[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



_______________________________________________________________________
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                      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 [email protected], 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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