    program. Her name is Sarah Baray. I do not have enough time to
    tell you Sarah's story, but she has been here to tell you what
    the GREAT Program has given her. There are thousands of other
    Sarah's out there and if GREAT can help Sarah, it can help
    others, too.
        When we look back 25 years from now, it will not matter
    what car we drove or how much money was in our bank accounts.
    What will matter is that we have made a difference in a child's
    life. I know the GREAT Program can accomplish this. Thank you
    so much for this opportunity.
        Senator Campbell. Thank you, Sergeant. Very nice statement.
    We will go to Officer Baker of the Mesa County Sheriff's
    Department before we hear from his student. You will have to
    pull that microphone over pretty close to you, Officer Baker.
        Before you start, I did want to introduce the group that is
    in our audience. I did earlier, but they had a late bus and
    they did not get here. Will all the youngsters from the
    Baltimore GREAT class wearing the green T-shirts stand up so
    you can be recognized? [Applause.]
        We are very happy you are here. Officer Baker.

                            Statement of Will Baker

        Mr. Baker. Thank you, Senator. I would like to start by
    thanking the members of the Senate that are present today, the
    Bureau of Alcohol, Tobacco and Firearms, the Colorado State
    Patrol, and the Mesa County Sheriff's Department for allowing
    me to come to Washington, DC, to speak in this forum.
        My name is Will Baker and I have been a deputy with the
    Mesa County Sheriff's Department for about 2 years. I have been
    a certified GREAT instructor for about 6 months, and as of June
    1, I will have graduated 400 students from the GREAT Program.
        When I was first approached with the opportunity to teach
    the GREAT Program, I jumped at the chance. It fit in really
    well with what I was doing in the school district. I grew up in
    the Denver area around the time that gang involvement got
    really high, so I had a fascination with gangs.
        I have also always wanted to teach and I have been doing
    workshops for teachers in School District 51 in Grand Junction.
    After one of the workshops, I was approached by one of the
    teachers about presenting the information to students. I was
    really tentative about doing that because I wanted to be sure
    that if I went into the classroom, that I had information for
    the students that was not going to make gangs even more
    appealing.
        Shortly after talking to those teachers, I was approached
    by one of my administrators about the prospect of being
    involved with the GREAT Program. He told me that it was a
    school-based program and that it puts uniformed officers in the
    classroom. Well, that was all I needed to know to get me
    interested.
        When I went to the training, I was blown away. I was sold
    on the program for three reasons. No. 1, it is proactive in
    nature; No. 2, it can work in any school; and No. 3, it
    reinforces positive skills without stressing negatives.
        In my opinion, juvenile intervention is the single-most
    proactive policing effort that a law enforcement officer can be
    involved in. The GREAT Program promotes juvenile intervention
    and puts cops and kids together. It helps bridge the large gap
    between kids and the police which can be blamed on a number of
    things including negative law enforcement contacts and the
    media's portrayal of law enforcement.
        Whenever I start teaching in a new school, this negativity
    is very apparent. I hear things from the kids like, ``Take me
    to jail,'' ``arrest me,'' ``shoot me,'' not things like,
    ``Thanks for driving around my neighborhood last night,'' or
    ``thanks for finding my little brother.''
        This is because these kids see cops in a negative light on
    TV and when they do have law enforcement contact, it is because
    of the nature of the job and usually someone has been taken
    from their home or possibly from their neighborhood.
        When I first went into the school that I am teaching at
    right now, I got a good idea about this negativity. The first
    day I taught the first half of the school. Then when lunch came
    around, I bought a school lunch and sat down at the table with
    a group of fourth graders. I did not know any of the kids at
    the table and I did not have any of them in class at the time.
        There was a group of four of them at the table and when I
    sat down, all but one of them said, ``Hi,'' and that one kid
    just stared at me. As we started to eat, the kids began to make
    small talk with me, asking about why I was at the school and
    asking me about things on my duty belt. The one kid just
    continued to stare at me. After a few minutes, I asked him if
    he was OK. He just looked at me and said, ``I'm shaking.''
        I looked at him and I could see that he was visibly
    shaking. He was holding his hand out. I asked him, ``Well, why
    are you shaking?'' He said, ``Because I have never been this
    close to a cop without being in trouble.'' I told him, ``I am
    just here to hang out, maybe teach you something.'' I remember
    thinking to myself, ``A fourth grader should not feel that way
    about law enforcement.''
        This same kid is getting ready to graduate in 2 weeks from
    my fourth grade curriculum class. He is one of the most
    talkative kids in the class, and I guarantee you, when I got
    into the lunchroom, he is waving, he is waving me over to sit
    with him. Those are the kind of things I am talking about. I am
    sure each and every one of the officers that are here and the
    officers from Baltimore can attest to the same thing.
        The second reason I support the GREAT Program is because I
    feel that it can work in any school whether it is a rural area
    or any inner-city area with lots of gang problems. This program
    fits. The GREAT Program teaches lessons that anyone can use to
    be successful in life.
        This can be seen just by looking at the names of some of
    the lessons: Cultural sensitivity, meeting basic needs,
    conflict resolution, goal-setting. These are all things that we
    use to get along with each other and to be successful in life.
    These skills provide students with the blueprints for being
    successful. They do have an advantage over ones who have not
    been through the program.
        The third reason I support the program and I feel that it
    works is because the program reinforces positives without
    dwelling on negatives. The program does not glorify the ideas
    of crime and violence, but addresses them while also giving
    skills for dealing with these problems on their own. The
    program teaches positive alternatives to crime and violence.
        In closing, the GREAT Program works for three reasons:
    Proactive juvenile intervention, it can work in any school, and
    it reinforces positives without stressing negatives. Thank you.
    I would like to introduce Josh Halbert. He is a seventh grader
    at Mount Garfield Middle School in Clifton, CO. Josh.
        Senator Campbell. Josh, go ahead. Pull that microphone
    directly over in front of you.

                           Statement of Josh Halbert

        Mr. Halbert. Senator, my name is Joshua Ryan Halbert. I am
    14 years old and I am attending Mount Garfield Middle School in
    Clifton, CO. I have recently graduated from the Gang Resistance
    Education and Training Program, otherwise known as the GREAT
    Program.
        Many of the problems that I see today are featured in this
    9-week course. Problems like respecting others and confidence
    in yourself along with ideas like goal-setting and sticking
    with them were taught to me in seven lessons. The impact toward
    others, including myself, can be described in one word: Great.
        Everything has a special meaning to each individual.
    Thoughts and ideas are kept easily, but only if the person is
    willing to learn. Conflict resolution in lesson four has six
    steps. These, I know for a fact, really work. These steps are:
    Identify the problem, what might happen, what are my choices,
    which is best, make that choice, and then evaluate afterward.
        I am a conflict mediator for Mount Garfield Middle School.
    A conflict mediator is a person who tries to solve a quarrel
    before it ends up into a physical fight. These lessons from the
    GREAT Program have been very useful to me. I have now been able
    to get to the bottom of a lot of conflicts.
        The lesson that I thought was most useful was lesson seven,
    responsibility. This lesson was shown effectively by a skit.
    The scenario was an adult posing as a kid who had skipped
    school. Four other kids were asked to join in the scenario
    posing as adults. Four kids were asked to take one of these
    four roles, a teacher, a principal, a parent, and a police
    officer.
        Each adult asked the child why he had skipped school. In
    turn, the child would give a remark such as, ``So, what do you
    care,'' or, ``You're not my boss.'' In this lesson, I learned
    when an adult tries to do his or her job but a child refuses to
    listen to them, it becomes harder for the adult to show them
    the best way to avoid trouble.
        Another lesson that has stuck with me is lesson five. This
    lesson is about meeting basic needs, which was again shown by
    using a skit. This time the entire class was involved. The way
    it was started was by a trooper asking all of us to come to the
    middle of the room.
        He then proceeded by telling us that we were stuck on a
    desert island. There were no adults to supervise us. We were
    told that what we had was what was in our pockets and that we
    had to find a way off that island or we were all going to die.
        From this lesson, I learned that we all have certain needs
    and leadership qualities. During this 9-week course, lesson
    three, cultural sensitivity, or lesson six, drugs in the
    neighborhood, have an important meaning to me.
        In conclusion, I would like to thank the Senate, the Bureau
    of Alcohol, Tobacco and Firearms, and the Colorado State
    Patrol, and Mesa County Sheriff's Department for the chance to
    become aware of how my actions and those around me affect each
    other. I feel that this course is helping me today and will
    help me in whatever tomorrow brings. Also, that anyone who has
    the chance to go through this course can only better his or her
    opportunities in their lifetime. Thank you again.
        Senator Campbell. That is nice testimony, Josh. One time
    when I was your age, I had a teacher tell me I was a menace to
    society. Now here I am a U.S. Senator and some people are still
    telling me the same thing. [Laughter.]
        I am glad you are here.
        Officer Barnes, if you would like to proceed before we hear
    from your youngsters?

                           Statement of Roger Barnes

        Mr. Barnes. Thank you, Senators. Thank you for the
    opportunity to be here today, Senators. Although La Crosse, WI,
    is just a midsized community, we are not immune to the effects
    from gangs, drugs, and violence. I have been in the classroom
    for 9 years, the last 5 teaching the GREAT Program at both
    fourth and sixth grade.
        I have also been working with approximately 250 to 300, 10-
    to 16-year-old at-risk students in our summer component where
    we have partnered with the National Youth Sports Program and
    have called it the NYSP/GREAT summer component.
        I can confidently report that we have made a difference in
    the lives of many young people and in our community. What sets
    GREAT apart from other programs is its emphasis on life skills,
    sense of community, cultural diversity, and the summer
    component. The facts and theories are learned in the classroom,
    but are practiced during the summer program.
        This creates a community of young people who make good
    choices, embrace diversity, and return back to the community.
    This is reflected in the fact that juvenile referrals declined
    anywhere from 7 to 28 percent during our summer component,
    according to our human services department.
        The fact that the students have fun is obviously evidenced
    by the increase of returnees each year, from 36 percent in 1994
    to practically 50 percent in 1997. During the summer program in
    1994, one of our projects involved painting over graffiti on
    public property. We had enough work for each of our six groups
    to spend an entire afternoon painting.
        At one of our locations, we had several suspected gang
    members observing our activities. While our group took a break,
    the observers approached one of our officers and asked what was
    going on. He explained our goal and asked them if they'd like
    to help. They did so enthusiastically. That site, which
    previously had been a weekly target of graffiti, remained
    graffiti-free for over 1 year. Last year, we only had enough
    graffiti in the entire city for one group to paint.
        Of all the life skills learned in GREAT, one of the most
    important is the decisionmaking processes taught in the
    conflict resolution lesson. Over the years, there have been
    many cases where students have told me they have been
    approached and pressured to join a gang, but having been armed
    with the decisionmaking skills learned in GREAT, they were able
    to stand firm.
        I have also had students tell me that these skills have
    helped them make other important decisions regarding such
    things as use of tobacco, alcohol, or other drugs, early sexual
    activity, crime and violence.
        I recently had a high school student that I had taught in
    elementary and middle school come up to me in the high school
    parking lot. I had not seen her in a couple of years, but she
    wanted to thank me for the lessons I had taught her. I asked
    what she remembered most and she quoted a statement that I use
    in most of my lessons: The choices you make today will affect
    your future in every way.
        She said she got really sick and tired of hearing it in the
    classroom so much, but was really glad that she remembered it
    because it did help her avoid some disastrous decisions. These
    are just but a few examples of how GREAT makes a difference.
        I have brought with me today two of my students, past
    students. I have with me Ms. Susan Yang, who is a sophomore at
    Central High School. She is a past graduate of the middle
    school curriculum. She is also a graduate of our summer
    curriculum and has returned as a junior counselor in our summer
    curriculum. I also have Mr. Chris Henderson, who is an eighth
    grade student at Lincoln Middle School. He is a graduate of
    both the fourth and the middle school curriculum and he has
    been with our NYSP/GREAT summer component as well. Thank you,
    Senators.
        Senator Campbell. Susan, would you like to proceed?

                            Statement of Susan Yang

        Ms. Yang. Nyob Zoo. That means hello in Hmong. First of
    all, I would like to thank you, Senators, for giving me this
    wonderful opportunity to come to Washington, DC, and speak to
    you for the benefit of other people. As a young Hmong woman, I
    have had to overcome many obstacles such as learning how to
    deal with living between two cultures, the Hmong culture and
    the American culture.
        A lot of Hmong teenagers do not know how to deal with this
    problem, so they join gangs as a result of their confusion and
    loneliness in life. Some of them are now serving time for their
    unwise decisionmaking skills. But you see, Senators, because of
    the GREAT and NYSP Program, I did not choose that pathway for
    myself, but I was on the edge of choosing too.
        Being around a lot of my Hmong friends, I extremely faced
    daily peer pressure, media pressure, and a lot of stress with
    myself for being the way they wanted me to be. I made many
    unwise choices in my life such as smoking, drinking, doing
    drugs, stealing, and running away from home.
        It was due to those tough experiences that the GREAT and
    NYSP Program really helped me change my life for the better.
    GREAT was the light of the dark, lonely, and long tunnel in my
    life. But that light was only the beginning for the change in
    my pathway to the future.
        The director of the NYSP and GREAT Program called me out of
    the blue one day and asked me if I would be a junior counselor
    for the GREAT and NYSP summer program. I thought to myself,
    ``Why would they want me as a junior counselor? Am I even
    worthy to have kids look up to me after all the unwise
    decisions that I made in my life?''
        That great wonderful opportunity in itself was a turning
    point in my life. The GREAT and NYSP Program reemphasized all
    the reasons why one should stay away from drugs and one should
    stay away from gangs, and the dangers around them and the
    dangers of being around with them and the strength to resist
    them.
        I know that the time spent in the classroom is small
    compared to the hours kids spend with their peers and that is
    why I believe a combination of programs and continued contact
    with the kids is so important. From my experience, the
    knowledge learned from the GREAT and NYSP/GREAT Program really
    helped me make better and wiser choices in my life, but that
    was after I made mistakes.
        Without this knowledge ever, I may have not realized my
    mistakes until too late. Failure is a seed to success. I know I
    have turned all my mistakes into a strong point with the help
    of GREAT and that in itself is a great success to me.
        Again, I would like to thank all of you, Senators, for
    graciously giving me this wonderful opportunity to benefit the
    lives of our future, the youth, and I would like to especially
    thank God for blessing me with this life and helping and
    benefiting others for the better. If you really care about the
    future of the youth, then I believe you can do this by
    supporting the GREAT Program.
        I would like to leave you with a thought. If you can touch
    the life of just one youth, you can make a big difference in
    the future, our youth.
        Senator Campbell. Thank you, Susan, very nice. Christopher.

                       Statement of Christopher Henderson

        Mr. Henderson. Good morning, Senators. Thank you very much
    for the opportunity to be here today to share my GREAT
    experience with you. GREAT has been an important program for me
    and many of my friends in La Crosse. The GREAT Program has
    given me confidence in my decisionmaking skills. I feel good
    about myself when people ask me to smoke or drink and I can say
    no to them without worrying about what they will say.
        I feel especially good about being able to make decisions
    about who my real friends are. I have learned that real friends
    accept me for who I am and what I do and respect me as an
    individual. I do not need gangs to tell me what to do and when
    to do something. I can make my own decisions.
        GREAT has taught me how to recognize dangerous situations
    and how to avoid them. The combination of being able to
    recognize these dangerous situations and being able to make the
    right choices let me be my own person. Because I like sports so
    much and other recreational activities so much, I especially
    like the summer NYSP/GREAT program at the university.
        It allows me to really do what I have learned in the
    classroom during the school year. I see that it is more than
    just reading books and listening to my teachers. The summer
    program lets me practice my decisionmaking skills in a safe and
    fun place.
        If I were not in the summer program, I would not be making
    such good decisions. The summer program gets me involved with
    many new kids from other neighborhoods and kids from all
    different races and ethnic backgrounds. GREAT is important to
    me and my friends. If more GREAT programs were started, they
    could help other kids like me. This is a program that means
    something to me and helps me make decisions that are for a
    lifetime.
        Thank you for letting me meet with you to talk about La
    Crosse, WI, and our NYSP/GREAT Program.
        Senator Campbell. Thank you for being here. Sergeant, did I
    pronounce that right?
        Mr. Simeona. Yes, sir.
        Senator Campbell. Sergeant, if you would like to proceed
    before we hear from your youngsters?

                           Statement of Daren Simeona

        Mr. Simeona. Senators, thank you. I am honored to be here
    today. I have been teaching the GREAT Program for 2 years now
    in several different communities. I am a police officer with
    the Navajo Nation and I have been a police officer for 13
    years.
        I have graduated to date almost 2,000 students from the
    GREAT Program in different communities. This program has
    established a rapport between the police department, the
    students, and the schools. The students have really accepted
    the program with little resistance. I believe that this program
    has given the native American kids a chance and reassurance
    that they can reach out and reach their goals and become
    someone.
        Being that we are so far away from the big cities, we do
    not have the access that city kids do. We tend to be set apart
    thinking that we do not have the same problems, but we do. We
    have problems with gangs, drugs, alcohol, domestic violence,
    child abuse, child neglect, murder, assaults, accidents, broken
    families, child abandonment, and the list goes on and on, same
    as the big cities.
        I truly believe that this program has given the native
    American kids and all kids reassurance that they can go out and
    become someone, someone special, someone important. I believe
    that we in law enforcement have neglected our part in educating
    the kids for over 10 years in the communities.
        I believe that with programs like the GREAT Program, I have
    seen native American kids change their lives and they have
    started to work on their education, reestablishing the
    families, and setting their sights on their goals. The program
    has taught the students to establish, especially native
    American kids, the importance in our culture and why it is
    important to them.
        Some students have gone back to their grandparents and
    talked about the tradition and where our ancestors came from,
    and most important, they have learned who they really are,
    native Americans. I have taken kids on trips, our students on
    trips, to watch professional teams play, the Phoenix Suns, and
    also the Arizona Cardinals.
        Most of the Navajo kids have never been to special events
    such as these and were really impressed and enjoyed watching
    these professional athletes. We have helped kids raise money in
    high schools and we also have police officers that go out and
    do volunteer work at high schools teaching and coaching
    baseball.
        I truly believe that the GREAT Program is very important to
    our children and that we cannot stop educating them and helping
    them. This is the only way that we can give our kids a chance
    in life and watch them blossom into prominent figures in our
    communities, by continually educating them and supporting them.
        I believe that with having police officers teach this
    program, it has really changed our image among our kids. We no
    longer are looked on as the bad guys. We are looked at as the
    good guys. I know that the GREAT Program has been a great part
    in making a difference and without this program, our kids will
    fall into a life of trouble, gangs, and death, and we cannot
    let that happen.
        I thank you very much for this time. I would like to
    introduce two of our GREAT student graduates from our program.
    The first one will be Gabriel Towne.
        Senator Campbell. Gabriel, just bring the microphone over
    real close and speak right into it.

                           Statement of Gabriel Towne

        Mr. Towne. Good morning, Senators. My name is Gabriel
    Towne. I am from Chinle, AZ. I am 12 years old. I recently
    graduated from the GREAT Program. The GREAT Program is one of
    the best programs I have learned. The program teaches kids why
    it is better to stay out of gangs.
        The teacher is also funny, so kids do not want to miss
    GREAT. GREAT has also taught us about what we have to do to
    reach our goals, like a goal can be anything that helps people
    and yourselves. GREAT also teaches us about our culture, to be
    proud of what I am, how to respect people like the elderly, how
    to solve conflicts, the six steps, and basic needs like
    physical needs.
        I feel that all of the lessons are important and I believe
    if we keep teaching the GREAT Program, we will have a better
    world. This program has made my life better and I know it has
    made other kids' lives better, too. Help save kids. Keep GREAT
    going. Thank you, Senators, for your time.
        Senator Campbell. Thank you. Bernell?
        Mr. Simeona. Our next student is Bernell Yazzie.

                          Statement of Bernell Yazzie

        Mr. Yazzie. Good morning, Senators. My name is Bernell
    Yazzie. I am 15 years old and I am from the Navajo Reservation.
    It is a great honor to be here today. I took lessons from the
    GREAT Program, which was taught by Sergeant Simeona, and it
    helped me make the right choices. The GREAT Program educates
    younger kids from keeping them out of gangs and violent
    activities.
        The program helps change the kids that had made the wrong
    choices, but now they enjoy learning and taking lessons from
    the GREAT Program. I myself almost made several wrong choices,
    but Mr. Simeona helped me make the right choices by giving me
    lessons from the GREAT Program.
        On the reservation, there are gang-related activities that
    go on. There is graffiti on the walls, violence due to gangs,
    people claiming they are part of a gang. Chinle might be a
    small town in the middle of nowhere, but there are gangs
    actually out there. If the gangs and violence increase, it
    could become dangerous to the community.
        I myself have friends in gangs, but they do not make my
    decisions for me. But if the program goes on and more GREAT
    officers were to teach, then maybe it would change their lives.
    So I kindly ask the Senate to keep the GREAT Program going
    because it could change a lot of the youth. Thank you.
        Senator Campbell. Thank you for your testimony. I noticed
    all of our officers today are in uniform. I assume that when
    you teach in schools, you are in the uniforms. I happen to
    think that is good because I think symbols are important and if
    people see the symbol of a uniform, the badge, in a positive
    manner, those youngsters are going to carry that image with
    them.
        I guess there are some people that say, ``Well, it is a
    form of stereotyping,'' but I think that is a positive
    stereotype. There are also some negative stereotypes from the
    type of dress and so on, too. I might mention a short story.
        The officers from Colorado know that my favorite mode of
    transportation is two wheels rather than four, on a motorcycle.
    Most kids like motorcycles. Their mothers do not, but they do.
    A couple of years ago, I went on what is called a charity ride.
    We were raising money for the Children's Hospital in Colorado
    and there were probably 1,000 people on motorcycles, and you
    know how they dress. They tend to be dressed in leather and so
    on.
        We did this fundraiser to raise money for the Children's
    Hospital. The State patrol officers that were assigned to us to
    lead the group so we would not be a traffic problem, went with
    us and while I was talking to them, they invited me to go to
    what they call a motorcycle police shootout. It is a motorcycle
    competition where all different departments are invited to
    participate and show their skills.
        I think they do this all over the United States. So I said,
    ``Great, I would really like to go see that,'' and we left the
    rest of the group and I went with the officers. There were four
    of them ahead of me and two of them behind me and we were going
    down the freeway in a close group and we passed a car. A guy
    rolled down the window and yelled at me through the window,
    ``Too bad, buddy.'' [Laughter.]
        You know what the stereotype was. I had just been booked,
    or something. But I mention that police activity because when I
    got there, there were a number of youngsters there, and I do
    not know who brought them, whether their parents did or who,
    but I got to thinking.
        There are a lot of activities that police do in their own
    time. Perhaps they are with a mounted unit, as I was when I was
    in the sheriff's department, or something else, with different
    parade groups or boats or something that interest youngsters,
    too.
        I kept thinking at the time, there must be some kind of a
    connection, I do not know, PAL or GREAT or something where
    youngsters can watch policemen when they are doing things that
    are a little less fun than the mundane stuff they have to do
    while they are on duty.
        Do any of you participate in activities like that where
    there is a connection with the GREAT youngsters?
        Mr. Simeona. In our department, I teach baseball at the
    high school and the kids, the students that are out there, they
    really appreciate seeing a police officer. Sometimes I have to
    go in my uniform and I go out there and help coach and
    participate with the kids and they really appreciate that. They
    like seeing the officers out there with them. Then they look at
    us as one of the team, one of the members.
        So yes, there are many officers that are out there that do
    participate and volunteer their services to help a lot of kids.
        Senator Campbell. Being in uniform probably quells little
    league disputes, too.
        Mr. Simeona. Yes. [Laughter.]
        Senator Campbell. Senator Kohl, did you have some questions
    you would like to ask these terrific youngsters or the
    officers?
        Senator Kohl. Yes; well, like you, Senator Campbell, I am
    very impressed with the presentation this morning. It leads me
    to believe and conclude that the GREAT Program is a very
    important program in our country today, and that it is a
    program that all officers should have an opportunity to
    participate in; that the skills, the experience, the wisdom
    that you bring to the program, if it were replicated throughout
    our police systems across the country and then brought to the
    kids, would really make a big difference in the lives of our
    children, as it does on this small scale that we are now
    practicing it.
        It could make an enormous difference in the lives and the
    futures of these young people. I am chagrined at the low level
    of funding that we put on the GREAT Program because where we
    put our dollars, to an extent, describes what kind of a society
    we are. We may not wish to believe that, but it is true.
        When we send out $13 or $14 million for GREAT programs
    across the country, like it or not, what we are saying is that
    we do not think they are all that important and we have to take
    that upon ourselves and live with that and try and do something
    about it here to see to it that the GREAT programs are more
    fully funded.
        Now, I do understand that in most cases, there are matching
    funds, aren't there, Chief Kondracki, or not at all?
        Mr. Kondracki. We have no matching funds at all.
        Senator Kohl. In other words, that $13 or $14 million, that
    is what the GREAT Program is funded at, no more, just that
    amount?
        Mr. Kondracki. That is correct. Most cities that do not
    receive funding are doing bake sales and chile cookoffs.
        Senator Kohl. OK. I really am impressed with the
    presentations this morning, particularly with the police
    officers and then, most especially, with the young people. I
    would like to ask you, Officer Barnes, to explain a little bit
    about the summer and National Youth Sports Program components
    of GREAT. How is the summer component funded? How do you
    describe the value of that summer program?
        Mr. Barnes. As far as the funding goes, Senator, I would
    like to turn it over to Dr. Tymeson. However, I will address
    the other issue and that is what is the effectiveness of the
    program.
        As I said in my testimony, we have lessons during the
    school year, but the students then get an opportunity to see us
    in a different setting. When we are at the summer program, we
    are in gray shorts and polo shirts and we are out there having
    fun with the kids. We are doing a lot of other things outside
    the classroom. It allows us to bond more with the students.
        One story that comes to mind in particular, a couple years
    ago, we had a young man that I had in elementary school. He was
    living in foster care. He had been split up from his brother,
    who was in another foster care home, did not like that. He had
    been caring for his brother for a long, long time. He was the
    primary caregiver in the house, he in fifth grade.
        He was having problems at his foster care, but he was
    having no problems at NYSP because he had bonded with all of
    our counselors. We have a very good student/counselor ratio,
    about a 4 or 5 to 1. This particular student got kicked out of
    foster care, basically, because the foster parents did not want
    him there anymore. They said, ``We cannot handle this. We do
    not need the disruption in our life.''
        Human Services had no place to put this child. He was going
    to spend the next three nights in the juvenile detention center
    because there was no other place for him. One of the counselors
    said, ``That is not right,'' and begged and pleaded and got
    emergency authorization for that child to come and stay with
    him.
        That was the first time that any adult had ever reached out
    to that child in such a capacity and it has made a significant
    difference in his life. That is just one of many stories. The
    summer program puts into practice what we learn throughout the
    school year, the diversity, the giving back to the community,
    the making good choices, the working relationships, those types
    of skills.
        Senator Kohl. Do you believe that the responsibilities of a
    law enforcement officer are equally important in law
    enforcement and in relating to young people? When you think
    about a police officer's important role in our society, that it
    is equally important that they do a good job of relating to the
    young people in their community as, in fact, providing on-the-
    job law enforcement?
        Mr. Barnes. I am not so sure it is equally important. I
    actually think it is more important. The ability to communicate
    and relate, particularly with youth, is, I think, 85 to 90
    percent of our job, is this communication. If we cannot do
    that, we cannot do the rest.
        Senator Kohl. How much time is spent? In training for the
    GREAT Program, that is what that provides. I understand you
    have 94 police officers, is that right, in La Crosse?
        Mr. Barnes. That is right.
        Senator Kohl. How many of those police officers do we have
    the money to train in relating to young people?
        Mr. Barnes. That I would have to refer----
        Senator Kohl. What would you say, Chief Kondracki?
        Mr. Kondracki. Well, Senator, we have nine officers trained
    and I think it is important to point out that we are not a
    funded agency.
        Senator Kohl. So 9 out of 94 is all you have, is all you
    can afford to train?
        Mr. Kondracki. That is correct.
        Senator Kohl. Which is really a shame, truly a shame. Well,
    you have done a great job here, folks, and I think as a result
    of your appearing here, we will do a lot better in our
    responsibilities to you. We thank you all for coming and, young
    people, you have done a great job. Chief Kondracki, it is good
    to have you here. Senator Campbell, it has been a great
    hearing.
        Senator Campbell. Senator Kohl and I are of one mind, I
    think, when we recognize that we are not doing as good a job as
    we ought to, we gave $10 million. That was in the budget last
    year for grants, $10 million to be spread clear across the
    United States. It is my understanding that to build a new
    prison from the ground up, a startup prison, costs about $1
    million a cell.
        So in other words, we have a choice: Ten cells or that $10
    million for all those youngsters. It just seems to me that the
    money is much more wisely used to put it into those youngsters.
    I also understand it is about $26,000 a year cost to
    incarcerate now in the penitentiaries, depending on whether it
    is the State or Federal level. That does not include property
    loss, trauma, pain, suffering in a hospital and all those
    things. It is just the upkeep of keeping somebody warehoused in
    a prison.
        We know that we have a long way to go in getting ahead of
    the curve, not only from the standpoint of what is best for the
    country, but from a cost-efficiency standpoint, too. We
    certainly appreciate you being here to give some first-hand
    testimony on how it has worked for you and we certainly
    appreciate our youngsters for being here, too, and we look
    forward to watching you grow to be healthy, productive, good
    citizens.
        We usually keep these records open for about 2 weeks. If
    you have anything you want to add, any letters of support,
    anything of that nature, you are welcome to turn those in and
    we will include those in the record. Do you have anything
    further you want to add before we close the hearing? Yes, sir.
        Mr. Baker. I just have one thing that I wanted to add. You
    stressed the importance of alternative programs, especially in
    your own life, sports programs and so forth. Well, there is
    part of the GREAT curriculum which identifies the difference
    between a club, a positive program, and a gang, a negative
    program. I just wanted you to be aware of that.
        Senator Campbell. Great. Josh?
        Mr. Halbert. I have with me some letters that all say the
    same thing. The GREAT Program has helped them throughout my
    core, which is in my school. We go by cores instead of classes.
        Senator Campbell. All right.
        Mr. Halbert. There are 1,800 in school.
        Senator Campbell. If you will leave those letters with us,
    give them to us, we will make sure that they are included in
    the hearing record as testimony. Thank you.
        [The information follows:]
                           Letter From Jasmine Herre
                                 495 Appleblossom Road,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Avenue, Washington, DC.

    To Whom It May Concern:
        My seventh grade classes at my school had a great opportunity to be
    in the GREAT program.
        This program should keep coming to our school because it is a
    really good learning experience. I learned how to stay out of gangs and
    things happening around gangs and what to do if I am face to face with
    a gang member.
                Sincerely,
                                                         Jasmine Herre.
                                     ______

                            Letter From Zach Kareus
                           3222 D\1/2\ Road, Apt. #103,
                                             Clifton, CO 81520,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        I had the chance to participate in the GREAT program, and it taught
    me a lot.
        This program taught me the dangers of gangs and drugs. It made me
    think about how being in a gang or doing drugs can affect my whole
    life. It also helped me deal with anger. The program helped me with
    dealing with bad situations and how to trust others. It helped me with
    communicating.
                Sincerely,
                                                           Zach Kareus.
                                     ______

                           Letter From Ashley Seibert
                                     3072 Grosbeak Ct.,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        We have had a very great opportunity to be able to have the GREAT
    program come to our school.
        The GREAT program taught me how to set goals, how to say no, it
    helped me take care of my problems, and how to trust people.
        Thank you!
                Sincerely,
                                                        Ashley Seibert.
                                     ______

                             Letter From Core Dilba
                                 468\1/2\ Seminole Ct.,
                                      Grand Junction, CO 81504,
                                                           May 7, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        I think people should fund the GREAT Program (Gang Resistance
    Education And Training) because it shows kids the problem with gangs.
        Everybody chooses to ignore the rising gang problem, but now there
    is a program to prevent gang and gang members, this is called the GREAT
    Program. It shows the ups and downs of gangs. Believe me there are a
    lot more downs than ups. GREAT also teaches people how to say, ``NO''
    to gangs, drugs, violence, stealing, and other gang related activities.
    GREAT also shows kids why gang and gang members are a problem.
        That is why I think the GREAT Program should remain in our schools.
    Thank you for your time.
                Sincerely,
                                                            Core Dilba.
                                     ______

                           Letter From Melissa Gower
                                 3228\1/2\ D\3/4\ Road,
                                             Clifton, CO 81520,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        The reason, to me, why the GREAT program is so great is because it
    teaches students how to stay away from gangs and tells students what
    gangs do so we know what to stay away from and what is wrong to do and
    what is right to do. Trooper Moseman also told us what the laws are and
    what our rights are. Those are the reasons why I think the GREAT
    program should stay in school.
                Sincerely,
                                                         Melissa Gower.
                                     ______

                             Letter From Zach Auila
                                  3042 Colorado Avenue,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Avenue Washington, D.C.

    To Whom It May Concern:
        My class was taught the GREAT program; it was wonderful that
    Trooper Moseman came to our class. The GREAT program helped me learn
    about gangs and how to say NO to Drugs. I learned what I had to do in a
    drug situation. The GREAT program will help people get out of
    situations.
                Sincerely,
                                                            Zach Auila.
                                     ______

                            Letter From Amy Johnson
                                     3593 Front Street,
                                            Palisade, CO 81526,
                                                           May 6, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Avenue Washington, DC.

    To Whom It May Concern:
        Hello, my name is Amy Johnson. I think that the GREAT program is
    great because it really influenced my life and my friends. Now I know
    how to stay out of fights and gangs, to not get involved with drugs
    and/or alcohol.
        I know not to play with knives and/or guns because I don't want to
    get hurt or hurt other people. It also will help teens with their
    problems and feelings. Thanks for your time and patience.
                Sincerely,
                                                           Amy Johnson.
                                     ______

                            Letter From Nick Hefner
                                         419 Lar Drive,
                                             Clifton, CO 81520,
                                                           May 6, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Avenue Washington, D.C.

    To Whom It May Concern:
        I think the GREAT program is good because it gives us direction in
    life. It taught me not to get involved in gangs or drugs. I like having
    someone coming in to teach us the GREAT program. It's cool because you
    can ask them almost anything.
                Sincerely,
                                                           Nick Hefner.
                                     ______

                            Letter From Kendra Adams
                            3352\1/2\ Price Ditch Road,
                                             Clifton, CO 81520,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        I recently went through the GREAT program (Gang Resistance
    Education and Training). It was very educational. We learned how to
    resist pressure, stay away from gangs and drugs, and what constitutes a
    crime. I have benefited a lot from this program. I have also noticed a
    big difference in the kids at our school. This is something that would
    be a great thing to keep going. We learned how to survive in an ugly
    world and Trooper Moseman made it fun. We even had a graduation
    ceremony on January 9. Please consider keeping this program in schools!
    Thank you.
                Sincerely,
                                                          Kendra Adams.
                                     ______

                          Letter From Sheena Martinez
                                    428\1/2\ Saxon Ct.,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        The GREAT program was really helpful to a lot of kids because
    Trooper Moseman told us about the dangers of drugs and gangs. He told
    us what to say and what to do if someone asked us to do something we
    didn't want to do. Trooper Moseman was a great help to our school so I
    hope everyone will have the chance to experience the GREAT program!
                Sincerely,
                                                       Sheena Martinez.
                                     ______

                         Letter From Royetta Tohtsonie
                               460\1/2\ 32\1/8\ Rd. #2,
                                             Clifton, CO 86520,
                                                           May 6, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        I think GREAT is really good for middle school kids. So in the
    future they will know what is good and bad so kids don't get into drugs
    and Alcohol. The GREAT program is also good so you can learn your
    lesson. GREAT is pretty cool.
                Sincerely,
                                                     Royetta Tohtsonie.
                                     ______

                         Letter From Kelsey Harrington
                                       3316 F\5/8\ Rd.,
                                             Clifton, CO 81520,
                                                           May 6, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        The GREAT program is a good program because it is about how to
    avoid gangs, and how to get away from gangs and how to say no. Trooper
    Moseman talked about the dangers of gangs and what could happen with
    the law and your family at home, its a great program.
                Sincerely,
                                                     Kelsey Harrington.
                                     ______

                            Letter From Matthew Cook
                                       586 33\3/4\ Rd.,
                                             Clifton, CO 81520,
                                                           May 6, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        I think that the GREAT program should stay in public schools
    because it teaches us to say no to things that would get us in trouble,
    and it taught us not to do drugs and what they do to your body. It also
    taught us to respect cultural differences, and why we are different.
                Sincerely,
                                                          Matthew Cook.
                                     ______

                          Letter From Jon Fitzpatrick
                                 414\1/2\ Glendale Way,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        Our school has had the experience of Trooper Moseman teaching us
    about GREAT. It was fun.
        Other schools from now on should learn about GREAT for these great
    reasons.
        (1) It teaches you to stay away from the dark side.
        (2) They teach you to talk about problems, not to use big Bad guns.
        (3) It will help keep kids away from gangs.
        (4) It teaches people to be friends.
        (5) Kids learn to have their own power.
                Sincerely,
                                                       Jon Fitzpatrick.
                                     ______

                           Letter From Amber Kelleher
                                  426 Morning Dove Dr.,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        Our school was honored to have the GREAT program. The following are
    reasons why I think we should keep the GREAT program in schools: It was
    a big help in teaching students how bad drugs are, how gangs can ruin
    your life, it helps kids learn right from wrong, teaches ways to keep
    away from drugs, ways to tell a gang member you don't want to join, and
    it helps us to tell people who want us to do drugs no. Please keep the
    GREAT program in schools. Thank you for your time.
                Sincerely,
                                                        Amber Kelleher.
                                     ______

                         Letter From Kristina M. Pifer
                                  3304 Delicious Drive,
                                             Clifton, CO 81520,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        I feel honored to have been through the GREAT program. It was
    instructed by Colorado State Trooper, Don Moseman. When Trooper Moseman
    first walked into the room, water glass in hand, I thought it would
    turn out as just another boring speech.
        I was wrong. The GREAT program is filled with educational lessons
    and challenging assignments. It was good, I think that if you were to
    commit a criminal act during GREAT training (or 9 weeks), you were not
    eligible to graduate from the program. All of the activities were fun,
    and most hands-on, most kids liked that part. Trooper Moseman said some
    things that went straight to my heart. He was a great presenter. I
    enjoyed doing the occasional homework assignments and copying down
    definitions in my book.
        Moseman had a good discipline procedure which we all pretty much
    followed to the word. We all had name tag like things on our desks with
    class rules on the back. If we didn't meet his expectations at one
    moment he would gently remind us of the rules.
        What I'm trying to say is that this is the first of these programs
    that I've liked, and I'd love to see more of it. Thank so much for your
    time.
                Sincerely,
                                            Kristina M. Pifer, Student.
                                     ______

                            Letter From Jesse Gordon
                                       35 99E\1/2\ Rd.,
                                            Palisade, CO 31526,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        Hi, we had the honor to work with Trooper Moseman. He explained
    everything to where everybody understand what he wanted them to do. I
    think they should keep the GREAT program in schools so kids don't get
    the idea to do drugs and drink beer and so they could understand what
    is happening in the U.S.A. today. I hope they keep it in schools
    because I learned something new each day.
                Sincerely,
                                                          Jesse Gordon.
                                     ______

                           Letter From Danny Nichols
                                      437 32\1/8\ Road,
                                             Clifton, CO 81520,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania, Ave., Washington, DC.

    To Whom It May Concern:
        We were happy to have Colorado State Trooper Moseman come to our
    school. He taught us how often a crime is committed. We also learned
    that teenage crime is rising rapidly and this program helps that rate
    slow down. So please, keep the GREAT program running in schools.
                Sincerely,
                                                         Danny Nichols.
                                     ______

                           Letter From Lawrence Abad
                                          P.O. Box 312,
                                            Palisade, CO 81526,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        Our Language Arts class was taught the GREAT Program by Trooper
    Moseman.
        He taught us about saying NO, and gang resistance. He was a very
    good teacher.
        We did a lot of hands on activities like acting out getting a job
    or dealing with a problem causing child.
        I thought the graduation was the best. We all graduated from the
    GREAT Program on January 9, 1998.
                Sincerely,
                                                         Lawrence Abad.
                                     ______

                          Letter From Valarie Russell
                                          P.O. Box 444,
                                            Palisade, CO 81526,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        Hello, my name is Valarie Russell and I'm writing you because I
    think that the GREAT Program should stay in middle schools because you
    learn how drugs and other people can change your life. Trooper Moseman
    taught us how to say NO, he taught us how to cope with peer pressure,
    how to get out of gangs, how to stay away from people that could be a
    bad influence on us, and he also taught us that just because somebody
    is new doesn't mean that you have to treat them different.
                Sincerely,
                                                       Valarie Russell.
                                     ______

                          Letter From Aaron R. Scheetz
                                         491 Anjou Dr.,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        The GREAT Program is GREAT!
        I was lucky enough to have participated in the GREAT Program this
    year. It stands for Gang Resistant Education And Training. GREAT keeps
    kids out of trouble, and it gives real life scenarios to kids so they
    know what to do. Kids have to stay out of trouble with the law in order
    to stay in the program. GREAT has taught me many things I did not know
    before. I also learned the six steps of making a decision, or conflict/
    resolution. GREAT has helped me in my life, and I really think that it
    should be in other schools across the nation. I am glad I now know
    about cultural differences, and I liked the Role playing and hands on
    experience the GREAT Program gave me. I hope that GREAT will be around
    for my kids in middle school.
                Sincerely,
                                                      Aaron R. Scheetz.
                                     ______

                            Letter From Ben DiMarco
                                  3306 S. Highland Dr.,
                                             Clifton, CO 81520,
                                                           May 6, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        Our class is writing you to tell you how great the GREAT program
    really is, and how this program should remain in school districts.
        This program helps the kids stay out of trouble. It was really
    exciting when Trooper Moseman came to our class because it was really
    great learning about the law. Trooper Moseman and all the other Trooper
    Teachers taught us about the consequences of our doings. This program
    should stay in school because it was a really great learning
    experience. This nine week lesson shows a great way of conflict
    resolution.
        Thank you for your time, and consideration.
                Sincerely,
                                                           Ben DiMarco.
                                     ______

                           Letter From Bobbi Jo Watt
                                          3513 G. Road,
                                            Palisade, CO 81526,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        My name is Bobbi Jo Watt and I was in the GREAT program. I thought
    it was fun and interesting and it should continue in all schools.
    Trooper Moseman, the officer who taught us, was very kind and sincere.
    He did a very good job of teaching us the GREAT rules and why we
    shouldn't join gangs. In the program we learned the six steps to
    conflict resolution what we should do if a ``gang'' or group of bad
    people tried to get you to do something that is wrong. Overall, I think
    the GREAT program did help those at our school making bad choices.
                Sincerely,
                                                         Bobbi Jo Watt.
                                     ______

                            Letter From Rickie Berg
                                         557 Aaron Ct.,
                                             Clifton, CO 81520,
                                                            May 5, 1998
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        The GREAT program was very educational. It taught us how to say no
    and alternatives. It also taught self-discipline.
        I think that the GREAT program should stay in the school district
    because it teaches respect. We liked having Trooper Moseman come in and
    visit us and teach us about gang resistance and how to not get involved
    in drugs and alcohol. It gave us scenarios and conflict resolution.
        Thank you for your consideration!
                Sincerely,
                                                           Rickie Berg.
                                     ______

                             Letter From Howie Tate
                                     725 35\6/10\ Road,
                                            Palisade, CO 81526,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        The GREAT program is a learning program about things you can't
    learn in school, but are still important.
        Trooper Moseman taught us about gangs, drugs, and illegal acts. He
    showed us what to do about these things and also how to work with
    others in a group.
        He also showed us how to control our emotions.
                Sincerely,
                                                            Howie Tate.
                                     ______

                            Letter From J.J. Jerome
                                      364 Annanssa Dr.,
                                             Clifton, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        We were very happy to have Trooper Moseman come to our school.
        One reason why we should keep it is that it help some people get
    out of gangs so they don't die.
        Trooper Moseman told us about gang resistance so we wouldn't join
    the gang and we can say NO to drugs.
                Sincerely,
                                                           J.J. Jerome.
                                     ______

                          Letter From Tasha Englehart
                                  3133 Brownie Cir. 28,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        When we had Trooper Moseman come to our class for the GREAT
    program. I really learned something. I learned about gangs, drugs,
    safety issues and violence.
        When we went through the program, we learned how to stay away from
    danger, such as gangs, drugs, and violence.
        I would hope that the same program would be passed next year and
    the year after that for many 7th graders. If we learn things like that
    now, then we won't be stupid about them later when any pressure comes
    our way.
        Thank you for your time.
                Sincerely,
                                                       Tasha Englehart.
                                     ______

                           Letter From Amanda Saduar
                                          424 32nd #87,
                                             Clifton, CO 81520,
                                                           May 6, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        We the kids of Mt. Garfield have had the opportunity to graduate
    from the GREAT program successfully. I would like to make a comment,
    all of the kids at Mt. Garfield would be honored if the GREAT program
    would stay with our school to help other kids with violence.
                Sincerely,
                                                         Amanda Saduar.
                                     ______

                            Letter From Lee R. Brown
                             3060\1/2\ Hummingbird Ct.,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        I'm a student from Mt. Garfield Middle School and we had the honor
    of having Trooper Moseman and the GREAT program in our classroom. I
    think we should keep the GREAT program because it's fun and also
    teaches us how to deal with drugs and gangs. It also reduces drugs and
    gang activity at our school.
                Sincerely,
                                                          Lee R. Brown.
                                     ______

                            Letter From Matt Bailey
                            P.O. Box 3225\1/2\ Bunting,
                                             Clifton, CO 81520,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        The GREAT program is good for schools because it can help you
    decide what is good and what is bad and encourage you from being in
    gangs and what to do in their spare time. GREAT means Gang Resistance
    Education and Training. It also tells you how many bad things are
    happening a day.
                Sincerely,
                                                           Matt Bailey.
                                     ______

                           Letter From David Corkler
                                           3124 RobRen,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        This year the Mount Garfield 7th grade had the opportunity to
    participate in the GREAT program. We learned many things. We first had
    to look at examples of different crimes and had to write our own
    punishment. This helped us learn more about crimes and punishments,
    giving us a better understanding of them. We then had to write down
    different actions we might take in situations like parties where others
    start to experiment with drugs. Our choices were to stay or leave. This
    gave us an idea of what to do in situations like that. We also learned
    to respect different cultures, work in groups, and things to do instead
    of joining gangs. I think continuing GREAT would improve our country.
                Sincerely,
                                                         David Corkler.
                                     ______

                          Letter From Mollie Stockman
                                         P.O. Box 1010,
                                             Clifton, CO 81520,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        The GREAT Program is Gang Resistance Education and Training. We
    have had the honor to have this in our school. It teaches us not to do
    drugs! It also teaches us how to not get in gangs and to control our
    anger! We learned to be nice to our family because so many kids are
    being so mean to their parents and elders. It teaches them to behave.
    One reason it should stay in our school is it helps kids to understand
    violence.
                Sincerely,
                                                       Mollie Stockman,
                                     ______

                             Letter From Jeni Topai
                                         429 Saxon Ct.,
                                             Clifton, CO 81504,
                                                           May 4, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        I would like to tell you about my training in the GREAT program
    that we had in our class recently. We went through it and graduated, we
    learned to say NO if you were asked to do drugs because most of our
    teens today were pressured to do drugs, and I strongly feel this
    program would help your family and friends to stay drug-free for a
    century. The GREAT program is not only educational, but fun too. You do
    plays in class on problems with teens and drugs. (We did one on a boy
    who did not care about his grades or anything else.) It encourages us
    to stay in school and out of gangs and not to do drugs. I feel we
    should KEEP THIS PROGRAM! because there's a very high risk that we
    won't have any drug problems with our teens.
                Sincerely,
                                                            Jeni Topai.
                                     ______

                         Letter From Katie Sommermeyer
                                         3349 F Rd. #2,
                                             Clifton, CO 81520,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        We have gone through the GREAT program and it really helped out
    some kids.
        I have five good reasons that we should keep the GREAT program in
    our school. It helps kids live their lives better and to keep kids off
    drugs and to stay in school and not to do bad things.
                Sincerely,
                                                     Katie Sommermeyer.
                                     ______

                            Letter From Megan Vaughn
                                       3050 D\1/2\ Rd.,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        I'm writing to you to tell you about the GREAT program. Trooper
    Moseman has told us how to act when a gang comes up to you and ask you
    if you want to join, and he also taught us role play where we saw what
    it was like to be a cop and get assaulted. He also taught us the
    meaning of GREAT. It means Gang Resistance Education and Training. To
    the students in my class, this is something to think about. Thank you
    for your time.
                Sincerely,
                                                          Megan Vaughn.
                                     ______

                           Letter From Yvonne Arnett
                                       3608 E\1/4\ Rd.,
                                            Palisade, CO 81526,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        My class was privileged to have Trooper Moseman come and teach us
    about the GREAT program. We have learned about drugs, what they do to
    us, cooperation, how much it can help us, and violence, how much it can
    hurt you along with other innocent people.
        I hope that this program will be continued over the years. I
    believe that this program will help future 7th graders make important
    decisions to the best benefit.
                Sincerely,
                                                         Yvonne Arnett.
                                     ______

                            Letter From Lydia Allen
                                         P.O. Box 3344,
                                      Grand Junction, CO 81502,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        When we had Trooper Moseman it was great. He taught us a lot of
    things, like what kind of drugs there are.
        Then he taught us the definition of words like violence. He told us
    that we could make it through this program. He showed us what we should
    do if our friends talk us into doing stuff. The last thing is, its good
    and it teaches kids to do good things.
                Sincerely,
                                                           Lydia Allen.
                                     ______

                             Letter From Tina Caren
                                          P.O. Box 733,
                                             Clifton, CO 81520,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        I had the privilege to be in the GREAT Program at Mt. Garfield
    Middle School. I think that GREAT was good for us because it helped us
    get out of trouble. I also think it was good for us because we learned
    the consequences of our actions if we did something wrong. I also
    believe that Trooper Moseman taught us to respect others and ourselves.
                Sincerely,
                                                            Tina Caren.
                                     ______

                         Letter From Kristeen Carpenter
                                          P.O. Box 703,
                                             Clifton, CO 81520,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        The GREAT Program was very educational because it teaches young
    people to stay out of gangs, solve problems, work as a team, and not to
    do or deal drugs. It taught us to treat each other with respect.
                Sincerely,
                                                    Kristeen Carpenter.
                                     ______

                           Letter From Blade Douglas
                                         P.O. Box 1741,
                                             Clifton, CO 81520,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        This program is a good program and should stay in schools because
    the GREAT Program is very educational and that's why we go to school to
    become educated. Right? Another reason to keep GREAT in schools is
    because it teaches us how to stay out of gangs and we do have a gang
    problem. It also teaches us to say NO to drugs and alcohol. I think
    Trooper Moseman did a great job and we all enjoyed it.
                Sincerely,
                                                         Blade Douglas.
                                     ______

                            Letter From Sarah Kuhns
                                   3081 Sandpiper Ave.,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        I would like to tell you the GREAT program is a cool way to teach
    younger kids and teens how to respect other people. It will teach other
    people not to do drugs or kill or rob houses. It will give people an
    opportunity to make a choice of what they want to do when they are in a
    dangerous situation.
        Thank you for your time.
                Sincerely,
                                                           Sarah Kuhns.
                                     ______

                            Letter From Dayna Martin
                               518\1/2\ Garland Avenue,
                                             Clifton, CO 81520,
                                                           May 6, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Avenue Washington, D.C.

    To Whom It May Concern:
        Hello, how are you? I'm fine, and just dandy! How's the weather
    there? Here in Grand Junction, CO, it is really starting to get hot!
        I'm writing in regards to ask you guys to help keep the GREAT
    program in schools.
        I think there are many great reasons to keep this program in. First
    of all, Trooper Moseman is very fun, and will always be there if you're
    in trouble. He teaches you that going to a gang because you have
    problems at home or school is not the way to solve them. It can
    actually make it worse. Trooper Moseman taught us to work together and
    to say no to certain things, and when we should just walk away. I think
    this program helped some kids realize that gangs don't help. So, I
    think you should consider keeping this program in all schools and in
    all grades.
        Thank you for your time.
                Sincerely,
                                                          Dayna Martin.
                                     ______

                         Letter From Kristin Stogsdill
                                         P.O. Box 1334,
                                            Palisade, CO 81226,
                                                           May 6, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        We've had the opportunity to have the GREAT program in our school.
    Our teacher was Trooper Moseman. He taught us about gangs, drugs, and
    alcohol and that we should stay away from them. He also taught us about
    illegal acts, family situation, and how to deal with anger. I think the
    GREAT program should stay in schools. I think it really helps; I know
    it helped me.
        Sincerely.
                                                     Kristin Stogsdill.
                                     ______

                          Letter From Destinie Salazar
                                  3299 Lombardy Ln. #D,
                                             Clifton, CO 81520,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        We were really lucky to have Trooper Moseman teach us the GREAT
    Program. It's so useful to middle schools because it teaches us not to
    join gangs and try to stay in school, plus he tells us how to handle
    conflicts. I think you should keep it in schools because it teaches us
    new things. It helps people who have problems with drugs or even gangs.
    It shows us how to deal with people trying to get in trouble, how to
    achieve our goals, and the six goals to conflict. Well, that's all I
    have to say about the GREAT program. So please continue it.
        Thanks.
                Sincerely,
                                                      Destinie Salazar.
                                     ______

                            Letter From Bree Whitney
                                       131 Sunset Cir.,
                                            Palisade, CO 81526,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        I am representing the 7th Graders at Mt. Garfield Middle School in
    Clifton, CO. The purpose of me writing this letter is to ensure that
    the GREAT program remains in our school and other schools in our
    district. This program is useful because it teaches us how to resist
    gangs and peer pressure. It also puts us in difficult scenarios and
    shows us ways to resolve them. This program deals with theft, drugs,
    and vandalism and how to avoid them. It puts us in with others and
    shows us how to get along. It also taught us goal setting. This program
    is very informative.
                Sincerely,
                                                          Bree Whitney.
                                     ______

                          Letter From Jordan C. Smith
                                           3294 E Road,
                                             Clifton, CO 81520,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        I'm a 7th grader at Mt. Garfield Middle School. We had a wonderful
    opportunity to have the GREAT program come to our school, and I believe
    that you should proceed to fund this program because it taught many of
    us to stay away and ignore gangsters and people who want to get you to
    do something violent. It is a very good program and also teaches how to
    get help from friends if you are having a problem with something, like
    gangs and drugs. It's a very good learning process.
                Sincerely,
                                                       Jordan C. Smith.
                                     ______

                         Letter From Datasha Beauchamp
                                         414 W. 1st #C,
                                            Palisade, CO 81526,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        At Mt. Garfield Middle School we had a wonderful opportunity to
    experience the GREAT program. It was spectacular because we got to
    learn new techniques to deal with peer pressure. We also learned how to
    stay out of gangs and what to do in a nervous situation we worked
    through a booklet and Trooper Moseman explained everything thoroughly.
    I would appreciate it if you would keep the GREAT program so my little
    sister can get the same knowledge I got from the GREAT program.
                Sincerely,
                                                     Datasha Beauchamp.
                                     ______

                            Letter From Anita Kitts
                                     3688 G\4/10\ Road,
                                            Palisade, CO 81526,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        Well, I've been through the GREAT training. It taught me a lot. I
    think that we should keep the GREAT program around because others need
    to know what's going on in the world today. Also because we need to
    realize that all the drugs, alcohol, and also gangs need to stop!
    Especially killing good people, and little innocent babies because the
    gang members think you're not good enough for them. I think the GREAT
    program could help very much. I used to be very bad until the GREAT
    program came to our school. I think it will help young kids to say no
    to drugs, gangs, and alcohol. I just want to thank Trooper Moseman for
    helping me change my life so much. If it wasn't for him, I would
    probably still be in the same place I was.
                Sincerely,
                                                           Anita Kitts.
                                     ______

                           Letter From Kyla Londberg
                                              660 33rd,
                                             Clifton, CO 81520,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        Mount Garfield Middle School had the opportunity to learn about the
    GREAT program. It was very beneficial for everyone. We learned how to
    resist peer pressure of joining gangs, and what to do if you see an act
    of violence of the danger of drugs. I think that we should keep the
    GREAT program going.
                Sincerely,
                                                         Kyla Londberg.
                                     ______

                          Letter From Amanda Wilkinson
                                           405 30 Road,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave, Washington, D.C.

    To Whom It May Concern:
        Other classmates, cores, and I have gone through the GREAT program.
    It was very educational and fun. I learned a lot.
        I learned about gangs and what they do, things to do to stay out of
    gangs. What to do if we see something happening and what we can do to
    help ourselves and other people.
        Thank you for your time.
                Sincerely,
                                                      Amanda Wilkinson.
                                     ______

                           Letter From Steven Smythe
                                3210 White Circle West,
                                             Clifton, CO 81520,
                                                           May 6, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Avenue Washington, D.C.

    To Whom It May Concern:
        I think that the GREAT program should continue for middle schools.
    It is good for us to know how to stay out of trouble and gangs. We also
    learned consequences for the trouble we get in. In this class we all
    owe Trooper Moseman for teaching us all we know about gangs, drugs, and
    other criminal activities. Trooper Moseman taught us about these things
    and to avoid them. Please continue the program so other kids can also
    have the opportunity to have this program and still have a chance.
        Thank you for your time.
                Sincerely,
                                                         Steven Smythe.
                                     ______

                        Letter From Shinon Clinkenbeard
                                         436 Devon Ct.,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        Team 701 of Mount Garfield had the privilege of having a Trooper
    from our state visit us every Wednesday for nine weeks, to tell us
    about the GREAT program. It was actually fun.
        I, myself learned some things I had forgotten and I know I may have
    some kind of importance in my life, like how to say NO to drugs or
    alcohol, but leave a way for them to get out too.
        I also learned that being a leader and putting forth your ideas is
    better than just sitting around and waiting for other people to solve
    them. We learned some valuable things in the GREAT program, and I know
    other people did too.
                Sincerely,
                                                   Shinon Clinkenbeard.
                                     ______

                         Letter From Gabrielle Schultz
                                      3681 G\7/10\ Rd.,
                                            Palisade, CO 81526,
                                                           May 6, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        We went through the GREAT program and it has certainly left an
    impact on our school, and our minds.
        Trooper Moseman came to our classroom and we had the honor of being
    the first class in our school to take the nine week course.
        During that time we learned many valuable lessons. We learned that
    outside appearances don't matter as much as the person on the inside,
    that we can gain respect by taking on our responsibilities, that gangs
    are just troubled kids just like us who need help. I hope that 7th
    graders to come will have the opportunity to do the GREAT program too.
                Sincerely,
                                                     Gabrielle Schultz,
                                     ______

                            Letter From Paul Bailey
                                          443 Lois St.,
                                             Clifton, CO 84520,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        Our school had the opportunity to experience the GREAT program. And
    Here are some benefits that I learned. First, I learned some new laws
    and how to back away from drugs or crime. Also, I learned how criminals
    think and how drug dealers think so that we can resist. We also learned
    how to take charge of a situation.
                Sincerely,
                                                           Paul Bailey.
                                     ______

                           Letter From Kendra Herald
                                        468 Meadow Rd.,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        The 7th grade at Mt. Garfield Middle School has had a great
    opportunity to participate in the GREAT program.
        During the nine weeks Trooper Moseman was here, we learned how to
    stay out of gangs, how to protect ourselves and say NO when asked to
    join a gang. We learned how joining gangs and taking drugs ruins our
    lives. The GREAT program taught me how to set goals and how to trust
    people when I'm having problems. In the future, I hope the GREAT
    program helps more kids learn about the dangers and risks of gangs and
    drugs.
        Thank you for your time.
                Sincerely,
                                                         Kendra Herald.
                                     ______

                           Letter From John Sullivan
                                        3251.5 Collyer,
                                             Clifton, CO 81520,
                                                           May 7, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        We, the 7-1 core at Mt. Garfield Middle School were honored to have
    the GREAT program at our school. I, one of the students, have had hands
    on experience in this course. I truly think that you need to support
    this group. It has made me think about our town and community. The
    class activities were great because we got to role play and get put in
    a difficult situation. I was a principal in one of the activities. It
    made me think about kids these days. When I didn't know what something
    meant, he would tell me. I hope this stays in schools so that the other
    grades will learn and train themselves from gangs.
                Sincerely,
                                                         John Sullivan.
                                     ______

                          Letter From Natalie Puckett
                                     464 Greenleaf Dr.,
                                      Grand Junction, CO 81504,
                                                           May 5, 1998.
    U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

    To Whom It May Concern:
        Mt. Garfield Middle School has had the opportunity to be involved
    with the GREAT program. I strongly believe that this program should
    stay in our school because I have never learned so much about the
    consequences of violence. I also think this program really made kids
    think again about joining a gang. When Trooper Moseman taught us about
    what drugs did, I was convinced that many kids made the decision not to
    do drugs. At the end of the program when we thought and wrote our goals
    that we wanted to happen in life, it really made me think about what
    choices I would need to make to achieve them. I also learned about the
    things that I could do to stop violence.
        I know that this program works and has an impact on every student
    that goes through this course. I would hate to have to see the GREAT
    program stopped.
                Sincerely,
                                                       Natalie Puckett.

                               Summer Programming

        Mr. Tymeson. Senators Kohl and Campbell, if I could add
    some information about the summer program? Senator Kohl asked
    the question and I certainly appreciate the opportunity to be
    helping represent the La Crosse group here. First I would like
    to say I wish I had this panel with me at the University of
    Wisconsin-La Crosse. I work with a lot of future teachers and
    professionals in youth service areas and I would just love to
    bring this group right here in as instructors. They would do a
    fabulous job in reality.
        I just want to emphasize the importance of summer
    programming. Summer programming is a key part of any
    comprehensive youth programming, including the GREAT Program.
    Summer is a time for youth to have fun, experience new things,
    and as we all know, explore. Sometimes in that exploration they
    need a little help in making sure that is positive exploration
    and to be sure that it is in structured programming with
    appropriate role models.
        Kids are really challenged today. As a parent of two young
    boys who have been through the GREAT and the DARE programs, I
    recognize this in what they bring home each day. Kids are
    challenged to do the right things. Kids are often alone without
    parental role models, unfortunately, and they need to grow to
    make good decisions and have those skills to make good
    decisions.
        A GREAT summer program, a GREAT educational program is
    important. Senator Campbell, you mentioned about the importance
    of sports and recreational programming in kind of turning
    around your life. That served obviously as a very, very
    important alternative for you and the kids, I think, up here on
    the panel and the officers have mentioned how important those
    alternative programs are.
        That is the importance of a summer program, giving the kids
    an opportunity to apply what they have learned during the
    school year, apply it during all of that extra time that they
    have during the summer. A quality summer program must be a
    multiagency effort. There needs to be education, social, and
    human service agencies. All of these must be combined.
        This is what makes the NYSP/GREAT program work and this is
    what I am sure makes all of these programs work, that it has to
    be a multiagency type of program. Recent statistics are very,
    very scary from the National Center for Educational Statistics.
    They state that there is an increase in gang activity in
    schools. The percentage of kids that are victims of crime in
    school are increasing.
        I would just encourage you to really consider increasing
    the funding and giving more kids and officers the
    opportunities. Senator Campbell, I think it was you, you
    mentioned, do you see the police officers in different roles? I
    have the luxury to be working with these guys from La Crosse. I
    have the luxury to be a parent who can see the impact, and also
    a consumer to be able to enjoy a safe community.
        I see the police officers having fun teaching kids during
    the summer in the summer GREAT Program. It sheds a whole
    different light on the relationship between these kids and the
    officers, and I know that it makes a difference. I know that
    some night, some time when these kids might be getting into
    trouble and not using some of the good decisionmaking skills,
    that I know they are going to recognize a police officer.
        All over the country this could happen and I know it is
    going to prevent some problems from occurring. That interaction
    with community policing that is happening is a critical thing
    and the GREAT Program, including the summer programs, are
    marvelous examples of community policing. Thank you very much.
        Senator Campbell. While you police officers are here, I
    might recommend, if you have the time, you go to the police
    memorial that is here in Washington, DC. Last night, they had a
    candlelight vigil there and I, unfortunately, had a conflict
    and could not get over there, but once a year, they read the
    names of the police officers who have been killed in the line
    of duty. This day of remembrance lasts for several days here in
    town and we always encourage youngsters to go there.
        Mr. Simeona. Senator, if we may, we wanted to present you
    with some gifts that we brought.
        Senator Campbell. I am not sure of the rules for that, but
    I think I am going to recess the subcommittee. It might be
    graft and corruption or something. There are rules for all
    kinds of things. [Laughter.]

                             Conclusion of Hearings

        With that, this subcommittee has recessed and I will look
    forward to that. Thank you. That concludes the hearings. The
    subcommittee will recess and reconvene at the call of the
    Chair.
        [Whereupon, at 11:30 a.m., Thursday, May 14, the hearings
    were concluded and the subcommittee was recessed, to reconvene
    subject to the call of the Chair.]

       MATERIAL SUBMITTED BY INDEPENDENT AGENCY NOT APPEARING FOR FORMAL
                                    HEARINGS

        [Clerk's note.--The following independent agency of the
    Department of the Treasury did not appear before the
    subcommittee this year. The subcommittee requested that this
    agency submit testimony in support of its fiscal year 1999
    budget request. The statement follows:]
                              U.S. POSTAL SERVICE
    Prepared Statement of Marvin Runyon, Postmaster General/Chief Executive
                                    Officer
        We appreciate the chance to talk with you about the Postal Service
    and our appropriations request for fiscal year 1999.
        Today marks my final statement before this subcommittee. I want to
    thank the members of this subcommittee for your strong interest in the
    nation's mail system. Your counsel and support have been valuable to me
    and to the Postal Service. You have also been generous with your praise
    when our employees have delivered better service and financial
    performance. We appreciate that.
        As you know, I have announced my intention to step down as
    Postmaster General by May 15. The Governors of the Postal Service are
    searching for my successor. There are several highly qualified
    candidates within the current officer ranks. I am confident that an
    able leader will be selected and that the progress of the Postal
    Service will continue.
        Whoever that leader is, they will soon learn, as I did, how
    important the Postal Service is to the nation. And how much the
    American people rely upon it to do business, stay in touch, and carry
    out their civic responsibilities.
        They will also learn that the Postal Service faces a unique
    mandate. On one hand, it is a public service, chartered to deliver to
    every home, farm, and factory in the nation. That means keeping open
    thousands of small post offices that do not cover their costs. It means
    delivering letters at a uniform price to all areas of the country, no
    matter how great the distance or how remote the location.
        On the other hand, the Postal Service also faces vigorous
    competition and a requirement to operate like a business. That means we
    must continually prove ourselves in the marketplace of today and
    prepare ourselves for the marketplace of tomorrow.
        Some see those objectives as incompatible. But the truth is, a self
    supporting universal service must be run like a business or it will
    cease to be either self-supporting or universal. I believe during the
    past six years, the Postal Service has shown that it is possible to do
    both.
        Recently, the American people cast a strong vote of approval for
    the job that postal employees are doing. Nine out of ten Americans gave
    the Postal Service the most favorable rating among agencies of the
    federal government in a recent study by the Pew Research Center for The
    People and The Press. The Pew report said, ``The Postal Service stands
    out from other departments.'' The Postal Service stands out because
    postal employees stand out. They have made change work for the Postal
    Service and delivered excellence to the American people.
        The Postal Service has been undergoing a transformation since 1992.
    At that time, customers and employees alike voiced concern that the
    nation's mail system was in trouble. The Postal Service faced a
    projected year-end deficit of $2.2 billion and service was shaky. A
    sizable rate increase seemed likely. One that would have continued a
    long-standing cycle of red ink and rate hikes.
        The first order of business was to break that cycle. To begin, the
    organization was restructured, layers reduced, and bureaucracy cut.
    Without layoffs, 23,000 overhead positions were eliminated. Expenses
    were lowered and unnecessary programs ended. We also refinanced debt,
    saving more than $2 billion over 20 years.
        In all, the anticipated deficit was trimmed by $1.7 billion in
    1992. And prices were held steady for four years until 1995. The rate
    increase that followed was one of the lowest ever, two full points
    below inflation.
        Last summer, we requested the lowest increase in our history. It is
    less than half the rate of inflation and only a single penny on the
    First-Class stamp. We are asking the Postal Rate Commission for so
    little because we have replaced deficits with surpluses. $1.8 billion
    in 1995. $1.6 billion in 1996. And $1.3 billion last year. Today, the
    Postal Service is well on the road to financial health. And well on the
    way to fulfilling the legislative mandate that our finances break even
    over time. The net income of the last three years has cut our
    accumulated losses since reorganization in half. We have $4.4 billion
    yet to recover and a strategy in place to do so.
        At the same time, we have also broken the cycle of sacrificing
    service to make budget. Postal employees have delivered record service,
    while trimming costs and handling increased work loads. In 1994, 79
    percent of local First-Class Mail was being delivered overnight. That
    figure has risen steadily to a record 92 percent at the close of fiscal
    year 1997. Service is up across the board, in rural and suburban areas,
    and in all of America's large cities. We expect to close with a new
    record in 1998.
        These numbers reflect extensive changes that have taken place
    across the postal landscape. None more profound than the
    CustomerPerfect! Management system we adopted in 1995, based on the
    Malcolm Baldrige business principles. As the name implies,
    CustomerPerfect! establishes customer needs as our primary business
    driver. It also provides the framework for integrating managerial
    processes to deliver optimal performance. Market assessments, planning,
    budgeting, training, resource allocations, and major initiatives of
    every kind are brought together in an understandable and actionable
    way.
        Another hallmark is that we are setting more specific performance
    targets and tracking our progress more precisely. We have incorporated
    these measures in the five-year Strategic Plan presented to Congress.
    And we're updating them in our yearly performance plans. By the turn of
    the century, plans call for higher delivery scores. Not just for local
    First-Class Mail, but for two- and three-day deliveries, Priority Mail,
    and bulk business mailings. We are also adopting new ``Ease of Use''
    measures, to make it increasingly easy for customers to do business
    with us.
        The future of the Postal Service is taking shape right now across
    America in communities large and small and throughout our plants and
    offices. It is evident in our new retail attitude, the acceptance of
    credit and debit cards, extended business hours, and modern interior
    design that takes products and services from behind the counter and
    places them at the customer's fingertips.
        The future lies in advanced communications technology that is being
    deployed to connect our offices and delivery force into a modern
    logistical system. This will help us manage the business and provide
    customers with value-added services they demand and deserve.
        The future is in advanced automation and handling systems that
    drive costs down and service up. Computers can now process more than 25
    percent of handwritten letter mail. The sorting of magazines,
    newspapers, catalogs and small packages is being steadily automated. We
    are also in the early stages of creating the plant of the future. One
    that will see intelligent transport systems and robots handling the
    mail from acceptance to dispatch.
        The future is in process management that is simplifying our
    systems, eliminating stumbling blocks, and lowering costs. Process
    management is at work throughout Headquarters and in a growing number
    of plants and offices across the country. We share what we learn at
    these sites throughout the organization via our internal web site.
        Increasingly, the future will be augmented by electronic means. We
    are linking electronically with customers to reduce paperwork, schedule
    shipments, and reconcile accounts. We are providing the public with 24-
    hour access to information through our public web site. And we are
    developing electronic channels that allow a range of postal services to
    be purchased from the home or office.
        Most important of all, the future is in our people. It is in
    seasoned leaders like my Deputy, Mike Coughlin, Chief Operating Officer
    Bill Henderson, our officer corps, and our field management team. It is
    in the more than 770,000 career postal employees whose dedicated
    service makes all of this possible. I can't say enough about what they
    have accomplished. They make the changes work. Around the clock, across
    the country, despite every act of nature, they deliver for America. I
    am very proud of them.
        The Postal Service has come a long way. However, the challenges we
    face in the marketplace have grown as well. We face competition for
    every message, package, and payment we deliver. The rise of the
    internet and increasing numbers of personal computers in American
    households pose a threat to half of our First-Class Mail volume: the
    bills, payments, and statements which provide nearly 30 percent of our
    revenue. At risk is not only the heart of our business, but the
    underpinnings for the universal mail network that has served this
    nation so well for over two centuries.
        We are defending our business and universal service through two key
    strategies. One, we are raising the value of our services through a
    combination of cost-control, price restraint, and service improvement.
    Two, we are seeking new growth opportunities in parcel services, global
    markets, and satisfying customer needs. To those ends, we have
    committed an investment of $17 billion over the next five years to
    build the infrastructure and capabilities that are required.
        The Postal Service is on the move. We are committed by word, deed,
    and dollar to a transformational path that will keep us a vibrant
    communications force in the 21st century marketplace. I'm confident we
    will be successful. And I appreciate the support of this subcommittee
    and this Congress as we move forward.
        Today, the Postal Service requests a total appropriation of
    $100,195,000 for fiscal year 1999. This amount recovers the expense of
    revenue forgone on free and reduced-rate postage for certain types of
    mail mandated by Congress. Most of this amount--$68,710,000--reimburses
    the Postal Service for the costs of providing free mail for the blind
    and overseas voting.
        The Postal Service also requests an amount of $29,000,000 toward
    reimbursement for past year shortfalls in revenue forgone funding. This
    is the sixth payment in a series of 42 annual payments authorized for
    this purpose in the Revenue Forgone Reform Act. Consistent with the
    law, the remainder of our request--$2,485,000--is a reconciliation
    adjustment to appropriations in previous years. Each year,
    appropriations for free and reduced rates are based on estimated mail
    volumes. When final audited mail volumes become available, these
    figures are reconciled with the estimates. Our request for the coming
    fiscal year contains an amount to cover an audited funding shortfall in
    fiscal year 1996.
        Our request, however, no longer includes an amount to cover
    workers' compensation payments for employees of the old Post Office
    Department. Formerly, transitional appropriations to the Postal Service
    funded the compensation paid to approximately 1,800 individuals or
    their survivors for injuries which occurred before July 1, 1971. These
    expenses are directly related to the operations of the former Post
    Office Department and were, by law, a liability of the U.S. Government.
    The Balanced Budget Act of 1997 repealed the authorization for these
    transitional appropriations, and as of October 1, 1997, made these
    compensation costs liabilities of the Postal Service payable out of the
    Postal Service Fund. Consistent with business accounting principles, we
    have already accrued the full estimated cost of these liabilities,
    amounting to about $258 million.
        Finally, we have again declined to request the annual public
    service appropriation of $460 million which is authorized by law. We
    have not received an appropriation of this type since fiscal year 1982.
    By not using these funds, the Postal Service and this subcommittee have
    saved the Federal Government over $6 billion. We view not requesting
    this appropriation as one of the ways we keep faith with the
    legislative contract that made the Postal Service a self-supporting
    government establishment. Another way, of course, is maintaining
    universal service to everyone, everywhere, every day. We are extremely
    proud of our success in that regard, and we hope and trust that we will
    continue to benefit from your support.

                           NONDEPARTMENTAL WITNESSES

        [Clerk's note.--The following testimonies were received by
    the Subcommittee on the Treasury and General Government for
    inclusion in the record.
        The subcommittee requested that public witnesses provide
    written testimony because, given the Senate schedule and the
    number of subcommittee hearings with Department witnesses,
    there was not enough time to schedule separate hearings for
    nondepartmental witnesses.]
       Prepared Statement of Bobby L. Harnage, Sr., National President,
              American Federation of Government Employees, AFL-CIO
        Mr. Chairman and Members of the Subcommittee, my name is Bobby L.
    Harnage, Sr. and I am President of the American Federation of
    Government Employees, AFL-CIO. I appreciate the opportunity to testify
    before the Subcommittee concerning three issues affecting federal
    employees: the 1999 pay adjustment, official time for federal employee
    union representatives, and contracting out legislation. AFGE is the
    largest federal employee union, representing 600,000 workers across the
    nation and overseas.
                         federal pay--general schedule
        General Schedule (GS) federal employees, on average, should have
    received pay increases this year in excess of 10 percent. But because
    of continued defiance of the law by politicians in both the executive
    and legislative branches, those employees are actually receiving, on
    average, raises of only 2.8 percent. Short-changing federal employees
    on their pay raises is nothing new. Actually, it's happened year after
    year after year.
        In 1999, GS employees should receive pay increases of almost 13
    percent. However, the Clinton Administration has proposed in its budget
    that pay raises for GS employees next year be only 3.1 percent, on
    average. Unfortunately, the President's budget submissions for the
    years 1994 through 1999 have proposed federal GS salary increases far
    below that called for under the Federal Employees Pay Comparability Act
    (FEPCA). To remedy this gross inequity, legislation has recently been
    introduced that would close the loophole in FEPCA which allows the
    President to recommend pay raises smaller than the levels required by
    law.
        That federal employees are underpaid compared to their counterparts
    in the private sector and state and local government who perform
    similar work is a fact. What remains to be seen is whether the
    Administration and the Congress will finally provide federal employees
    with the pay raises which are their due under FEPCA. Responding to
    studies which showed conclusively that, on average, federal employees
    were paid 30 percent less than their private and public sector
    counterparts, Democrats, Republicans, and President Bush, urged on by
    AFGE and other unions, decided to close that pay gap over a nine-year
    period. As agencies continued to downsize, the President and a
    bipartisan coalition of lawmakers understood that it was more
    imperative than ever that the federal government provide competitive
    compensation packages so as to recruit and retain the highest quality
    employees. FEPCA was designed to enable the federal government to
    compete for applicants in every single labor market. And the law itself
    represented a fair, evenhanded approach to balancing the government's
    need to control its costs and the need of federal employees to maintain
    adequate standards of living.
        Following the law's passage, many thought that the pay increases
    due GS employees would no longer be cut back or held up by the
    President and/or the Congress. Under the law, pay for GS employees
    would slowly but surely become more comparable with the salaries of
    their counterparts in the private and public sectors. Pay adjustments
    for GS employees would consist of two components: (1) a nationwide
    increase linked to the Employment Cost Index (ECI), which measures the
    change in private sector wages and salaries; and (2) a locality
    increase, based on a comparison of non-federal and GS salaries in 32
    pay areas across the nation.
        In order to minimize the impact on the budget of finally treating
    the government's GS employees comparably with their private and public
    sector counterparts, the locality portion of the pay adjustment was to
    be phased in over a nine-year period. This grand compromise left GS
    employees with the expectation that the pay gap would eventually be
    closed. In fact, FEPCA mandated that 20 percent of the pay gap between
    average non-federal salaries and average federal salaries be closed in
    1994 and that an additional 10 percent be closed each year thereafter
    through 2002.
        Unfortunately, the Administration and successive Congresses have
    failed to provide GS employees with the pay raises required by FEPCA.
    In fact, the law's mandates were ignored almost from the start.
    Although FEPCA mandated that 70 percent of the pay gap be closed by
    1999, it will only have been reduced by 30.7 percent.
        As reported in a recent Congressional Research Service report
    (Implementing the Federal Employees Pay Comparability Act: Results
    Since 1991 and the Federal Employee Pay Adjustment for January 1999),
    ``FEPCA has never been implemented as originally enacted. In 1994, the
    annual pay adjustment was not provided and, in 1995, 1996, and 1998,
    reduced amounts of the annual adjustment were provided. For the years
    1995 through 1998, reduced amounts of the locality payments were
    provided. (Only in 1994 was locality pay implemented as FEPCA
    required.)'' The record of the Administration and successive Congresses
    raises the question of whether the law will ever be fully and
    faithfully implemented.
        For 1998, for example, the pay raise was only 2.8 percent. The
    Congress remained silent on the issue of GS pay in the Treasury
    Appropriations conference report, subsequently signed into law by the
    President. The President's budget had earlier recommended a total pay
    raise of 2.8 percent for 1998, to be divided between the nationwide and
    locality adjustments. In September 1997, it was determined that ECI for
    1998 would be 2.8 percent. After subtracting 0.5 percent, as required
    by FEPCA, the nationwide adjustment for 1998 was 2.3 percent. The
    Administration recommended to the Congress limiting the locality
    portion of the raise to just 0.5 percent, on average. After combining
    the nationwide and locality adjustments, the average pay raise for GS
    employees for 1998 worked out to only 2.8 percent--even though FEPCA
    said that those dedicated public servants should have had their pay
    boosted by much larger amounts. Last year, in fact, FEPCA authorized
    closure of 60 percent of the gap. That means GS employees should have
    received, on average, 10.5 percent increases in locality pay alone.
        After several years of low-balling GS employees on their pay
    increases, the crusade begun under FEPCA to finally treat GS employees
    comparably with their private and public sector counterparts--by
    closing the pay gap with the non-federal work force--is far, far behind
    schedule. The lawmakers who crafted FEPCA insisted that the pay gap
    between federal employees and their private and public sector
    counterparts should have been closed to 17 percent by 1998. However,
    because of continued defiance of FEPCA, that gap actually now stands at
    24 percent.
        How much will the politicians' failure to follow FEPCA cost federal
    employees for just this year? Let's take three GS employees in Mobile,
    AL. A GS-4, Step 4, worker is making $20,697 this year. If the
    politicians had obeyed FEPCA, that same federal employee would now be
    making $21,928. A GS-8, Step 8, worker is earning $35,615 this year,
    but should actually be paid $37,735. And a GS-12, Step 8, worker who
    should be paid $60,439 in 1998 is actually making $57,050. Obviously,
    the differences between the ``way it is'' and the ``way it ought to
    be'' are not enough to retire on, put five kids through college, or pay
    for around-the-world cruises. But it is money which could undoubtedly
    be put to good use by the working and middle-class Americans who make
    up the federal work force. More importantly, it is money which FEPCA--
    and the lawmakers who wrote the law--say belongs to federal employees.
    Of course, those losses are just for 1998; they are neither cumulative
    nor adjusted for inflation.
        Since 1994, the President has continued to deny federal employees
    increases called for under FEPCA based on a technicality--by claiming
    that an economic emergency exists of such severity that FEPCA must be
    disregarded. Economic emergency? The United States of America has
    experienced several years of strong economic growth. Moreover, the
    budget is in surplus--in large measure thanks to the incredible
    sacrifices made by federal employees, federal retirees, and their
    families. In fact, over the last eighteen years, the federal employee
    community has sacrificed over $180 billion to balance the budget. It's
    safe to say that no other specific group of Americans has done more to
    reduce the nation's indebtedness than federal employees, federal
    retirees, and their families. Based on data provided by the Office of
    Personnel Management, between 1994 and 1998 federal pay raises were
    reduced approximately $29.6 billion below the increases called for
    under FEPCA. In fact, the largest share of those sacrifices has
    occurred through the failure of the Administration and the Congress to
    follow FEPCA. Now that those sacrifices have paid off, it's time for
    politicians to pay federal employees the raises that are their due
    under the law.
        In conclusion, the Congress and the President should finally
    understand that paying GS employees what they deserve is a sound
    investment in the future of the federal work force. The continued
    defiance of FEPCA fuels the cynical view that seeking good faith
    compromises on issues of public policy is futile, because Congress and
    the Administration will always do what is easy, rather than what is
    right.
                            federal pay--blue collar
        The Federal Wage System (FWS) is the federal government's pay-
    setting system for workers in crafts and trades occupations, often
    referred to as ``blue-collar'' workers. The FWS is designed to pay
    these workers according to the prevailing rates in the private sector
    of the local economy. The system's design, intended to provide federal
    blue collar employees with a fair wage and assure that the federal
    government can attract and retain high quality craft and trade workers,
    is sound. But the Congress has consistently imposed arbitrary pay caps
    that prevent the system from working properly and leave blue collar
    workers further and further behind their counterparts in the private
    sector with respect to compensation.
        The goals of the FWS, which was enacted in 1972, have largely been
    ignored because Congress has imposed artificial limitations on pay
    increases that have nothing to do with private sector pay rates, and
    everything to do with penny-pinching politics. The comparability
    provisions of the FWS have been consistently disregarded by limiting
    increases to no more than the same percentage increase paid to white
    collar employees under the General Schedule, regardless of the
    percentage actually due to blue collar employees under the FWS. These
    ``pay caps'' have forced federal blue collar workers to see not only
    the real value of their pay decline, but also to have their own
    salaries fall further and further behind the rates paid to their
    counterparts in the private sector who perform similar work. The
    government continues to conduct careful surveys of private sector pay
    in 134 different wage areas around the country each year. These surveys
    are models for labor-management cooperation and produce statistically
    valid information on the rates of pay in the local private economy.
    Unfortunately, these results are ignored and treated as virtually
    meaningless due to the arbitrary pay caps that have been imposed
    annually since 1979.
        Successive pay caps on the FWS have caused the government's blue
    collar workers to see a real, inflation adjusted decline in the value
    of their pay compared to their private sector counterparts. The pay
    gaps vary in different parts of the country. They also vary by grade. A
    WG-2 Janitor in Dothan, AL earns $8.26 per hour, while the prevailing
    rate for that work in the local private economy is $10.06. A WG-5
    Warehouse Worker in Dothan makes $10.17, while his private sector
    counterpart makes $12.53. A WG-10 electrician earns $13.52, while the
    private prevailing rate is $16.55. In Oklahoma City, OK, the federal
    Janitor makes $10.03, while they pay $10.54 in the private sector. The
    Warehouse Worker makes $11.85 vs. $12.65 in the private sector. The
    Electrician earns $15.77, while the prevailing rate is $16.15. In San
    Bernardino, CA, the federal Janitor is making the same as the private
    prevailing rate, $8.34 per hour. The Warehouse Worker is also making
    the prevailing rate at $11.72 per hour. The electrician in San
    Bernardino still lags behind her private counterpart, earning $16.22 to
    the prevailing rate of $17.37.
        Under FEPCA, the gaps between federal white collar pay and the
    rates in the local economy were so large that the costs of closing them
    had to be spread over nine years. Fortunately, no similar major
    overhaul of the blue collar pay system is needed to address the pay gap
    of that work force. First, the size of the FWS work force is much
    smaller than that covered by the General Schedule. As of December 31,
    1997, there were only 244,000 blue collar employees; and that number
    continues to shrink steadily. In 1957, there were almost 750,000
    federal blue collar employees, at a time when there were just under a
    million white collar workers. During the Vietnam War there were over
    500,000 craft and trade workers. As recently as July 1993 the number
    was 333,295. DOD downsizing and often wasteful contracting out are the
    main factors contributing to this decline.
        Second, FWS pay gaps are much smaller than those in the General
    Schedule. According to the Federal Salary Council, the average pay gap
    for the General Schedule pay localities this year was 28 percent. OPM
    found the average FWS pay gap as of December 31, 1997 to be only 4.94
    percent. Less than one percent of federal pay blue collar workers have
    gaps in excess of 15 percent.
        While the solution to the problem is more easily achieved for blue
    collar employees, the failure of the government to pay equitable wages
    will only grow worse if the Congress continues to arbitrarily impose
    caps on pay increases called for under the FWS.
        In conclusion, the system Congress designed in 1972 to set federal
    crafts and trades wage rates in accordance with locally prevailing
    rates is sound public policy. AFGE has great confidence in the
    integrity of this system. The cooperation between management and labor
    unions in the implementation of the system is a model of partnership
    that is showing the way for others in the federal government. Congress
    should honor this policy and allow the system to resume operation
    without the imposition of arbitrary pay caps in fiscal year 1999.
            official time for federal employee union representatives
        The Office of Personnel Management (OPM) was directed by the House
    Appropriations Committee to report by December 1, 1998, on the use of
    official time by federal employee unions. The report will cover
    official time activity for the first six months of calendar year 1998.
        AFGE and other federal employee unions have been working closely
    with OPM and key federal agencies to ensure a reliable and accurate
    report. OPM created a working group of agency and union representatives
    who collaborated on the development of an official time survey and a
    set of instructions for all federal agencies covered by the Committee's
    request. The working group will continue to assist OPM in any way
    requested as the data is collected.
                        government-wide contracting out
        Mr. Chairman, as you may know, there's been some talk about
    attaching the latest versions of the ``Freedom From Government
    Competition Act'' (S. 314) to the Senate Treasury-Postal funding
    measure. I urge the Subcommittee to oppose such an effort. Moreover, I
    urge the members of this Subcommittee to oppose this legislation
    regardless of how it is advanced.
        Although the latest versions of this legislation are styled as
    ``compromises,'' little has changed from before. The latest Senate
    draft would replace OMB Circular A-76, the current system for competing
    commercial services between federal employees and contractor employees,
    with a more pro-contractor system and then put the government up for
    bid over a five-year period. Because of the documented lack of
    competition for government contracts, this legislation will likely
    increase costs to the taxpayers because so many contracts will be sole-
    sourced or divided up among a few bidders--as has historically been the
    case at the Department of Defense (DOD) and the Department of Energy
    (DOE), the two federal agencies which do the most service contracting.
    Adding to taxpayers' burdens, the staggering amount of waste, fraud,
    and abuse in federal service contracting which exists already will
    likely skyrocket once the government is put up for sale.
        It is claimed that the federal government doesn't contract out
    enough and that OMB Circular A-76, the system by which federal
    employees and contractors compete for commercial activities, isn't used
    enough. But the federal government already contracts out at least $110
    billion annually. That figure is somewhat arbitrary since it doesn't
    include a multitude of federal service contracting, like payments to
    Medicare providers. Even at that artificially low level, the federal
    government spends less annually on pay and retirement for its entire
    civilian work force of 1.8 million employees ($108 billion) than it
    does on service contracting.
        While supporters of S. 314 admit that OMB Circular A-76 is being
    used extensively in DOD, they point out that it isn't often used in
    other departments. That's true. But does that mean there is no
    contracting out occurring outside of DOD? Certainly not! Approximately
    two-fifths of the more than $110 billion contracted out annually is
    from non-DOD departments. In the absence of OMB Circular A-76, it must
    be assumed that most of that contracting out is occurring without
    public-private cost comparisons. So supporters of S. 314 have a point,
    but not the one they intended to make: Although much contracting out is
    occurring outside of DOD, little of it is done under OMB Circular A-
    76--meaning that contractors are getting this work without competing
    against federal employees.
        What's wrong with this legislation:
        1. It would junk OMB Circular A-76 in favor of a more pro-
    contractor system. Federal employees used to regularly lose the
    competitions conducted under OMB Circular A-76. Only a few years ago,
    federal employees came out on the losing end 7 out of 10 times. Thanks
    to the efforts of federal employees to reinvent themselves, we now win
    one-half of the public-private competitions. It is this dramatic change
    in fortunes for the contractors which has inspired this most recent
    effort to do away with OMB Circular A-76.
        Moreover, if anything, it's federal employees who ought to be
    complaining about OMB Circular A-76. Under its guidelines, managers are
    entitled to contract out--without first doing a cost comparison--work
    involving 10 or fewer employees. For work involving 11 or more
    employees, cost comparisons can be waived for contractors. And the cost
    comparison process can be ``streamlined'' for work involving 65 or more
    employees.
        It is inevitable that the public sector and the private sector will
    find fault with OMB Circular A-76. Jobs and money are at stake. It's
    been said that democracy is a terrible way to govern, but it's better
    than the alternatives. The same can be said of OMB Circular A-76.
    Federal unions and contractors participated extensively in the most
    recent revision of OMB Circular A-76. Neither side managed to achieve
    all of its objectives. Contractors and their political benefactors need
    to learn that compromises must be made when competing interests are at
    stake.
        2. It would subject to public-private competitions work which is
    truly inherently governmental.
        The latest draft of S. 314 would allow contractors to protest
    agencies decisions to keep work which is inherently governmental in-
    house. It would allow agencies to challenge in federal claims court
    agencies determinations of what's inherently governmental. The Senate
    draft would allow contractors to challenge agencies' awards in federal
    claims court. As might be expected, unions would be forbidden from both
    challenging agencies' decisions about what's inherently governmental
    and taking agencies to court about awards. Obviously, the intent is to
    allow contractors to bully agencies with costly and protracted
    litigation into forcing as much work to be contracted out as possible.
    Decisions about awards and what's inherently governmental should
    continue to be made by department officials who are most familiar with
    the services actually provided.
        Moreover, both versions would involve politicians in the process by
    which work is determined to be inherently governmental or commercial.
    The new version of S. 314 requires departments to submit to Congress
    lists of the commercial services they provide. The resulting
    contractors' catalogues would invite a completely unprecedented and
    thoroughly unhealthy Congressional micromanagement of contracting out
    decisions.
        In response to lobbying by constituents back home, politicians are
    sure to use their influence to have particular services classified
    according to their preferences, rather than how they should be
    classified. While some politicians may intervene on behalf of federal
    employees, let's face the facts: contractors have deeper pockets and
    are thus more capable of getting their way. The result of all this
    politicalization: services which are truly inherently governmental bid
    will be put up for bid and perhaps steered towards well-connected
    contractors.
        3. It would put the government up for sale over five years by
    mandating public-private competitions under a pro-contractor successor
    to OMB Circular A-76 for an expansively-defined list of commercial
    activities--regardless of how well federal employees are actually
    performing their jobs.
        Federal employee unions understand the value of public-private
    competitions within the context of OMB Circular A-76. Clearly, work
    should not be contracted out without the benefit of public-private
    competition. And just as surely as OMB Circular A-76 gives managers the
    discretion to subject commercial work to public-private competitions,
    it also gives managers the discretion not to compete work when federal
    employees are doing their jobs satisfactorily.
        Supporters seem to take the position that any commercial work not
    subject to public-private competition and still performed by federal
    employees is inherently suspect, i.e., that there must be a conspiracy
    afoot to keep that work in-house. After 12 years of Reagan-Bush
    political appointees, who largely disdained the public sector, and 5
    years of Clinton political appointees, who have racked up the largest
    service contracting out bills in the nation's history, it would be
    difficult to argue that the reason more work hasn't been contracted out
    is federal employee protectionism. Sometimes, the real explanation is
    also the simplest: federal employees consistently deliver services
    departments' customers need at the prices taxpayers can afford. And if
    federal employees are performing at least satisfactorily, there's no
    need to impose public-private competitions.
        Worse, lawmakers already have the power to compel public-private
    competitions under OMB Circular A-76 if they think it to be proper. As
    is often the case in DOD, lawmakers--presumably after careful study and
    consultation with experts--can intelligently determine whether a
    particular activity should be considered for contracting out and impose
    that requirement in law. That makes more sense than blindly subjecting
    to competition every commercial activity in every single federal agency
    over a five-year period.
        Finally, it must be noted that the savings generated from this
    disruptive system of around-the-clock competitions would be one-time
    and likely disappear soon thereafter. Work contracted out is unlikely
    to ever be brought back in-house because of the expense of
    recapitalizing in-house capability and reassembling and retraining the
    necessary staff. That means, the taxpayers will become vulnerable to
    sole-source contracting--as has been the case at DOD and DOE, which
    have done the most contracting out--because of the absence of private-
    private competition. Not only will the one-time savings be quickly
    consumed but taxpayers could be left on the hook in perpetuity because
    of the absence of effective in-house competition. As Representative
    Norm Sisisky (D-VA), a businessman before entering politics, has said
    repeatedly: ``If you kill the public sector, you kill competition.''
        This legislation fails to address several outstanding issues:
        1. Our current contract administration system is already busted and
    broken beyond repair. Much of it is on the General Accounting Office's
    (GAO) list of federal services subject to waste, fraud, and abuse. OMB,
    departments, and outside experts like GAO report that the government
    cannot adequately supervise all of the service contracting it
    undertakes right now. Imagine what will happen when the government is
    put up for sale over five years! The ``revolving door'' phenomenon--
    whereby managers direct work towards contractors they intend to work
    for upon retirement, would surely increase throughout the government--
    is also left unaddressed by the draft.
        2. Arbitrary personnel ceilings are already forcing work to be
    contracted out. Departments don't have enough employees, so they simply
    contract out the work without any public-private cost comparisons.
    That's not just what federal employee unions say. That what departments
    say. That's what inspectors general, GAO, and outside experts say. For
    several years, politicians have been bragging about reducing the number
    of federal employees. But what the American people haven't been told is
    that a ``shadow work force'' is being hidden on the payrolls of
    thousands of federal contractors. That is, federal employees are being
    replaced with contractor employees--often at greater expense.
        Departments should be required to manage by budgets. If they have
    the money, then they should be allowed to keep or hire the necessary
    number of federal employees to perform the work if they would provide
    more efficient and more effective service than their private sector
    counterparts.
        Unfortunately, these bills doesn't require departments to manage by
    budgets. Instead, they would leave federal employees with the worst of
    both worlds: they would be forced to compete all of the time but would
    often be prevented from actually competing for work because they
    couldn't keep on or hire sufficient in-house staff to do the work.
        3. Champions of contracting out say that private sector firms
    generate savings for taxpayers by devising more efficient ways of
    delivering services. However, much contracting out is done to
    shortchange employees on pay and benefits; and, often, contracting out
    is done to avoid unions. Nothing in the legislation would force
    contractors to devise better ways of delivering services and reduce
    their incentive to provide substandard wages and benefits. When the
    budget is in surplus, the economy's booming, but income distribution
    grows worse and worse, how can the federal government justify replacing
    working and middle class Americans with poorly-paid, contingent
    workers?
        4. Despite the dislocation that would obviously result from
    enactment of this legislation, no provisions are made for soft
    landings, job training, and employment assistance.
        I urge the members of this Subcommittee to oppose S. 314, whether
    offered as an amendment to the Treasury-Postal appropriations bill or
    as stand-alone legislation.
                                   conclusion
        Mr. Chairman, I thank you for inviting AFGE to share with you the
    perspectives of rank-and-file federal employees. I am eager to answer
    any questions you and your colleagues might have for me.
                                     ______

     Prepared Statement of Robert M. Tobias, National President, National
                            Treasury Employees Union
        Chairman Campbell, Ranking Member Kohl and Members of the
    Subcommittee, my name is Robert M. Tobias, and I am the National
    President of the National Treasury Employees Union (NTEU). On behalf of
    the men and women who collect the revenue for the federal government,
    fight to curb the flow of narcotics and contraband into our country,
    and enforce our trade laws, I would like to thank you for this
    opportunity to present our Union's views on the President's proposal
    for fiscal year 1999.
        IRS and Customs are the two main revenue collection agencies of the
    Federal government. They are also front line enforcement agencies for
    our tax and trade laws, assuring equitable sharing of the tax burden,
    and protecting our nation from illegal imports. Both agencies continue
    to confront rapidly increasing workloads with relatively static
    manpower and fiscal resources.
                            internal revenue service
        The total budget request for fiscal year 1999 is $8.196 billion and
    100,829 FTE. In addition, the IRS budget includes a request for $143
    million and 2,184 FTE in funding outside the caps for the Earned Income
    Tax Credit. The total budget request includes a net increase of $529
    million and 1,232 FTE over the fiscal year 1998 level. Of this
    increase, $176 million represents part of the cost that would be needed
    to maintain the current level of operations, taking into account
    inflation and mandatory pay increases. The remaining increases
    represent increases dedicated to improved near-term customer service
    ($103 million), near-term and long-term technology investments ($227
    million) and organizational modernization ($25 million). NTEU fully
    supports the President's request for IRS funding in fiscal year 1999.
        NTEU believes that the President's budget proposal is the absolute
    minimum required to begin a reinvention of the IRS ``around taxpayers
    needs.'' However, there are others in the Congress who are seeking to
    gut the IRS budget instead of providing the resources indispensable to
    that necessary restructuring. The Senate Budget Committee's recent
    action to cut the President's request for the IRS by 6 percent--some
    $500 million--makes no sense. It is the wrong cut in the wrong place at
    the wrong time.
        Mr. Chairman, the plain fact is that no one, not even the Congress,
    can have it both ways. We cannot expect the IRS to do what we say we
    want it to do to eliminate problems if we cut its budget. That does not
    make any sense.
        Last September's hearings by the Senate Finance Committee
    pinpointed a variety of problems in the agency's systems and processes.
    In turn, the hearings also generated a great many proposals as to how
    to solve many of these problems and an expectation that the Congress
    and this Administration would immediately take steps to respond to the
    needs of its customers--the American taxpayers.
        Both the recently announced Gore-Rubin ``Reinventing Service at the
    IRS'' report and the President's budget are solid first steps in
    response to taxpayers' concerns. The Congress should not ignore them.
    As the new IRS Commissioner, Mr. Rossotti, advised both the Senate and
    House Appropriations Subcommittees in early March: ``The fiscal year
    1999 budget we are requesting is absolutely essential to begin this
    long-term transformation.''
        Among the funding initiatives proposed for fiscal year 1999, NTEU
    believes that the Congress should consider the $103 million for near-
    term improvements in customer service as one of its highest priorities.
        NTEU members have first-hand knowledge of what the American
    taxpayers expect and have been working with the new Commissioner, Mr.
    Rossotti, to do all that we can within existing resources to improve
    customer service. Despite all the shortcomings of the IRS, the
    employees are performing exceedingly well in comparison to any similar
    organization in the world.
        Over the past four fiscal years, fiscal year 1995 to fiscal year
    1998, the IRS collected 24 percent more revenue, 8 percent more returns
    with 13 percent fewer resources, or more than $1 billion less, in
    constant dollars. In fiscal year 1995, the IRS processed 193.3 million
    returns. In fiscal year 1998, it is expected to process 208.4 million
    returns. In the past year, the total tax revenue collected rose by more
    than $70 billion while the agency processed another 5.8 million
    returns. Revenues were $1.36 trillion in fiscal year 1996; $1.5
    trillion in fiscal year 1997; $1.58 trillion in fiscal year 1998, and
    projected revenues for fiscal year 1999 are $1.64 trillion. In
    addition, the accuracy rates for tax law inquiries, accounts
    information and refunds have dramatically improved.
        In fiscal year 1995, the cost to collect $100 of revenue was 59
    cents, 53 cents in fiscal year 1996, 48 cents in fiscal year 1997, and
    in fiscal year 1998, the cost to collect $100 should drop to 47 cents.
    No tax collection agency anywhere comes close, much less matches the
    IRS cost per dollar of revenue raised. Most democracies spend nearly
    three to four times that much, $1.25 to $1.70, to collect $100 in
    income tax revenue.
        In 1997, the 102,000 IRS employees collected more than $1.5
    billion, processed 215 million tax returns, issued almost 88 million
    refunds, assisted more than 110 million taxpayers, distributed more
    than one billion forms and publications, sent 70 million notices and
    letters to taxpayers, processed more than one billion information
    documents, completed more than 1.5 million audits and assessed $10.4
    billion on delinquent returns. In fiscal year 1998, the IRS will answer
    more than 120 million telephone calls, provide walk-in service to
    nearly nine million taxpayers, and will examine nearly 1.3 million
    individual returns.
        Mr. Chairman, with so many of the agency's numbers going in the
    right direction, IRS workers find it bewildering that so many in the
    Congress remain so hostile to their achievements. The Senate hearings
    last Fall were devastating, but continued attacks by some in the
    Congress upon the IRS are having a crippling effect on the IRS' ability
    to perform its core functions.
        NTEU considers Senator Faircloth's bill, S. 1690, even more
    counterproductive than the Senate Budget Committee's actions. The IRS
    employee base has already dropped more than 11 percent since fiscal
    year 1995. Our nation can ill afford to lose a third of its core tax
    law enforcement personnel at the IRS to the Drug Enforcement Agency or
    any other agency.
                        customs fiscal year 1999 budget
        Mr. Chairman, the President's fiscal year 1999 budget request
    provides $1.7 billion and 16,655 FTE for Salaries and Expenses for the
    U.S. Customs Service, an increase of $117.8 million and 111 FTE over
    the fiscal year 1998 enacted levels. In addition, the President has
    submitted a legislative proposal for $48 million to increase the rate
    of the Merchandise Processing Fee (MPF) to offset the costs of
    modernizing Customs automated commercial operations.
        NTEU believes this request is the bare minimum to meet Customs'
    responsibilities to interdict illegal drugs and perform its many other
    responsibilities, including the inspection of high-risk shipments to
    assure proper manifest recording and duty payment; resolution of
    discrepancies related to inbound shipments; trade enforcement at bonded
    warehouses and foreign trade zones; non-proliferation related export
    enforcement; anti-money laundering enforcement, and the protection of
    domestic intellectual property rights. The new positions requested for
    fiscal year 1999 will be used to strengthen Customs' ability to disrupt
    normal smuggling channels, enhance investigative and intelligence
    capabilities and improve the child labor enforcement program.
        In fiscal year 1999, Customs estimates it will process 379.4
    million land border passenger arrivals, 81.5 million air passenger
    arrivals and 10 million sea passenger arrivals. Customs estimates that
    122 million vehicles, 136,000 aircraft, and 225,000 vessels will enter
    our ports during the current fiscal year. Most significantly, Customs
    expects an increase of 13.5 percent in the number of railcars coming
    into the U.S. and an increase of 9 percent in the number of commercial
    aircraft arrivals (420,000 railcars and 850,000 commercial aircraft).
        In fiscal year 1999, Customs estimates it will seize more than 160
    thousand pounds of cocaine (2500 seizures), 780 thousand pounds of
    marijuana (13,000 seizures) and 3 thousand pounds of heroin (1,250
    seizures). In contrast, Customs in fiscal year 1995 seized 158.3 pounds
    of cocaine (2,228 seizures), 658.6 pounds of marijuana (10,221
    seizures) and only 2.2 thousand pounds of heroin (928 seizures).
        Despite the record of achievement in so many law enforcement areas,
    the vast majority of Customs employees still do not qualify for law
    enforcement status. As in past years, NTEU will continue its efforts to
    enact legislation to end this disparity in this Congress. While we
    appreciate the significant budget implications, we believe that denying
    the brave men and women of the Customs Service the same employment
    rights of other federal employees who risk their lives every day to
    combat the trafficking of drugs and other dangerous illegal import
    activity is unjust.
                               federal pay issues
        NTEU also has concerns regarding the proposed 3.1 percent pay raise
    for federal workers in 1999. Almost 40 percent of the federal work
    force has a college degree. The jobs, like making computer year 2000
    compliant, are very challenging and important. If the federal
    government is going to be able to recruit and retain some of the
    country's best and brightest workers, we must provide wage levels
    comparable to their private sector counterparts. Today's federal work
    force today is smaller than any since the Kennedy administration. Many
    who criticize the federal work force fail to acknowledge the
    substantial growth in the number of Americans served per federal
    worker. Only a work force that is working harder and smarter can keep
    up with these demands.
        The Federal Employees Pay Comparability Act (FEPCA) of 1990
    established fundamental changes in setting federal employee pay and
    created a system for paying federal employees on a local, rather than
    national basis. Under FEPCA, federal employees were to receive an
    annual nationwide pay adjustment and a locality-based comparability
    adjustment designed to begin to close the gap between federal and
    private sector salaries measured at approximately 30 percent.
        Although FEPCA resulted from a 4-year bipartisan effort, it has
    never been implemented as intended. On January 1, 1999, 70 percent of
    the pay comparability gap between federal and private sector employees
    should be closed. In reality, with only 4 years remaining under the
    timetable set by FEPCA for achieving pay comparability between federal
    and private sector salaries by 2002, less than 30 percent of the salary
    gap has been closed.
        FEPCA authorizes the President to issue an alternative pay proposal
    in the event of ``national emergency or serious economic conditions
    affecting the general welfare''. Each year, the President has used this
    loophole and declared an economic emergency. This has resulted in an
    arbitrary pay setting policy with no apparent rationale. Rather than
    catching up with their private sector counterparts, federal employees
    have continued to fall behind. Congressman Steny Hoyer (D-MD) and
    Senator Paul Sarbanes have introduced legislation to restrict the
    Administration's authority to claim economic emergencies and issue
    alternative pay proposals. NTEU heartily endorses the Hoyer/Sarbanes
    legislation (H.R. 3251 and S. 1679).
        Our Nation currently enjoys sustained economic growth, shrinking
    deficits and the possibility of vast budget surpluses. That the federal
    budget is on the verge of being in balance is, in part, a reflection of
    the sacrifices made by federal employees. They are working harder and
    smarter as part of a work force that has declined by more than 300,000
    employees and is the smallest since 1964. They perform their jobs
    despite restrictions on training and promotions and in the face of
    terrorist attacks, lockouts and layoffs as well as pay and benefit cuts
    totaling more than $220 billion over the last 20 years.
        The President's fiscal year 1999 budget recommends a 3.1 percent
    pay raise in January, 1999. To meet FEPCA's goal of achieving full
    comparability by 2002, an average 17 percent increase would be
    required. NTEU urges the Committee to consider action that would
    address this inequity.
        Mr. Chairman, thank you and the Members of the Committee again for
    the opportunity for our Union to present its views on the proposed
    budgets for fiscal year 1999 for Internal Revenue Service and U.S.
    Customs Service and compensation to federal employees.
                                     ______

       Prepared Statement of the American Association of Retired Persons
        The American Association of Retired Persons (AARP), appreciates
    this opportunity to comment on appropriations next year for the Tax
    Counseling for the Elderly (TCE) program. This cost effective activity
    provides free tax assistance for low and moderate income older people.
    The AARP Foundation--a separate 501(c)(3) corporation--operates the
    AARP Tax Aide Program, which is the largest of the TCE programs.
        The Association deeply appreciates the Subcommittee's continued
    support of Tax Counseling for the Elderly. Enacted in 1978, TCE
    improves taxpayer compliance measurably by helping to ensure that more
    tax returns are prepared completely and accurately. At the same time,
    TCE volunteers inform taxpayers about their obligations and assist them
    in fulfilling their responsibilities. The agency reports that many
    taxpayers with incomes below the minimum level required file tax
    returns needlessly each year. This results in unnecessary costs to both
    the taxpayer and the Federal government. TCE helps prevent such
    occurrences.
        TCE volunteers are also actively involved in electronic filing and
    other alternative filing methods, all of which increase the accuracy of
    tax returns while reducing Federal processing costs. TCE involvement in
    this arena is growing, and is helping to reduce IRS expenses.
        The Tax Counseling for the Elderly program has enabled IRS to
    assist aged minorities more effectively as well as disabled and hard-
    to-reach taxpayers such as the rural elderly and shut-ins, especially
    those residing in nursing homes or senior citizen housing. In 1997 TCE
    sites offered assistance in 25 languages, including American sign
    language.
        Given the discretionary caps, AARP supports the Administration's
    recommended $3.7 million freeze for TCE next year. The value of TCE has
    been amply demonstrated over the years, and is reflected in growing
    demand for assistance. A report issued five years ago by the General
    Accounting Office (GAO) indicates that in 1992, TCE accounted for the
    preparation of more than four times the number of returns prepared at
    Internal Revenue Service (IRS) walk-in sites. More than 31,000
    volunteers are involved in TCE services at more than 10,000 sites
    across the country. In addition, the agency's annual Individual Master
    File (IMF) reported a 95 percent mathematical accuracy rate for TCE
    returns in 1997, which was comparable to or higher than those for other
    categories of preparers. When the program first began, it helped
    846,000 elderly taxpayers prepare their tax returns. Currently, over
    1.5 million people receive tax counseling annually. We do not have
    complete data for the current tax season, but we expect TCE to continue
    to grow in the future. There are several reasons why this is likely to
    happen.
        First, the elderly population is increasing.
        Second, the complexities of our tax code cause many aged taxpayers
    particular difficulty in computing their tax obligations. Moreover,
    many aged citizens are not aware of the changes made in our tax laws
    over the past few years.
        Third, the Internal Revenue Service has increasingly turned to TCE
    programs for assistance, in large part because budgetary constraints
    have stretched the ability of the agency to respond directly to
    numerous public inquiries. Volunteers are contributing millions of
    hours annually in direct public service to older taxpayers.
        TCE volunteers are dedicated to the program and are committed to
    helping others. TCE volunteers are also committed to ensuring that
    older taxpayers with dependent children or grandchildren are made aware
    of their eligibility for the earned income tax credit (EITC). Many
    older low income wage earners find themselves responsible for providing
    care for their dependent children or grandchildren. EITC is an
    important benefit for these individuals.
        The TCE program will continue to participate in successful IRS
    efforts such as the Reduce Unnecessary Filing (RUF) initiative. In
    1997, the agency notified 630,000 taxpayers that they might not have to
    file a Federal return. Data indicate that 75 percent of the RUE letters
    were sent to taxpayers 61 years of age or older. Many of these older
    individuals approached TCE sites in order to receive confirmation that
    they did not need to file a return that year.
        Thank you again for this opportunity to comment on appropriations
    next year for the Tax Counseling for the Elderly program.
                                     ______

      Prepared Statement of Daniel W. McKinnon, Jr., President, National
                 Industries for the Severely Handicapped [NISH]
        Mr. Chairman and members of the Subcommittee, my name is Daniel W.
    McKinnon, Jr. and I am President of NISH, formerly known as the
    National Industries for the Severely Handicapped. I want to thank you
    for this opportunity to discuss your role in supporting one of the
    United States' most successful government programs, the Javits-Wagner-
    O'Day (JWOD) Program and urge you to fund the Committee for Purchase
    from People who are Blind or Severely Disabled's (Committee for
    Purchase) request of $2.464 million for fiscal year 1999.
        I am submitting testimony this year in particular because it is the
    60th anniversary of the Wagner-O'Day Act, an Act created to help
    provide employment opportunities for people who are blind through the
    federal procurement process. Twenty-seven years ago, the program was
    expanded to provide employment opportunities for people with severe
    disabilities other than blindness.
        NISH's responsibility in this program is to maximize employment
    opportunities for people with severe disabilities through providing
    professional and technical assistance to not-for-profit Community
    Rehabilitation Programs (CRP's) to enable their participation in the
    JWOD Program. NISH is the Central Nonprofit Agency designated by the
    Committee for Purchase from People who are Blind or Severely Disabled
    to provide assistance to CRP's interested in obtaining federal
    contracts under the JWOD Program. Founded twenty-four years ago by
    United Cerebral Palsy Association, National Easter Seals Society, The
    ARC, Goodwill Industries International, National Association of Jewish
    Vocational Services and the American Rehabilitation Association, NISH
    is proud to be part of the accomplishments of the past 60 years.
        In 1997 nearly 32,000 people with severe disabilities were employed
    on JWOD projects. These individuals worked 26 million hours and earned
    $172.6 million in wages. NISH associated JWOD employees earned an
    average of $6.79 per hour. Of these individuals approximately 2,500
    people with disabilities moved into other community jobs based on their
    JWOD training and experience.
        These results come about by a simple process. A small slice of the
    annual federal market of $200 billion purchases of products and
    services is made available to CRP's who train and employ people with
    disabilities. Government contracts result in empowerment and
    independence for people who face often tremendous barriers to
    employment. These are men and women who are not fully benefiting from
    record 4.7 percent unemployment, the lowest in 25 years. Great advances
    have been made in the past years in the employment of people with
    disabilities because of the Americans with Disabilities Act and slowly
    changing public perceptions. Nevertheless, their unemployment stands at
    almost 70 percent and so much remains to be done. Although small, JWOD
    is an outstanding government sponsored program that is addressing this
    problem. Typically these job opportunities are in the service
    industries and include such positions as food service attendant,
    building maintenance, mail room operative, shelf-stocker, etc.
        The government agency responsible for these results is one of the
    smallest in the federal government, the Committee for Purchase from
    People who are Blind or Severely Disabled. The Committee for Purchase
    has a modest staff of 19 with responsibilities that are vast. Their
    duties include evaluating projects, making determinations relative to
    adverse impact on other potential contractors, approving projects,
    establishing the government's price, overseeing the regulatory
    requirements of the program, and handling many other details of this
    unique program. Easily the old phrase, ``Never so few . . .'' applies
    to this agency.
        And who are the organizations that are bringing in the results?
    They are today's modern Community Rehabilitation Programs, or CRP's,
    that exist in every community and town. Almost 2,000 are associated
    with NISH. You may know them by names like Goodwill Industries, Easter
    Seals, or many other very uplifting titles such as Pride Industries,
    REACH Incorporated, Project Hired, The Opportunity Center, Able
    Industries of the Pacific, and Challenge Unlimited. They are managed by
    today's new Social Entrepreneurs--men and women who use their business
    skills to help others achieve independence through employment. Not only
    do they provide training and employment through JWOD projects and other
    vocational programs, they are stepping forward to provide housing,
    transportation, and other services the community needs when government
    cannot or should not. They are in the forefront of self-reliance and
    self-help, the American way. A JWOD project provides remarkable
    leverage and contributes to a CRP's ability to change lives. Teamed
    with the Committee for Purchase under JWOD, they engage in a wonderful
    public/private partnership that is easily described as ``government at
    its best.''
        In recognizing the 60th year of the JWOD program, I would like to
    highlight a few figures from the past twenty years. In 1978, this
    Committee provided funding for the 10 staff member Committee for
    Purchase from People who are Blind or Severely Disabled. In 1978 nearly
    5,000 people with severe disabilities worked 3.5 million hours on JWOD
    contracts totaling $84.6 million.
        Twenty years later, in 1998, the Committee for Purchase from People
    who are Blind or Severely Disabled is still one of the smallest federal
    agencies with a staff of 19. Last year nearly 32,000 people with
    disabilities work 26 million hours on JWOD contracts totaling $793.2
    million. The Committee for Purchase's modest budget is more than offset
    when people with disabilities return to work and become contributing
    members of our economy.
        We thank this Committee for its continuing support in funding the
    Committee for Purchase. Given its relatively small budget and staff, it
    has done remarkable work and achieved outstanding results. We at NISH
    are proud to assist both CRP's and the Committee for Purchase achieve
    those results.
        The following are two stories typical of the JWOD program. The
    first is about Marie-Terese Henderson who works with Goodwill
    Industries of Central Florida in Orlando, Florida.
        Today, Marie-Terese still stuns people. Six years ago, she suffered
    multiple trauma and fractures, compounded by a severe head injury as a
    result of a car accident in which she was a passenger. When police
    arrived on the scene, they were shocked to find Marie-Terese alive.
    Once she gained consciousness in the hospital, it became apparent that
    she would have to learn to breathe, swallow, talk and walk again.
        Marie-Terese still experiences difficulties as a result of the
    accident. She has double vision, is frequently unable to maintain her
    balance, lacks coordination, has no short-term memory and suffers with
    bouts of chronic depression. In spite of these challenges, she has
    worked on a Javits-Wagner-O'Day project as a supply technician at the
    Naval Air Warfare Center in Orlando, Florida among 1,500 military
    personnel. A steno pad is her compass, reminding her each day what her
    job entails. Without her volumes of notes, every Monday would seem like
    the first day on a new job.
        Despite the barriers imposed by her disability, Marie-Terese
    controls a fleet of government vehicles, maintains and processes
    invoices for shipping, assigns priority for printing requests, and
    manages the maintenance of service contracts. Due to her exceptional
    abilities and strong, compassionate character, Marie-Terese is a model
    employee at Goodwill Industries of Central Florida. ``She is
    extraordinarily efficient and organized in carrying out her job,'' said
    Patricia Carr, her Vocational Counselor. ``She has compensated for her
    disability by relying on her own notes and a unique system that works
    best for her.''
        A model employee, Marie-Terese has taken the initiative to make
    suggestions that have boosted workplace morale. In addition, she has
    demonstrated excellent customer services skills, and she has been a
    determined advocate for herself and other people with disabilities. She
    doesn't dwell on the disabilities her coworkers may have, rather, she
    recognizes the capability of the person. ``Marie-Teresa is a team
    player who helps out wherever she is needed,'' said Dean Bosnak,
    Goodwill's Project Manager at the Orlando Naval Air Warfare Center.
        The second story is of a former JWOD employee who has found
    employment in another community job. Marian Hollars began work at the
    Work Services Corporation (WSC) in Wichita Falls, Texas, on March 3,
    1968. With Down's Syndrome and mental retardation, Marian's medical and
    vocational prognosis at the time stated that the best employment
    setting for Marian would be a sheltered environment. Marian worked at
    WSC, primarily producing paper clips with a JWOD project.
        As she watched several of her coworkers move into employment
    outside the facility, Marian decided that she wanted to follow their
    example. Through her persistence, Marian was able to convince the CRP
    to find her another job a few months later. With the help of a local
    employer, an aggressive job development employee, and an innovative
    CRP, on June 6, 1996, at age 46, Marian started working at Bargain
    Depot, a local retail store. Initially, Marian's duties were limited to
    greeting customers and returning grocery carts from the parking lot to
    the store. But this wasn't enough for her. Through her own initiative,
    Marian expanded her duties to include stocking shelves, cleaning up
    spills, and helping cashiers bag merchandise. The store manager was so
    impressed with Marian's performance that she decided to add tasks in
    the store lunch counter to Marian's daily schedule. Marian passed the
    Wichita County Health Department Food Handler Test on the first try. As
    a result, today she fills food orders and cleans counters, tables and
    trays in the lunch counter, in addition to a variety of other duties
    within the store.
        The store manager, Sarah Norton, reports that ``Marian makes the
    decisions as to the priority of her tasks. She works on her own with
    very little supervision. She sees what needs to be done, and very
    quickly carries it out enthusiastically.'' There were concerns about
    Marian's ability to communicate and interact with coworkers and the
    general public, but these concerns proved to be unfounded. Norton
    states, ``my regular customers love Marian and she can greet most by
    name. Our employees have nothing but love, respect and praise for
    Marian.''
        Marian is extremely active in her community. She is a member of
    People First, the ARC of Wichita County Self-Advocacy group and has
    represented them as a delegate to the Texas State Conference for the
    past six years. Marian actively participates in programs at her church,
    the Faith Village Church of Christ, attends a weekly bible study, and
    although she cannot read music, she sings with her church choir. On the
    job at Bargain Depot, Marian conducts tours for special education
    students from area high schools. A special education teacher has
    commented that Marian's success is a source of inspiration for her
    students.
        These two Americans are typical examples of people all over the
    country who are benefiting, or have benefited from the JWOD program.
    Mr. Chairman and members of the Committee, you've helped make this
    possible.
        For fiscal year 1999, the Committee for Purchase has requested
    $2.464 million. NISH supports this request because the need for
    training and employment of people with disabilities is so
    vast...because the way government does business is ever changing... and
    because the Committee for Purchase has such a large role in ensuring
    that people with severe disabilities continue to have employment
    opportunities. We would like to thank you Mr. Chairman and members of
    the Committee, for your continuous support for this small federal
    program with such a big return. Because of the 60th Anniversary, we
    felt it was necessary to provide you with input, thanking both this
    Subcommittee and the Committee for Purchase for maintaining one of the
    most successful government programs ever established. We hope you will
    allow us to present in person next year on the 25th Anniversary of
    NISH.
                                     ______

         Prepared Statement of Sharpe James, Mayor, City of Newark, NJ
        Newark, New Jersey, the largest City in the state, is a regional
    hub of State and Federal government operations, as well as home to
    municipal and County government. The Federal presence includes such
    locations as office buildings, courts and postal facilities. Thousands
    of visitors and employees access Federal services in Newark daily, and
    their safety and security has become an important issue for the City.
        In the aftermath of the tragedy in Oklahoma City, extraordinary
    security measures were put into place around Newark's Federal complex.
    Streets through and surrounding the buildings were closed, metered
    parking spaces were eliminated, and an additional municipal Police
    presence was established. As time has passed, these actions have become
    part of an overall permanent Federal security plan for the area. Since
    Newark's Police Headquarters, Municipal Courts, and City Hall itself
    are immediately adjacent to the Federal complex, forming what is called
    Government Center, the Federal plan has had a marked impact on the
    ability of citizens to access not just Federal services, but Municipal
    ones as well.
        The City government has worked cooperatively with Federal
    authorities on this critical issue over the past two years, and the
    City has absorbed the expenses of these measures. However, we are
    seeking your assistance in recovering costs that the Newark municipal
    government has incurred in advancing the security of Federal
    facilities.
        The local Federal officials have requested the permanent closing of
    five (5) streets to vehicular traffic, and that the streetbeds be
    deeded over to the Federal government to allow permanent access
    control. An independent appraisal has valued this property at $3
    million. In addition, the City has lost revenues from 21 parking meters
    surrounding the Peter Rodino Federal Building, which had been high
    turn-over spaces, as well as from longer-term parking on adjacent
    streets. Further, summons revenue in the area has been eliminated,
    while Police overtime and patrol costs have skyrocketed, averaging at
    least $13,000 per month. The street closings have dramatically shifted
    both the traffic and parking patterns in the Government Center area,
    causing further congestion and delays in the already clogged area, and
    when they become permanent, the City will have to make a substantial
    expenditure for traffic engineering items such as traffic studies,
    resignalization and signage replacement. It is estimated that the total
    of all of these expenses has exceeded four million dollars
    ($4,000,000). We are seeking the assistance of this committee in
    securing compensation for these expenditures.
        In a related matter, several years ago it was recognized that the
    United States Post Office distribution facility in the Federal complex
    had become crowded and obsolete. In an effort to save Newark-based jobs
    and comply with the intent of Executive Order 12072, which directs
    federal agencies to be located in downtowns, the City of Newark entered
    into discussions with postal officials about locating a new mail
    handling facility in the heart of Newark's major redevelopment area.
    The original concept was for the USPS to acquire over 17 acres for the
    300,000 square foot operation, to employ 1,200 workers. However, our
    current realities of downsizing and budget cutting have impacted on
    this project too.
        Current plans for a site of only 4.5 acres to house a much smaller
    and less ambitious project. It will now accommodate the functions of
    the relocated 07103 branch facility, which is situated within the
    University Heights redevelopment area. A new Post Office in this
    neighborhood will service the thousands of new housing units- public,
    private, market-rate and low-income- which have been or will be
    constructed in the area. It is estimated that site acquisition,
    required relocations, site preparation and construction of a modern
    postal facility will cost five million dollars ($5,000,000). These
    funds will be the first Postal Service investment in a Newark
    neighborhood in decades, and show, in bricks and mortar, the Federal
    commitment to Newark, its people, and its jobs.
        To conclude: I ask you for help in coping with the changing
    situation in Newark. It is my understanding that GSA has requested $250
    million to upgrade security at Federal facilities throughout the
    country. We support that request, and urge the Subcommittee to include
    language in the bill that will direct some of these funds to be spent
    on the projects noted above.
        We have felt the ripples of the impact of a terrible tragedy, and
    ask for your help in dealing with them. And we have built a new
    neighborhood, with much Federal assistance, and ask for your help in
    completing a community by providing an essential service to its
    residents. Your help today can make the difference.
                                     ______

    Prepared Statement of Dr. Raymond E. Bye, Jr., Associate Vice President
                     for Research, Florida State University
        Mr. Chairman, thank you, and the Members of the Subcommittee, for
    this opportunity to present testimony. I would like to take a moment to
    acquaint you with Florida State University. Located in the state
    capital of Tallahassee, we have been a university since 1947; prior to
    that, we had a long and proud history as a seminary, a college, and a
    women's college. While widely known for our athletics teams, we have a
    rapidly emerging reputation as one of the Nation's top public
    universities. Having been designated as a Carnegie Research I
    University several years ago, Florida State University currently
    exceeds $100 million per year in research expenditures. With no
    agricultural or medical school, few institutions can boast of that kind
    of success. We are strong in both the sciences and the arts. We have
    high quality students; we rank in the top 25 among U. S. colleges and
    universities in attracting National Merit Scholars. Our scientists and
    engineers do excellent research, and they work closely with industry to
    commercialize those results. Florida State ranks seventh this year
    among all U.S. universities in royalties collected from its patents and
    licenses. In short, Florida State University is an exciting and rapidly
    changing institution.
        Mr. Chairman, let me describe a project that we are pursuing this
    year. Florida State University is proposing the creation of The
    Institute on World War II and the Human Experience. The generation that
    fought World War II is gradually disappearing and, unfortunately, much
    of the history they represent is not being systematically and
    professionally preserved. One of the major sources of information about
    WWII is the personal papers, letters, diaries, oral histories, and
    memorabilia collected by the veterans. The major focus of the Institute
    is research on and preservation of materials relating to the molding
    and survival of the individual in World War II. The emphasis is on the
    experiences of ordinary men and women, military and civilian alike,
    amid the pressures of wartime life. Located currently on the campus of
    Florida State University, the Institute is seeking funding for archival
    space and resources for its rapidly expanding collections. We are
    exploring a partnership with the National Archives and other
    governmental or academic units as well.
        Mr. Chairman, the WWII Institute will make an important
    contribution to conserving our Nation's history. Your Subcommittee's
    support for those activities such as this Institute which will preserve
    for all Americans the memory of these brave citizens is greatly
    appreciated. Those investments are crucial ones for our Nation's
    future. Thank you again for this opportunity to present these views for
    your consideration.
                                     ______

        Prepared Statements of Cyrus M. Jollivette, Vice President for
                   Government Relations, University of Miami
                                 april 2, 1998
        Mr. Chairman and Members of the Subcommittee, I appreciate the
    opportunity to present testimony on behalf of the University of Miami.
    As the Committee prepares its fiscal year 1999 appropriations bill, we
    respectfully ask for your favorable consideration of the University's
    proposal concerning the use of the U.S. Naval Observatory/Alternate
    Time Service Observatory in Perrine, Florida.
        The University of Miami Rosenstiel School of Marine and Atmospheric
    Science (Rosenstiel School) proposes to establish a satellite data
    ground receiving station on the former U.S. Naval Observatory/Alternate
    Time Service Observatory property, Perrine, Florida. The existing Very
    Long Baseline Interferometry (VLBI) antenna and the existing ancillary
    hardware and buildings are ideal for this purpose. The new ground
    receiving station will enable the Rosenstiel School to pursue a variety
    of research and educational activities in the general area of land and
    ocean remote sensing, with an emphasis on applications in geological
    science, oceanographic science, and environmental monitoring and
    environmental science. The facility will be used for critical
    scientific research and graduate and undergraduate training.
        The Rosenstiel School proposes to maintain at the U.S. Naval
    Observatory/Alternate Time Service Observatory site the long
    established history of high precision geodetic observations. These
    observations are currently performed by the dual frequency Global
    Positioning (GPS) System operated by the National Oceanic and
    Atmospheric Administration (NOAA), periodically supplemented by
    satellite laser ranging observations from Geodetic Monuments such as
    ``TIMER,'' first occupied in the 1960's. The long time series of
    geodetic observations at these monuments have been critical for
    defining the terrestrial reference frame, for understanding variations
    in earth rotation rate (length of day) and polar motion, and for high
    precision satellite tracking. Laser calibration piers at various
    locations around the property, up to 200 meters from the main mark, are
    useful in this regard and should be maintained. The long-term
    preservation of the main geodetic marks is a high priority.
        Similarly, the University of Miami proposes to maintain a dedicated
    monument for absolute gravity; absolute gravity measurements were begun
    at the Richmond VLBI site in 1990. Also, the Rosenstiel School proposes
    to locate a long-term geological core sample storage facility on the
    site. This facility will enhance research, training, and education in
    paleoclimate and paleoecology of the Caribbean and Inter-American Seas.
    The University of Miami is the nation's premier expert in these fields.
        The Synthetic Aperture Radar (SAR) receiving facility will also
    provide crucial information during the passage of hurricanes or severe
    tropical storms in the region. Such information complements current
    satellite and aircraft observations already obtained and used by NOAA,
    the Air Force, Navy, and academic institutions in the region. These SAR
    data, which will permit the determination of parameters such as wind
    speed and direction directional wave-spectra, would establish critical
    boundary conditions for regional forecasting models and potential
    estimation of storm impacts on coastal property, beach erosion, and
    consequent flooding.
        While highly specialized scientific research will be the principal
    activity, graduate and undergraduate education and training will be
    conducted at the site. As an example:
      --the classroom oriented Satellite Oceanography program at the
            Rosenstiel School will offer a remote-sensing laboratory, which
            will focus on the processing, interpretation and use of
            satellite data pertinent to oceanographic and atmospheric
            research;
      --the University of Miami's newly revised undergraduate geological
            sciences program will operate a ``hands on'' training seminar
            in geological and environmental remote sensing techniques;
      --it is anticipated that other units of the University will
            participate in these and related educational activities, as
            well as more research-oriented activities; and
      --opportunities exist for broadening the educational use of the site
            through a K-12 education partnership with Miami-Dade County
            Public Schools as an environmental study and nature area for
            students.
        Once again, the University is seeking your full consideration of
    this proposal.
                                 april 15, 1998
        Mr. Chairman and Members of the Subcommittee; I appreciate the
    opportunity to provide testimony concerning the future use of the
    former United States Naval Observatory Alternate Time Site in Perrine,
    Florida, south of Miami.
        The University of Miami has learned from the Department of the Navy
    of its intent to excess an 85- acre portion of its Perrine, Florida
    site. My colleagues and I hope that it will be possible to transfer the
    property OT the University--with appropriate restrictions--to allow for
    the establishment of a satellite data ground receiving station on the
    site. The facility will be used exclusively for scientific research and
    training and undergraduate and graduate education. Respectfully, Mr.
    Chairman, we seek your and the Subcommittee's support in transferring
    ownership of their property to the University of Miami through the
    public benefit discount program.
        The Rosensteil School is one of fourteen schools and colleges at
    the University of Miami, the most comprehensive private research
    university in the Southeast, and is one of the five largest
    oceanographic facilities in the nation. It has one of the broadest
    research agendas in the global oceanographic community. The Rosensteil
    School's basic and applied research interests encompass virtually all
    of the marine-related sciences in all oceans; marine and atmospheric
    chemistry, marine geology and geophysics, physical oceanography,
    satellite oceanography, meteorology, marine biology and fisheries,
    biochemistry, marine biomedicine, marine biotechnology, and marine
    affairs and management.
        The Rosensteil School is a world leader in deep and near shore
    oceanic and atmospheric circulation pattern studies and their
    implications in oil spill movements, sea level fluctuations, global
    warming trends, plankton and fisheries distribution and recruitment
    mechanisms, and hurricane and monsoon mechanics. It also offers the
    only subtropical marine oceanographic research base in the continental
    United States.
        The existing 60-meter VLBI antenna and the existing ancillary
    hardware and buildings are ideal for the operation of a satellite data
    ground receiving station. The new ground receiving station will enable
    the Rosensteil School to pursue a variety of research and educational
    activities in the general area of land and ocean remote sensing, with
    an emphasis on applications in geological science, oceanographic
    science, and environmental monitoring and environmental science.
        For example, a newly-revised undergraduate geological sciences
    program will operate a hands-on training seminar in geological and
    environmental remote sensing techniques. The classroom oriented
    Satellite Oceanography program at the Rosensteil School will offer a
    remote-sensing laboratory, which will focus on the processing,
    interpretation and use of satellite data pertinent to oceanographic and
    atmospheric research. It is anticipated that other units of the
    University will participate in this and related educational activities,
    as well as more research-oriented activities. Opportunities exist for
    broadening the educational use of the site through a K-12 education
    partnership with Miami-Dade County Schools as an environmental study
    and nature area for students.
        One important function of the site that Rosensteil School programs
    proposes to maintain is the long history of high precision geodetic
    observations. These are currently performed by a dual frequency GPS
    system operated by NOAA, periodically supplemented by satellite laser
    ranging observations from Geodetic Monuments, first occupied in the
    1960's. The long time series of geodetic observations at these
    monuments have been critical for defining the terrestrial reference
    frame, for understanding variations in earth rotation rate (length of
    day) and polar motion, and for high precision satellite tracking. Laser
    calibration piers at various locations around the property, up to 200
    meters from the main mark, are useful in this regard and should be
    maintained. The long- term preservation of the main geodetic marks are
    a high priority. Similarly, Rosenstiel proposes to maintain a dedicated
    monument for absolute gravity-absolute gravity measurements begun at
    this site in 1990.
        The SAR receiving facility will also provide crucial information
    during the passage of hurricanes or severe tropical storms in the
    region. Such information complements current satellite and aircraft
    observations already obtained and used by NOAA, AIR FORCE, NAVY, and
    academic institutions in the region. These SAR data, which will permit
    the determination of parameters such as wind speed and direction
    directional wave-spectra, would establish critical boundary conditions
    for regional forecasting models and potential estimation of storm
    impacts on coastal property, beach erosion and consequent flooding.
        The Rosenstiel School also proposes to locate a long-term
    geological core sample storage facility on the site. This facility will
    help the University maintain its lead as the premier research and
    education institution in the paleoclimate and paleoecology of the
    Caribbean and Inter-American Seas.
        Mr. Chairman, the University of Miami has proven itself to be a
    worthy steward of Federal facilities and in all cases heretofore has
    met the mandates of cognizant Federal agencies. My colleagues and I
    hope that you will provide the scientists at the Rosenstiel School the
    opportunity to utilize the unique resource available at Perrine,
    Florida in a way which will benefit the nation.
                                     ______

              Prepared Statement of Bernard H. Berne, M.D., Ph.D.
                              summary of testimony
        I am a resident of Arlington, Virginia. I serve the Food and Drug
    Administration (FDA) as a Medical Officer and as a reviewer medical
    device approval applications. I am testifying as a private individual
    and not as a representative of FDA or of any other organization.
        The General Services Administration (GSA) is evaluating the former
    Naval Surface Warfare Center in White Oak, Maryland, for the major FDA
    consolidation. However, this is a very poor site for this federal
    administrative and laboratory facility.
        Metrorail is three miles away. Nearby highways and roads are highly
    congested during rush hours.
        GSA and FDA are planning a country club in White Oak's affluent
    suburbs. FDA's 130-acre campus will have a visitor center and other
    amenities. Adjacent federal property will contain a golf course and a
    woodland.
        Congress must stop this extravaganza. The Administration has not
    requested any funds to begin this project, which lacks an approved
    prospectus. Congress should not initiate any appropriation to support
    the project.
        The Southeast Federal Center in Washington, D.C. is now available
    for a major federal headquarters. Adjacent to the Navy Yard Metro
    station and close to the Capitol, this site appears ideal for FDA's
    facility.
        Two Executive Orders, GSA's own regulations, and the policies and
    of President Clinton's Administration and of the National Capital
    Planning Commission (NCPC) require that GSA and FDA give the Southeast
    Federal Center preference over the White Oak site. However, because of
    past actions and requests by Conference Committees on Appropriations,
    GSA is not evaluating it.
        I therefore ask the Committee on Appropriations of the United
    States Senate to take the following four actions:
        1. Please oppose any appropriation of funds to support an FDA
    consolidation at the former White Oak Naval Surface Warfare Center in
    Montgomery County, Maryland.
        2. Please appropriate $4,000,000 to the study of a major FDA
    consolidation in the District of Columbia, with an initial focus on the
    Southeast Federal Center and its vicinity.
        3. Please do not appropriate any funds for the General Services
    Administration (GSA) to prepare or acquire any site for any part of the
    FDA consolidation until a prospectus for the entire consolidation is
    approved in accordance with the provisions of the Public Buildings Act
    of 1959.
        4. Please ask GSA or the General Accounting Office to appraise the
    value of the White Oak site to prepare for a sale of the property.
                            explanation of requests
        1. Please oppose any appropriation of funds to support an FDA
    consolidation at the former White Oak Naval Surface Warfare Center in
    Montgomery County, Maryland.
        The present need for this project is questionable. New FDA
    buildings in Prince George's County will house those FDA Centers that
    now contain most or all of the FDA offices and laboratories that are
    reported to be in poor facilities.
        Many FDA offices, including my own, are in excellent buildings.
    None of my coworkers complain about their present offices.
    Nevertheless, we would all relocate to the Montgomery County
    consolidated facility.
        My coworkers and I rarely need to visit other FDA centers while
    reviewing medical device applications. The need to consolidate seems
    small.
        White Oak is three miles from the closest Metrorail station. In
    contrast, FDA's largest office building is presently only half a mile
    from a Metro station. FDA will likely lose many experienced employees
    if it moves to White Oak.
        The Naval Surface Warfare Center is in an affluent suburban
    residential neighborhood. The White Oak area does not require federal
    aid to support its development.
        Roads and highways near White Oak are highly congested during rush
    hours. These include such major arterials as Capital Beltway, New
    Hampshire Avenue, and Colesville Road. These do not need the additional
    traffic that this project would bring to the area.
        The Congressional Concurrent Resolution on the Budget for Fiscal
    Year 1996-2002 assumes a 30 percent reduction in funds for Federal
    Buildings construction in its seven year plan to balance the federal
    budget (Conference Report for H. Con. Res. 67: H. Rept. 104-59, June
    26, 1995, p. 84). House and Senate Committees on Appropriations need to
    address this programmed reduction in discretionary spending.
        President William J. Clinton urged Congress to further reduce
    spending on federal building projects when he vetoed the first 1995
    rescission bill (H.R. 1158). The President does not appear to support
    costly federal construction projects, especially since the
    Administration did not propose any 1998 funding to initiate or support
    this project.
        There is no urgent need for a major FDA consolidation. Congress
    needs to implement its Budget Resolution and the President's policies
    by appropriating no new 1997 funds for FDA's Montgomery County
    consolidation.
        FDA and GSA are developing plans for an extravagant 130-acre campus
    at White Oak. According to GSA's April 1997 Final Environmental Impact
    Statement (FEIS) for the Montgomery County consolidation, the White Oak
    campus will contain a visitor center and will feature both a woodland
    and a six hole golf course on adjacent federal property.
        FDA can accomplish its mission without a sprawling campus, a golf
    course, a woodland, or a visitor center. FDA does not need a country
    club.
        Congress has not reviewed or approved any prospectus for any part
    of the FDA consolidation. Congress does not know the specifications or
    the costs of this project.
        GSA presently has an opportunity to acquire property near the
    downtown Silver Spring Metrorail station by donation from the
    Montgomery County government. GSA also can locate the project on
    federally-owned property in downtown Washington, D.C. With such
    opportunities, Congress should not support a White Oak consolidation.
        2. Please appropriate $4,000,000 for the study of a major FDA
    consolidation in the District of Columbia, with an initial focus on the
    Southeast Federal Center and its vicinity.
        Rescissions in 1996 removed all of the funding for federal
    construction at the Southeast Federal Center. The 1997 Omnibus
    Appropriations Act provided funds for environmental clean-up activities
    at this site. This federal property is therefore available for the FDA
    consolidation.
        The Southeast Federal Center is adjacent to the Washington, D.C.,
    Navy Yard. It is next to the Navy Yard Metro Station and is only a mile
    from the Capitol building.
        Previous actions and statements by Congressional conference
    committees on appropriations and rescissions have directed FDA's major
    consolidation to White Oak. Citing these actions and statements, GSA
    officials have refused my repeated requests to evaluate the Southeast
    Federal Center site as an alternative site for the consolidation.
        The April 1997 FEIS does not evaluate any sites other than the
    White Oak Naval Surface Warfare Center. Only Congress or a Federal
    court can change GSA's direction.
        A 1996 National Capital Planning Commission (NCPC) plan has
    recently designated the Southeast Federal Center as an important site
    for new offices. NCPC expects this new economic development to ``assist
    the transformation of the Southeast Federal Center and adjacent Navy
    Yard into a lively urban waterfront of offices, restaurants, shops and
    marinas'' (``Extending the Legacy'', Plan for Washington's Monumental
    Core, NCPC, March 1996).
        The goal of NCPC's plan is to preserve and enhance Washington's
    Monumental Core, which is centered at the U.S. Capitol building. An FDA
    consolidation at the Southeast Federal Center can revitalize a decaying
    D.C. neighborhood and help achieve NCPC's goal.
        The Southeast Federal Center and its nearby depressed commercial
    area can hold buildings up to 14 stories high. If necessary for the
    consolidation, GSA can purchase adjacent commercial property at a low
    cost. The Southeast Federal Center is an ideal site for a large new
    federal headquarters facility.
        The legislation that initiated the FDA consolidation (Public Law
    101-635) authorizes only a single consolidated FDA administrative and
    laboratory facility. Indeed, Senate Report No. 101-242 (Feb. 1, 1990),
    which accompanied the authorizing legislation, states, ``the FDA needs
    to be consolidated in a building.'' Public Law 101-635 did not
    anticipate or authorize a 130-acre FDA campus and two satellite
    facilities.
        FDA does not require a 130-acre campus for its consolidation. Large
    high-rise buildings can readily house most or all of FDA's offices,
    laboratories, and ancillary facilities.
        Cities throughout the Nation contain many such research and office
    centers. Over 2,000 National Institutes of Health (NIH) research
    laboratories are located in a single 14-story building that the
    government constructed in 1981 in Bethesda, Maryland. A single 18-story
    building in Rockville, Maryland, now houses many of FDA's offices,
    including the Office of the Commissioner.
        Congress and the Secretary of Health and Human Services (HHS) can
    readily oversee FDA's activities if FDA consolidates at the Southeast
    Federal Center. Additionally, FDA's visitors and regulated industries
    would find this site to be far more convenient than suburban White Oak.
        The Southeast Federal Center is close to both Maryland and
    Virginia. An FDA consolidation there will enhance the economies of
    three jurisdictions (D.C., Maryland, and Virginia). In contrast a
    consolidation at White Oak would benefit Maryland at the expense of the
    District and Virginia.
        The median annual household income in the White Oak residential
    neighborhood exceeds affluent Montgomery County's median at $65,000.
    Southeast Washington's median household income is much lower. Federally
    supported economic development is far more critical to Southeast D.C.
    than to White Oak.
        Please recommend a survey of other sites in the District if GSA
    finds that FDA cannot feasibly consolidate at and near the Southeast
    Federal Center.
        A direction of planning funds to study sites in the District would
    place the project in compliance with Executive Order No. 12072 (August
    16, 1978), and with its implementing regulations in 41 CFR Sec. 101-
    17.000 et seq., as reaffirmed by the present Administration in 41 CFR
    Sec. 17.205 (Location of space) (Federal Register, Vol. 61, No. 46, pp.
    9110-9112, March 7, 1996). It would also be consistent with the
    purposes of the National Capital Planning Act of 1952 and the policies
    and recommendations that NCPC has developed to implement it.
        Executive Order 12072 and its implementing regulations direct the
    locations of federal facilities in urban areas, including the National
    Capital Region. They require federal agencies to locate and use their
    space and facilities so that the facilities ``shall serve to strengthen
    the Nation's cities'' and ``shall conserve existing urban resources,
    and encourage the development and redevelopment of cities.''
        Executive Order 12072 and its implementing regulations require GSA
    and FDA officials to ``economize in their requirements for space''. The
    Order states: ``Except where such selection is otherwise prohibited,
    the process for meeting Federal space needs in urban areas shall give
    first consideration to a centralized community business area and
    adjacent areas of similar character. . . .''
        President William J. Clinton reaffirmed Executive Order 12072 in
    his Executive Order 13006, May 21, 1996, (Federal Register, Vol. 61,
    No. 102, May 24, 1996, pp. 26071-26072). Section 1 of President
    Clinton's Order states:
        ``(Statement of Policy). Through the Administration's community
    empowerment initiatives, the Federal Government has undertaken various
    efforts to revitalize our central cities, which have historically
    served as the centers for growth and commerce in our metropolitan
    areas. Accordingly, the Administration hereby reaffirms the commitment
    set forth in Executive Order No. 12072 to strengthen our nation's
    cities by encouraging the location of Federal facilities in our central
    cities.''
        On March 11, 1997, President Clinton stated that, as part of his
    economic stimulus package to revitalize D.C., he had ``directed his
    Cabinet secretaries to find other ways to help the District, beginning
    with keeping federal agencies in the city'' (Washington Post, March 12,
    1997, page 1). This is consistent with his Executive Order 13006 and
    with established federal policies concerning the location of federal
    facilities in the Washington Metropolitan Area.
        GSA's 1996 interim rule, 41 CFR 101-17.205 (Location of space),
    requires GSA and other federal agencies to comply with Executive Order
    12072. It also states in paragraph (n), ``. . . These policies shall be
    applied in the GSA National Capital Region, in conjunction with
    regional policies established by the National Capital Planning
    Commission and consistent with the general purposes of the National
    Capital Planning Act of 1959 (66 Stat. 781), as amended. These policies
    shall guide the strategic plans for housing of Federal agencies within
    the National Capital Region.
        GSA and FDA have long disregarded the Executive Order and NCPC's
    regional policies and recommendations when planning, leasing and
    constructing federal buildings in the National Capital Region. To help
    President Clinton resolve D.C.'s financial crisis, Congress needs to
    correct this.
        A long-standing NCPC policy presently encourages government
    agencies to redistribute federal jobs in the National Capital Region.
    This redistribution is long overdue. Congress needs to address this in
    the federal buildings appropriations process.
        The redistribution would implement NCPC policies and
    recommendations that NCPC has developed in compliance with National
    Capital Planning Act. It would reverse recent trends and correct a
    growing imbalance of federal employment in the National Capital Region.
        In a recent Proposed Federal Capital Improvements Program (PFCIP),
    National Capital Region, fiscal years 1997-2001 (April, 1996) (p. 9),
    NCPC reported that the District of Columbia will lose 889 federal
    employees as a result of the FDA consolidation project. This would
    accelerate a continuing transfer of federal employment from the
    District to the Maryland and Virginia suburbs.
        According to NCPC's PFCIP (p. 10), the District's percentage of the
    total Federal employment in the National Capital Region has declined
    from 58.0 percent in 1969 to 52.4 percent in 1994.
        Because of this trend, NCPC's PFCIP (p. 12) has a final
    recommendation that states, ``The Commission encourages each agency to
    adhere to the policy in the Federal Employment element of the
    Comprehensive Plan adopted in 1983 which specifies that the historic
    relative distribution of Federal employment of approximately 60 percent
    in the District of Columbia, and 40 percent elsewhere in the Region
    should continue during the next two decades. This policy is used by the
    Commission to ensure the retention of the historic concentration of
    Federal employment in the District of Columbia, the seat of the
    national government.''
        A major FDA facility at the Southeast Federal Center is consistent
    with President Clinton's expressed policies and orders to his Cabinet
    secretaries, Executive Orders 12072 and 13006, GSA's implementing
    regulations, and NCPC policies and recommendations. A facility at White
    Oak would be inconsistent with all of these.
        FDA now plans to move about 700 federal employees in its Center for
    Food and Applied Nutrition (CFSAN) from the District of Columbia to a
    new facility in Prince Georges County, Maryland. To reverse the
    accelerating decline of the nation's capital city, Congress must
    mitigate such relocations by directing the major FDA consolidation to
    the District of Columbia.
        4. Please do not appropriate any funds for GSA to prepare or
    acquire any site for any part of the FDA consolidation until a
    prospectus for the entire consolidation is approved in accordance with
    the provisions of the Public Buildings Act of 1959.
        The Public Buildings Act of 1959 requires the approval of a
    prospectus for all GSA building projects before funds can be
    appropriated for construction and site acquisition. However, no
    prospectus for any phase of the FDA consolidation has ever been
    approved.
        Provisions in the 1992, 1993 and 1995 Treasury, Postal Service, and
    General Government Appropriations Acts (Public Law 102-141, Public Law
    102-393, and Public Law 103-329) permitted GSA to use the funds made
    available in those Acts for the FDA consolidation and for certain other
    projects, even though no prospectuses for these projects had been
    approved. These provisions released GSA from its obligation to comply
    with the Public Buildings Act of 1959 when planning the early phases of
    the FDA consolidation.
        The 1996 and 1997 Appropriations Acts (Public Laws 104-52 and 104-
    208) and contained no such exemptions. Provisions in these laws state
    that appropriated funds shall not be available for construction,
    repair, alteration, and acquisition project for any project if a
    prospectus for project has not been approved. The 1998 Appropriations
    Act should contain such a provision.
        In 1995, the House of Representatives debated the need for a
    prospectus for the FDA consolidation (Congressional Record, July 19,
    1995, pp. H7200-H7206). Some members of Congress appear to believe that
    the consolidation's authorizing legislation (Public Law 101-635)
    exempts the consolidation from the prospectus requirement.
        Congress must eliminate this ambiguity and ensure proper
    congressional oversight. Congress should appropriate no new funds for
    any phase of any FDA consolidation until a prospectus describing the
    entire project is approved.
        Because of a 1996 rescission (Public Law 101-19), GSA and FDA have
    no funds available to construct its major consolidated facility at
    White Oak or at any other location. Congress needs to review a
    prospectus for the project before any funds are appropriated to
    construct it.
        5. Please ask GSA or the General Accounting Office to appraise the
    value of the White Oak site to prepare for a sale of the property.
        This would prepare the government for a sale of part or all of the
    Naval Surface Warfare Center. It would also help Congress evaluate the
    real cost of an FDA consolidation at White Oak. A sale would support
    the original purpose of the base closure, which is to help balance the
    federal budget.
                             additional information
        The following observations further support my requests:
        1. The government long ago designated its Southeast Federal Center
    as a site for a new federal facility. However, nothing has been built
    there yet. An FDA facility would stimulate the revitalization of this
    D.C. area.
        2. As noted above, the National Capital Planning Commission's 1996
    plan for Washington's Monumental Core states in the category of
    Economic Development, ``Assist the transformation of the Southeast
    Federal Center and adjacent Navy Yard into a lively urban waterfront of
    offices, restaurants, shops and marinas''.
        An FDA consolidation at the Center would help implement this Plan.
    The government could rent space in the ground floors of FDA's office
    buildings to operators of shops and restaurants.
        3. Unlike White Oak, the Southeast Federal Center is near a Metro
    station. Development at this site would encourage the use of Metrorail.
    This would increase the use of the area's financially troubled public
    transit system and reduce air pollution and traffic congestion.
        If the consolidation occurs at the Southeast Federal Center, many
    more FDA workers will likely choose to use Metrorail than presently do.
    This would benefit the Washington Metropolitan Transit Authority
    (WMATA) and local, state, and federal governments.
        In contrast, an FDA facility at White Oak would encourage the use
    of private automobiles. The roads near White Oak are already highly
    congested.
        The sections of I-95 and the Capital Beltway that serve White Oak
    rank among the most congested highways in the National Capital Region.
    They are the sites of frequent accidents and traffic jams.
        The White Oak area is principally residential. For this reason, few
    buses run from Metro stations to the White Oak Naval Surface Warfare
    Center in the morning and from it in the afternoon. Thus, most FDA
    employees would find it difficult to use public transportation to
    commute to and from work at White Oak.
        New public transportation routes are costly. There can be no
    assurance that bus service will improve if FDA moves to White Oak.
        If FDA consolidates at White Oak, WMATA will lose revenues from FDA
    employees who now use Metrorail and Metrobuses on a daily basis. Local,
    state and federal governments will have to pay for this, since WMATA is
    heavily subsidized.
        4. White Oak's distance from Metrorail and from the core of the
    National Capital Region will induce many employees to work at home
    under FLEXIPLACE. This will defeat the purpose of the consolidation.
        5. The Southeast Federal Center is in a decaying urban commercial
    area that is in great need of the economic development that the FDA
    consolidation would bring.
        Southeast Washington is one of the most economically distressed
    areas of the nation's capital city. As is well known, the District of
    Columbia is itself in great need of economic development.
        According to a table in the April 1997 FEIS, the District of
    Columbia had in 1994 the lowest average household income ($30,727) of
    nine jurisdictions in the Washington, D.C., Metropolitan Area.
        In contrast, the White Oak site is in an affluent residential
    neighborhood that is not in great need of economic development.
    According to a March 29, 1996, Maryland-National Capital Park and
    Planning Commission staff report on the White Oak EIS, the
    neighborhood's median household income exceeds the median income for
    Montgomery County at $65,000 per year.
        According to the Washington Post (April 3, 1996), the White Oak
    neighborhood already boasts a community swimming pool, tennis courts,
    and four tot lots. A map in the April 1997 FEIS shows that a
    neighborhood community center abuts the Naval Surface Warfare Center
    near the FDA site. The FDA consolidation would add a federally-owned
    golf course to these amenities.
        The FEIS states that Montgomery County, Maryland, had in 1994 the
    second highest average household income ($64,596) of nine listed
    Washington, D.C. Metropolitan Area jurisdictions. Montgomery County
    therefore does not appear to be in great need of large federal
    employment centers that might otherwise be located in the District of
    Columbia.
        There is a great economic contrast between Southeast Washington and
    White Oak. Federal development would serve a far better purpose at the
    Southeast Federal Center than it would at White Oak.
        6. FDA can place its laboratories and offices in compact and
    efficient 14-story buildings at the Southeast Federal Center. In
    contrast, its buildings at White Oak would be only five to six stories
    high.
        FDA's present headquarters are in a 18 story office building (the
    Parklawn Building in Rockville, MD). The Office of the Commissioner of
    Food and Drugs is in this building, which is half a mile from the
    Twinbrook Metro station.
        The National Institutes of Health has a 14 story research
    laboratory building that was built in 1981 at its Warren Magnuson
    Clinical Center in Bethesda, Maryland. The National Cancer Institute
    has some of its nationally-renowned laboratories in the 13th floor of
    this building, which, according to an NIH brochure, holds 2,000
    separate laboratories.
        It is therefore likely that FDA can consolidate its laboratories
    and offices in buildings up to 14 stories high in the Southeast Federal
    Center. If needed, GSA can purchase additional property nearby at low
    cost. Neighboring properties do not appear to be in good condition.
        7. The Navy Yard Metrorail Station is on Metro's Green Line. The
    station is only three stops from Maryland's Southern Avenue Metrorail
    station and only two stops from Virginia's Pentagon Station. An FDA
    facility at the Southeast Federal Center will therefore benefit the
    economies of both Maryland and Virginia, as well as the District.
        In contrast, an FDA facility at White Oak would benefit only
    Maryland. It is too far from D.C. and from Virginia to provide any
    economic benefits to either of these jurisdictions. Instead, it would
    draw federal employees and associated businesses away from Virginia and
    D.C.
        8. An FDA consolidation at suburban White Oak would violate former
    President Jimmy Carter's Executive Order 12072, which President William
    J. Clinton's Executive Order 13006 reaffirmed. It would also violate a
    federal regulation in 41 CFR 101-17.205 that GSA issued in 1996 to help
    implement the Order.
        When issuing this new regulation, GSA stated, ``On August 16, 1978,
    President Carter issued Executive Order 12072, which directs Federal
    agencies to give first consideration to centralized community business
    areas while filling federal space needs in urban areas. The objective
    of the Executive Order is that Federal facilities and Federal use of
    space in urban areas serve to strengthen the Nation's cities and make
    them attractive places to live and to work. This regulation serves to
    reaffirm the Administration's commitment to Executive Order 12072 and
    its goals.'' (Federal Register, Vol. 61, No. 46, March 7, 1996, p.
    9110.)
        The Southeast Federal Center is in an economically depressed
    centralized community business area in the city of Washington D.C. This
    area's neighborhood urgently needs revitalization. In contrast, the
    Naval Surface Warfare Center at White Oak is not in any city, is far
    from any centralized community business area, and is in an affluent
    Montgomery County residential neighborhood.
        The Executive Order and the CFR have provisions that make them
    especially applicable when the neighborhood of the urban site
    (Southeast Washington) is economically depressed while the suburban
    site is affluent, and when the urban site is adequately served by
    public transportation, while the suburban site is not. Because of its
    residential suburban location, the White Oak site is served only
    infrequently by buses that run from Metrorail stations in the morning
    and to the stations in the afternoon.
        Appropriations legislation makes funds available for federal
    construction in specified locations. The language of such legislation
    and its supporting committee reports should not conflict with an
    existing Executive Order and a recently revised Federal regulation that
    both require federal agencies to give preference to a different
    location.
        FDA must economize on its space requirements to a great enough
    extent to allow it to consolidate at the Southeast Federal Center,
    rather than at suburban White Oak. Congress should not support the
    appropriation of funds if such an appropriation would encourage GSA to
    violate the Executive Order and its implementing regulations.
        9. The April 1997 FEIS discusses a federal report to the Secretary
    of HHS (Final Report of the Advisory Committee on the Food and Drug
    Administration, May 15, 1991) that assessed the need for new FDA
    facilities. According to the FEIS, the Committee summarized its chapter
    on resources by recommending, ``The FDA must now begin to correct the
    most urgent of its facility needs, particularly for food and veterinary
    medicine laboratories and field operations.''
        It is noteworthy that FDA is now planning to relocate its food and
    veterinary medicine laboratories to new facilities in Prince Georges
    County, Maryland. Facilities for field operations would not be improved
    by an FDA headquarters consolidation. According to documentation cited
    in the FEIS, the FDA offices and centers that FDA plans to move to
    White Oak do not appear to be in great need of new facilities at this
    time.
        While some FDA facilities may need renovation or replacement, many
    do not. Senate Report 101-242, which supports the consolidation, cites
    only one example of a facility that is antiquated. This is a laboratory
    in CFSAN, which FDA plans to relocate to Prince Georges County and not
    to Montgomery County.
        FDA and GSA officials may describe to you certain existing
    buildings that are inadequate. These descriptions may be correct;
    however, my personal observations indicate that the conditions of such
    buildings are not representative of most buildings that FDA now
    occupies.
        One FDA laboratory building that may need repair is on the NIH
    campus in Bethesda, Maryland. This is a laboratory of the Center for
    Biologics Evaluation and Research (CBER), which would be relocated to
    White Oak. However, this building is owned by the Federal government.
        The government will have to fund the CBER lab's renovation even if
    FDA leaves it. Further, if FDA leaves this facility, its personnel will
    lose valuable personal interactions with world-renowned personnel who
    work for NIH. They will also lose the ability to use valuable and
    unique NIH equipment. The government will gain nothing from this move.
        Some of the CBER laboratories have recently moved into a new
    building on the NIH campus. Thus, even within CBER, not all
    laboratories are in poor condition.
        In contrast to some FDA laboratories, many of the office buildings
    used by FDA are in good or excellent condition. Some are in leased
    buildings that are quite new. Some even contain amenities such as large
    atriums with palm trees.
        Such superb facilities can be observed at the Center for Devices
    and Radiological Health (CDRH) offices at 9200 Corporate Blvd. in
    Rockville. Other excellent CDRH office facilities are located at 1350
    Piccard Drive and 2094 and 2098 Gaither Road in Rockville. Still others
    can be seen at the offices of other Centers in the Metropark North
    buildings on Crabbs Branch Road in Rockville.
        The adequacy of the CDRH office facilities is documented in an
    Interoffice Memorandum sent by Electronic Mail dated 01-Feb-1995, from
    Connie J. Wilhelm-Miller, of the CDRH Office of Management Services,
    Division of Resource Management. This memo, whose primary subject is
    Smoking Policy (smokers were putting burns in the floors and walls of
    new buildings), states that ``most of CDRH's office space is fairly
    new''. My personal observations confirm the accuracy of this statement.
        A Conference Committee Report (House Report 102-234) that supported
    the 1992 Appropriations legislation (Public Law 102-141) stated that
    there is no disagreement that FDA facilities are antiquated,
    inefficient and overcrowded. This is simply incorrect. It overstates a
    problem that is being experienced by only a small portion of FDA.
        House and Senate Reports supporting the consolidation state that
    FDA's antiquated facilities are causing recruitment and retention
    problems. However, this is only true at very few places, and perhaps
    only in the CFSAN laboratory that is relocating to Prince Georges
    County.
        I know of no FDA building housing an office or laboratory that will
    move to the White Oak campus that is in such disrepair that people will
    not work in it. Some buildings may need improvement, but none are that
    bad.
        Most FDA workers work only in offices. Many of these are in fairly
    new buildings that are in good condition, such as the one in which I
    work. There is little reason to expect that many of these employees
    will be happier in a new facility at White Oak.
        Limited replacement of facilities with local consolidations where
    needed may well be desirable. However, a massive consolidation of
    Montgomery County facilities is not.
        10. FDA facilities are presently dispersed. However, this does not
    create great inefficiencies. Many FDA offices with related functions,
    such as those in CDRH in Rockville, are consolidated in buildings
    within one or two miles of each other. A large number are in and near a
    single building (the Parklawn Building) near the Twinbrook Metro
    Station in Rockville, MD.
        Although there are a number of functions that involve different
    offices in different centers, most functions are carried out within one
    Center. More importantly, few interoffice functions require more than
    occasional face-to-face interactions which necessitate travel.
        In addition, travel times between existing Centers that will
    consolidate in the Montgomery County campus are not great. All are
    connected by Rockville Pike and I-270. The average trip between offices
    is probably less than \1/2\ hour.
        It is important not to overrate the need for consolidated
    facilities.
        The U.S. Armed Forces won the Second World War operating from bases
    and headquarters throughout the U.S. and in much of the rest of the
    world. Only a tiny percentage of defense workers and military personnel
    were located in any single facility. Decentralized agencies can and do
    often work at least as efficiently as those that are consolidated.
        Further, the great majority of product approvals require decision-
    making within only a single building. It is only unusual decisions that
    require conferences in separate buildings. Only a tiny minority require
    conferences among offices in widely scattered facilities.
        Most FDA personnel therefore have no need to travel between
    different centers or offices on a regular basis. The need for
    consolidation is not great, despite the statements made in
    Congressional Committee Reports.
        A number of present FDA centers are located near Metro stations,
    such as Medical Center, Shady Grove, and Twinbrook. The large Parklawn
    Building is an example of this. Many employees can therefore now travel
    quickly and easily from one Center to another, as well as to meetings
    at NIH and in downtown D.C.
        In contrast, White Oak is 3 miles from Metrorail. Few, if any,
    people will take Metro to commute or to go to meetings at NIH or in
    D.C.
        Most communications occur today by phone and by electronic mail.
    Electronic networks allow documents to be transmitted to anyone with a
    receiver. Indeed, many FDA personnel now regularly work at home using
    FLEXIPLACE. Using home computer modems, they can connect with FDA
    computer networks to perform most necessary functions.
        The need for a costly consolidation is not great. It cannot be
    expected to greatly increase FDA's efficiency. By causing experienced
    workers to leave the agency, it may actually decrease FDA's
    effectiveness.
        11. Congress should only appropriate funds for a consolidated FDA
    facility if the consolidation would help increase the use of mass
    transportation or would aid in the redevelopment of a depressed urban
    center such as Southeast Washington, D.C. It is environmentally and
    economically unsound for Congress to fund the construction of a new
    facility at White Oak that is far from an urban center.
        12. Most FDA employees need to work only at a single location. The
    approval of new drugs and medical devices usually takes place within a
    single FDA Center. A major FDA consolidation, if it occurs, will
    primarily benefit a small cadre of FDA managers who often travel
    between centers and who are promoting the consolidation.
        In actuality, a major consolidation is not likely to benefit many
    FDA employees. It is even less likely that a consolidation will
    significantly speed the approval of new drugs and medical devices.
        13. During President George Bush's term in office, the Office of
    Management and Budget (OMB) opposed funding of the FDA consolidation
    because it was not worth the cost. The Administration considered it
    more cost/effective to renovate facilities as needed.
        It was a Congressional Appropriations conference committee that
    first proposed the appropriation of funds for the FDA consolidation
    (Conference Report for Public Law 102-141: House Report 102-234, Oct.
    3, 1991). The Conferees directed FDA, GSA, HHS, and OMB to work
    together to submit a funding plan for the project and urged OMB and the
    President to support the Conferees' concept of the ``consolidation''.
        The Conferees introduced the concept of building separate FDA
    facilities in Prince Georges and Montgomery Counties. They recommended
    the appropriation of $200,000,000 in the Federal Buildings Fund to
    begin the process of dismantling the single-site consolidation that the
    FDA Revitalization Act (Public Law 101-635) had previously authorized.
        Public Law 101-635 had amended the Federal Food, Drugs and
    Cosmetics Act. It had authorized the Secretary of HHS (not the
    Administrator of GSA) to construct a single consolidated FDA facility.
        Despite this authorization, the Conferees recommended the
    appropriations of funds from the Federal Buildings Fund for the GSA
    Administrator to use to construct two FDA facilities in separate
    counties located in the State of Maryland. The Conferees also
    recommended that the appropriation for the FDA facilities be exempt
    from prospectus requirements of the Public Buildings Act of 1959.
        Appropriations Conference Committees have therefore undermined the
    FDA Revitalization Act, the Public Buildings Act of 1959, Executive
    Order No. 12072, 41 CFR 101-17.000 et seq., and the National Capital
    Planning Act of 1952. They have made it difficult for government
    officials to follow procedures that assure compliance with
    Congressional oversight legislation and site selection requirements in
    the National Capital Region and elsewhere.
        These Conference Committees have endorsed the appropriations of
    funds for more than one FDA ``consolidated'' facility, have designated
    the GSA Administrator (rather than the Secretary of HHS) as the planner
    and builder of the facilities. They have also allowed GSA to construct
    buildings without a prospectus.
        Appropriations conferees have recommended that FDA build a campus
    rather than consolidate in a single building. Additionally, they have
    caused FDA to transfer federal jobs out of the financially distressed
    District of Columbia and into more prosperous Maryland counties and
    neighborhoods.
        This is not good planning. It is pork barrel politics at its worst.
    Congress must correct itself.
        14. Senate Report No. 101-242, Feb. 1, 1990, which supported the
    FDA Revitalization Act (Public Law 101-635) estimated that the cost of
    the consolidation would approximate $500,000,000.
        FDA and GSA now estimate the total cost of the consolidation to be
    at least $600,000,000. This would create a cost overrun exceeding the
    original $500,000,000 estimate by $100,000,000.
        15. Despite the 1995 rescission of funds for a sprawling FDA
    facility in Clarksburg, Maryland, FDA's and GSA's facility engineers
    continue to plan for a large FDA campus. They do not wish to seriously
    economize in the agency's use of space.
        By creating unnecessarily large requirements for space, they are
    evading their responsibilities to consider locating the consolidated
    facility in a compact site in a central city. One such site is now
    available at the Southeast Federal Center.
        Unless Congress intervenes as it did in 1995, GSA and FDA will
    likely violate major provisions of Executive Order No. 12072 and the
    National Capital Planning Act of 1952. As noted above, these now
    dictate a preference for the Southeast Federal Center.
        16. Some reports on FDA have suggested that certain FDA facilities
    are overcrowded. This may no longer be true.
        GSA has recently leased a number of new buildings for FDA.
    Overcrowding is therefore not as acute as it was several years ago.
        17. The FEIS contains no information on the number of buildings
    that FDA will reuse at White Oak. FDA will not be able to use many of
    the existing buildings because they are contaminated, deteriorated, of
    unsatisfactory conformation, and poorly located. FDA will clearly need
    to build a number of costly structures at White Oak.
        18. Some of the planned excess capacity at the 130 acre White Oak
    facility is desired for future expansion. However, this amounts to
    nothing more than speculation.
        Expectations of FDA expansions may well be unrealistic. FDA has not
    grown significantly in recent years, except in a few specific areas.
    Further, regulatory agencies often do not grow over long periods of
    time when there is an antiregulatory climate, when there are budgetary
    problems, or when there are pressures to privatize Federal functions.
        FDA's major growth occurred years ago in response to obvious and
    important needs. FDA can now meet most of these needs without any
    further growth. Although many agencies try to justify their own
    expansion, FDA may never be able to significantly increase its size or
    number of employees.
        A compact site such as the Southeast Federal Center is more
    consistent with proposed FDA reform legislation than is a 130 acre site
    at White Oak. This reinforces the need for Congress to direct a study
    of the Southeast Federal Center.
        19. Because FDA would acquire more land at White Oak than it
    presently needs, it will surely press for additional funding to
    construct more buildings in the future. This will increase future
    government expenditures.
        As the FDA campus adds buildings at White Oak in the future, it
    will increase the urbanization of its surrounding residential
    neighborhood. This will eventually exceed the limits imposed by current
    zoning and land use plans and will create local controversies.
                                     ______

                  Prepared Statement of Quon Y. Kwan, D. Crim.
                appropriation for the study of fda consolidation
        I am a resident of Rockville, Maryland. Although I am Secretary and
    Transportation Chairman for the Manor Lake Civic Association, I am
    writing as a private individual. I am currently employed as a senior
    environmental scientist for Energetics, Inc., a contractor for the U.S.
    Department of Energy, Assistant Secretary for Environment, Safety and
    Health. Neither my company nor I have received or will be receiving any
    contracts or grants from the General Services Administration (GSA) or
    Food and Drug Administration (FDA).
        My interest in the FDA consolidation stems from my involvement as
    Vice-President for Action Committee for Transit (Montgomery County) for
    the past and current years. Again, my views do not represent the
    official position of Action Committee for Transit. I was opposed to the
    siting of the consolidated FDA campus at exurban Clarksburg primarily
    because of the lack of supporting infrastructure (especially, access to
    transit) and the commuting hardship posed on low-income and minority
    workers. My other reasons for opposing the Clarksburg site included the
    adverse impact in furthering sprawl development and the further
    deterioration on the inner city and urban areas. As you are well aware,
    the GSA and FDA abandoned Clarksburg as a potential site due to public
    outcry.
        The GSA and FDA now seems to be focusing on the former Navel
    Surface Weapons Center at White Oak as a site for its consolidated
    campus. White Oak is also a poor choice for a number of similar
    reasons. My primary objection is the inadequacy of public
    transportation serving the White Oak site. Although it has bus service,
    workers would be using Metrobus service (route K6) and Ride-On service
    (route 22) to/from White Oak in the counterflow direction (AM
    northbound and PM southbound on New Hampshire Avenue). The frequency of
    counterflow bus service (on either route) is every 30 minutes even
    during rush hours. In my comments on the draft and final environmental
    impact statement for the proposed FDA consolidation at White Oak, I
    noted that such frequency of bus service is wholly inadequate to
    accommodate even 10 percent of the 6,697 employees that would work at
    the site. The GSA misled the public by listing 19 bus routes and 4 rail
    lines that serve the study area, when in fact only the two
    aforementioned bus routes were within reasonable walking distance (\1/
    4\ mile of the site). The closest rail station is the Silver Spring
    stations for the Metrorail Red Line and MARC Brunswick Line, which is
    three miles away. I noted that the no-action alternative (i.e., to keep
    the FDA at its existing locations) was better because the dispersed FDA
    sites are located near Metrorail stations and have far better access to
    public transportation than White Oak.
        My second primary objection to the White Oak site is its location
    in the residential suburbs. The FDA consolidated campus does not belong
    in a residential suburb but in the inner city or central business
    district. President Jimmy Carter signed an Executive Order 12072,
    ``Strengthening the Nation's Cities,'' which is codified by the General
    Service Administration into the Federal Property Management Regulations
    at 41 CFR 101-19.002. This Order calls for Federal agencies to site
    their facilities and utilize space in such a way as to strengthen the
    Nation's cities. This Order has been upheld in Federal courts (rf City
    of Reading, PA v. Austin [816 F.Supp. 351 (E.D. Pa. 1993)]). Why does
    this Order make good sense? Abandoning the inner city for the suburbs
    causes deterioration of the inner city and exacerbates sprawl
    development in the suburbs. This in turn has the unintended adverse
    effect of furthering division between socio-economic classes and
    between races, with of course, the low-income and minorities--the less
    mobile--remaining in the inner city and the more affluent and majority
    white--the more mobile--fleeing to the suburbs. When Federal agencies
    as well as private sector businesses take flight from the inner city to
    the suburbs, they create a prodigious redistribution of wealth. The
    inner city loses its tax base and becomes enveloped in a downward
    spiraling cycle of decreasing job growth and abandoned buildings
    accompanied by increasing alienation, poverty, and crime. On the other
    hand, the suburbs grow in their tax base and become enveloped in an
    upward spiraling cycle of increasing job growth and construction but
    accompanied by cookie-cutter gated communities and sterile industrial
    parks that exclude ``undesirables'' and oppose diversity. We need
    cities because we need identifiable, physical centers of commerce and
    culture. We need cities because they provide diversity; places that
    thrive with diversity breed new ideas for exchange, growth, and
    prosperity. Cities--not suburbs--are where the poor can rub elbows with
    the rich, the blacks with the whites, the humble with the powerful, and
    the public with the government. These are the places where Federal
    agencies belong--inner cities and central business districts--not in
    the exurbs or suburbs. Cities are vital for democracy. The Federal
    government should set the example and take the lead in strengthening
    the inner cities.
        As an alternative to the White Oak site, the FDA should be
    consolidated at a site in the city, Washington, D.C. (consistent with
    Executive Order 12072), and preferably near a Metrorail station. There
    are several sites that would fit this criterion. One is at the
    Southeast Federal Center, which is adjacent to the Navy Yard Metrorail
    Station and is no more than about a mile from the Hubert H. Humphrey
    building, headquarters of the Department of Health and Human Services,
    the department to which FDA belongs. The other advantages of the
    Southeast Federal Center are that it is already owned by the Federal
    government (General Services Administration) and it has adequate floor
    space to meet FDA's needs. Furthermore, the Southeast Federal Center is
    located in an economically depressed area of the District of Columbia
    that is in urgent need of revitalization. As you are quite aware, D.C.
    has lost many employers, including Federal agencies, and the President
    has directed his cabinet secretaries in March 1997 to not contribute to
    the economic decline of D.C. by not allowing any more Federal agencies
    to abandon D.C. Moreover, the National Capital Planning Commission's
    Plan for Washington's Monumental Core (March 1996) under the subject of
    economic development proposes that the Southeast Federal Center and
    adjacent Navy Yard be transformed into a lively urban water front of
    offices, restaurants, shops, and marinas.
        In conclusion, it would behoove the Subcommittee to cancel any more
    appropriation for the White Oak site, and instead, dedicate an
    appropriation of approximately $5 million for studying the feasibility
    of consolidating the FDA administrative and laboratory facilities at
    the Southeast Federal Center site or similar site within walking
    distance of a Metrorail station in D.C.
                                     ______

    Prepared Statement of Larry Bohlen, D.C. Issues Coordinator, Friends of
                                   the Earth
        support for fda consolidation at an urban, metro accessible site
        Friends of the Earth is taking an increasing interest in protecting
    the urban core and inner suburbs of cities across America. Existing
    communities are worthy of protection. In addition, making sure that
    existing communities are safe and economically viable places to live is
    one of the surest ways to protect undeveloped farms and forests from
    falling to haphazard sprawl development.
        Moves of Federal jobs outside the D.C. beltway are detrimental to
    the health of the District and the inner suburbs of D.C. A currently
    proposed move of the Food and Drug Administration to White Oak,
    Maryland would threaten the economic viability of areas inside the
    Beltway.
        To address these issues, we propose that you:
        (1) Initiate a study of consolidating the FDA within a half mile of
    a Metro-accessible site, such as the Southeast Federal Center in the
    District of Columbia. We suggest that at least $4 million be
    appropriated to GSA's Buildings Fund in fiscal year 1999 to conduct
    such a study.
        (2) Oppose Congressional funding of any move of the FDA outside of
    the D.C. beltway, including the proposed White Oak site.
        (3) Observe federal Executive Order 13006 directing location of
    federal facilities in urban centers.
        Consolidation of the FDA at the Southeast Federal Center has
    several advantages:
      --it is adjacent to the Navy Yard Metro;
      --it is only one mile from the Dept. Of Health and Human Services,
            FDA's parent agency;
      --it is owned by the federal government and controlled by GSA;
      --it has more than adequate floor space for FDA's site plan and is
            currently underutilized;
      --the Southeast Federal Center site has no funds appropriated for its
            redevelopment; and
      --it is in an area of D.C. urgently in need of revitalization.
        In comparison, siting of the FDA in White Oak, Maryland, as
    proposed, has several disadvantages:
      --it is 3 miles from the nearest Metro station and has very limited
            bus service;
      --it is in a low-density sprawling neighborhood outside the
            Washington beltway, not in an urban center as directed by
            Executive Order 13006;
      --it is 10 miles from other FDA facilities that would not consolidate
            in White Oak, raising the question of just what kind of
            benefits is consolidation bringing; and
      --it would involve development of undeveloped wooded areas near a
            stream on the White Oak site whereas the Southeast Federal
            Center is already paved.
        Your consideration of this matter is greatly appreciated.
        cv: Friends of the Earth is a non-profit group advocating the
    protection of the environment in the D.C. metro area, nationally and
    globally.
        Disclosure: Friends of the Earth has no federal grants or contracts
    related to the redevelopment of the District of Columbia, nor any
    related to the location of federal facilities.

           LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                                  ----------
                                                                       Page
    Abad, Lawrence, letter from......................................   505
    Adams, Kendra, letter from.......................................   502
    Allen, Ernest E., president and chief executive officer, National
      Center for Missing and Exploited Children......................   361
        Prepared statement...........................................   373
    Allen, Lydia, letter from........................................   510
    American Association of Retired Persons, prepared statement......   531
    Arnett, Yvonne, letter from......................................   509
    Auila, Zach, letter from.........................................   501

    Bailey, Matt, letter from........................................   508
    Bailey, Paul, letter from........................................   515
    Baity, William, Deputy Director, Financial Crimes Enforcement
      Network........................................................    75
        Prepared statement...........................................    94
    Baker, Officer Will, Mesa County Sheriff, Grand Junction, CO.....   485
    Banks, Samuel H., Acting Commissioner, U.S. Customs Service......1, 361
        Prepared statements.........................................47, 364
    Baray, Sarah Marie, Sterling, CO.................................   485
    Barnes, Officer Roger, La Crosse Police Department, La Crosse, WI   485
    Basham, W. Ralph, Director, Federal Law Enforcement Training
      Center.........................................................    75
        Prepared statement...........................................    82
    Beauchamp, Datasha, letter from..................................   512
    Berg, Rickie, letter from........................................   506
    Berne, Bernard H., M.D., Ph.D., prepared statement...............   538
    Bohlen, Larry, D.C. issues coordinator, Friends of the Earth,
      prepared statement.............................................   548
    Brown, Lee R., letter from.......................................   508
    Brown, Ted F., Assistant Commissioner, Criminal Division,
      Internal Revenue Service.......................................    75
        Prepared statement...........................................    78
    Bye, Dr. Raymond E., Jr., associate vice president for research,
      Florida State University, prepared statement...................   535

    Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado,
      prepared statements............................................2, 330
    Caren, Tina, letter from.........................................   510
    Carpenter, Kristeen, letter from.................................   510
    Clinkenbeard, Shinon, letter from................................   514
    Cook, Matthew, letter from.......................................   503
    Corkler, David, letter from......................................   508
    Coverdell, Hon. Paul, U.S. Senator from Georgia, prepared
      statements.....................................................4, 202
    Crabtree, Laura, Senior Technical Advisor, Information Technology
      Management Team, Office of Administration, Executive Office of
      the President..................................................   393
        Prepared statement...........................................   396

    Dalrymple, John, Deputy Chief Operations Officer, Internal
      Revenue Service................................................   163
    Dilba, Core, letter from.........................................   501
    DiMarco, Ben, letter from........................................   506
    Douglas, Blade, letter from......................................   510

    Englehart, Tasha, letter from....................................   507

    Fitzpatrick, Jon, letter from....................................   503
    Friend, Sgt. Scott, Colorado State Patrol, Sterling, CO..........   485

    Gordon, Jesse, letter from.......................................   504
    Gower, Melissa, letter from......................................   501
    Gray, C. Boyden, Wilmer, Cutler & Pickering, and former White
      House Counsel to President Bush................................   415
        Prepared statement...........................................   417
    Gross, Arthur, Chief Information Officer, Internal Revenue
      Service........................................................   163

    Halbert, Josh, Grand Junction, CO................................   485
    Harnage, Bobby L., Sr., national president, American Federation
      of Government Employees, AFL-CIO, prepared statement...........   523
    Harrington, Kelsey, letter from..................................   503
    Hefner, Nick, letter from........................................   502
    Henderson, Christopher, La Crosse, WI............................   485
    Herald, Kendra, letter from......................................   515
    Herre, Jasmine, letter from......................................   500

    James, Sharpe, mayor, city of Newark, NJ, prepared statement.....   534
    Jerome, J.J., letter from........................................   507
    Johnson, Amy, letter from........................................   502
    Jollivette, Cyrus M., vice president for government relations,
      University of Miami, prepared statement........................   536

    Kareus, Zach, letter from........................................   500
    Kelleher, Amber, letter from.....................................   504
    Kelly, Raymond W., Under Secretary, Law Enforcement Division,
      Department of the Treasury.....................................     1
        Prepared statement...........................................     8
    Killefer, Nancy, Assistant Secretary for Management, Department
      of the Treasury................................................   269
    Kitts, Anita, letter from........................................   513
    Kondracki, Edward N., chief, La Crosse Police Department, La
      Crosse, WI.....................................................   465
    Kuhns, Sarah, letter from........................................   511
    Kwan, Quon Y., D. Crim., prepared statement......................   547

    Lampson, Hon. Nick, U.S. Representative from Texas, prepared
      statement......................................................   391
    Lindsay, Mark, Chief of Staff and General Counsel, Office of
      Administration, Executive Office of the President..............   393
    Londberg, Kyla, letter from......................................   513

    MacKinnon, John, Senior Special Agent, U.S. Customs Service......   361
    Magaw, John W., Director, Bureau of Alcohol, Tobacco and Firearms1, 465
        Prepared statements.........................................17, 469
    Martin, Dayna, letter from.......................................   511
    Martinez, Sheena, letter from....................................   502
    McCaffrey, Gen. Barry R., Director, Office of National Drug
      Control Policy.................................................   313
        Prepared statement...........................................   320
    McKinnon, Daniel W., Jr., president, National Industries for the
      Severely Handicapped [NISH], prepared statement................   532
    Merletti, Lewis C., Director, U.S. Secret Service................     1
        Prepared statement...........................................    40

    Nichols, Danny, letter from......................................   505

    Pifer, Kristina M., letter from..................................   504
    Posey, Ada Louise, Director, Office of Administration, Executive
      Office of the President........................................   393
    Puckett, Natalie, letter from....................................   515

    Rossides, Gale D., Assistant Director, Training and Professional
      Development, Bureau of Alcohol, Tobacco and Firearms...........   465
        Prepared statement...........................................   471
    Rossotti, Charles O., Commissioner, Internal Revenue Service.....   163
        Prepared statement...........................................   170
    Rubin, Hon. Robert E., Secretary, Department of the Treasury.....   269
        Prepared statement...........................................   275
    Runyon, Marvin, Postmaster General/Chief Executive Officer, U.S.
      Postal Service, prepared statement.............................   519
    Russell, Valarie, letter from....................................   505

    Saduar, Amanda, letter from......................................   507
    Salazar, Destinie, letter from...................................   512
    Scheetz, Aaron R., letter from...................................   505
    Schultz, Gabrielle, letter from..................................   514
    Seibert, Ashley, letter from.....................................   501
    Simeona, Sgt. Daren, Navajo Indian Tribal Police, Willow Rock, AZ   485
    Smith, Jordan C., letter from....................................   512
    Smythe, Steven, letter from......................................   514
    Sommermeyer, Katie, letter from..................................   509
    Stockman, Mollie, letter from....................................   508
    Stogsdill, Kristin, letter from..................................   511
    Sullivan, John, letter from......................................   515

    Tate, Howie, letter from.........................................   507
    Tobias, Robert M., national president, National Treasury
      Employees Union, prepared statement............................   528
    Tohtsonie, Royetta, letter from..................................   503
    Topai, Jeni, letter from.........................................   509
    Towne, Gabriel, Willow Rock, AZ..................................   485

    Vaughn, Megan, letter from.......................................   509

    Watt, Bobbi Jo, letter from......................................   506
    Weinschenk, Gene, Head, Cybersmuggling Center, U.S. Customs
      Service........................................................   361
    Whitney, Bree, letter from.......................................   512
    Wilkinson, Amanda, letter from...................................   513
    Windham, Chief Deputy Sheriff Cuyler, Cumberland County Sheriff's
      Office, Fayetteville, NC.......................................   465
        Prepared statement...........................................   476

    Yang, Susan, La Crosse, WI.......................................   485
    Yazzie, Bernell, Willow Rock, AZ.................................   485

                                 SUBJECT INDEX

                                  ----------

                           DEPARTMENT OF THE TREASURY

                    Bureau of Alcohol, Tobacco and Firearms

                                                                       Page
    Fiscal year 1999 request.........................................   480
    Funding criteria.................................................   479
    GREAT Program:
        Accomplishments..............................................   482
        Characteristics of...........................................   477
        In North Carolina............................................   483
        Instructors..................................................   479
    Parental involvement.............................................   481
    Schools, dissemination of information to.........................   483
    Summer programming...............................................   516
    Youth gun crime interdiction.....................................   481

                    Bureau of Alcohol, Tobacco and Firearms

                              U.S. Secret Service

                              U.S. Customs Service

                            Internal Revenue Service

                    Federal Law Enforcement Training Center

                      Financial Crimes Enforcement Center

    Armored limousines...............................................    61
    Bank Secrecy Act.................................................    92
    Birmingham bombing...............................................    59
    Budget request, fiscal year 1999.................................    92
    Bureau of Alcohol, Tobacco and Firearms [ATF]:
        Budget request...............................................    15
        Strategic plan...............................................    15
    Child labor:
        Enforcement..................................................    65
        Hotline......................................................    67
        Importation of goods.........................................    68
        Other forced labor...........................................    68
        Regulations..................................................    68
    Child pornography:
        Detection....................................................    69
        Tipline......................................................    70
    Confiscating forced child labor products.........................    67
    Customs agent, death of..........................................    56
    Customs authority................................................    66
    Drug interdiction initiative.....................................     6
    Federal firearms license security measures.......................    58
    Federal Law Enforcement Training Center..........................     7
    Fraud program....................................................    77
    Gang Resistance Education and Training Program...................    57
    Gateway Program..................................................    93
    International Law Enforcement Training Academy...................    82
    International strategy...........................................    77
    IRS criminal investigation.......................................    75
    Methamphetamine seizures.........................................    65
    Mexico's new drug force..........................................    63
    Mexico, Custom's weapons restrictions in.........................    63
    Money laundering................................................. 6, 94
        Magnitude of.................................................    93
        Strategy.....................................................    76
    Montana secret banking proposal..................................    98
    Narcotics and money laundering strategy..........................    64
    Narcotics program................................................    77
    Nonintrusive inspection technology...............................    63
    Not giving testimony, privilege for..............................    62
    Office of Enforcement............................................     7
    Office of Foreign Assets Control.................................    56
    Office of Professional Responsibility............................    55
    Pending nomination, congratulations on...........................    15
    Personnel levels.................................................    16
    Presidential campaign, 2000......................................     7
    Revenue collection...............................................    59
    Seizure rate.....................................................    64
    Submitted questions..............................................    99
    Tax gap strategy.................................................    76
    Travel budget....................................................    61
    Violent Crime Coordinator Program................................    16
    White House security clearance process...........................    71
    Year 2000 Program................................................    59
    Youth crime gun interdiction.....................................     7
        Initiative...................................................    16

                            Internal Revenue Service

    Budget:
        Outlook......................................................   169
        Request......................................................   193
    Business practices...............................................   166
    Century date change..............................................   189
        Completing...................................................   167
    Citizens advocacy panels.........................................   184
    Customer improvements............................................   168
    Earned income tax credit.........................................   194
    EITC program.....................................................   202
    Elderly, tax counseling for......................................   188
    Electronic filing................................................   200
    Information accuracy rate........................................   197
    Internal ethics problems.........................................   192
    IRS employee browsing............................................   186
    Misprinted bar codes.............................................   201
    New information technology systems...............................   190
    New technology...................................................   167
    Noncustodial parents.............................................   187
    Organization:
        Modernization of.............................................   169
        Structure....................................................   166
    Performance, measures of.........................................   167
    Purchasing processes, management of..............................   199
    Section 6103.....................................................   191
    Small businesses, problems of....................................   186
    Southerners, disproportionate audits of..........................   193
    Submitted questions..............................................   203
    Tax code, changes in.............................................   195
    Tax law enforcement section......................................   199
    Taxpayer service.................................................   197
    Taxpayers, mistreatment of.......................................   196
    Technology:
        Improvements.................................................   168
        Investments..................................................   168
    Year 2000........................................................   201
        Date change problem..........................................   167

                            Office of the Secretary

    Budget surplus...................................................   284
    International affairs and law enforcement, interface between.....   281
    International Monetary Fund [IMF].........................281, 287, 289
        Proposed reforms.............................................   290
    Internal Revenue Service [IRS]:
        Chief Information Officer....................................   279
        Collections..................................................   286
        Customer service.............................................   279
        Oversight board..............................................   271
        Reform.......................................................   273
    Law enforcement..................................................   274
    Submitted questions..............................................   291
    Tax Code.......................................................285, 287
    Treasury Building, renovation of.................................   281
    Year 2000......................................................274, 277

                              U.S. Customs Service

    Child sex tourism................................................   383
    Children, protection of..........................................   370
    Computer forensics...............................................   383
    Convictions......................................................   384
    Latest technology................................................   386
    Legislation to extend existing authorities.......................   369
    Limitations......................................................   368
    Offenders, occupations of........................................   368
    Online demonstration.............................................   375
    Resources........................................................   382
    Submitted questions..............................................   386

                       EXECUTIVE OFFICE OF THE PRESIDENT

                            Office of Administration

    Counsel's Office:
        Bush and Clinton compared....................................   421
        Bush White House:
            Commonsense view of public and private activities of.....   416
            Public versus private activities in......................   418
        Size of during the Bush and Reagan administrations...........   422
        Skeptical of statutory attempt to establish internal controls
          of.........................................................   419
    Executive Office of the President [EOP]:
        Activities of legal counsel..................................   402
        Allegations of improper use of legal counsel by..............   395
        Budget submission............................................   396
        Information technology infrastructure........................   395
        Information technology planning and coordination.............   401
    Executive privilege..............................................   420
    Office of Administration capital investments.....................   399
    Old Executive Office Building, GSA fire, life, and safety repairs
      and renovations of.............................................   406
    Public and private activities, internal controls for
      distinguishing between.........................................   419
    Submitted questions..............................................   408
    White House Communications Agency agreement with the White House.   407
    White House Counsel:
        Responsibilities                                                415
        Staff size...................................................   416

                     Office of National Drug Control Policy

    Budget...........................................................   319
    Classified strategy..............................................   316
    Counterdrug Technology Assessment Center [CTAC]..................   332
        GAO report on................................................   333
    Director's security..............................................   335
    Drug use data....................................................   316
    Drug-free prison zone demonstration..............................   338
    Drugs and prisons................................................   318
    Effectiveness, performance measures of...........................   336
    Hardcore drug users..............................................   339
    High-intensity drug trafficking area [HIDTA]..............319, 333, 337
    Media campaign.................................................331, 334
    Methamphetamine labs.............................................   332
    National drug control strategy, 1998.............................   315
    National youth media campaign....................................   318
    Performance measures.............................................   316
    Prison drug treatment..........................................339, 340
    Submitted questions..............................................   341

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