    [Senate Hearing 107-139]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 107-139

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2002

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

                                    HEARINGS

                                    before a

                              SUBCOMMITTEE OF THE

                COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                          ONE HUNDRED SEVENTH CONGRESS

                                 FIRST SESSION

                                       on

                               H.R. 2590/S. 1398

     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,
                          2002, AND FOR OTHER PURPOSES

                                   __________

                           Department of the Treasury
                       Executive Office of the President
                           Nondepartmental witnesses

                                   __________

             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
    70-870 PS                   WASHINGTON :2001

    _______________________________________________________________________
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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
    MITCH McCONNELL, Kentucky            TOM HARKIN, Iowa
    CONRAD BURNS, Montana                BARBARA A. MIKULSKI, Maryland
    RICHARD C. SHELBY, Alabama           HARRY REID, Nevada
    JUDD GREGG, New Hampshire            HERB KOHL, Wisconsin
    ROBERT F. BENNETT, Utah              PATTY MURRAY, Washington
    BEN NIGHTHORSE CAMPBELL, Colorado    BYRON L. DORGAN, North Dakota
    LARRY CRAIG, Idaho                   DIANNE FEINSTEIN, California
    KAY BAILEY HUTCHISON, Texas          RICHARD J. DURBIN, Illinois
    MIKE DeWINE, Ohio                    TIM JOHNSON, South Dakota
                                         MARY L. LANDRIEU, Louisiana
                       Steven J. Cortese, Staff Director
                     Lisa Sutherland, Deputy Staff Director
                     Terry Sauvain, Minority Staff Director
                                     ------

                Subcommittee on Treasury and General Government

                  BEN NIGHTHORSE CAMPBELL, Colorado, Chairman
    RICHARD C. SHELBY, Alabama
    MIKE DeWINE, Ohio                    BYRON L. DORGAN, North Dakota
    TED STEVENS, Alaska                  BARBARA A. MIKULSKI, Maryland
      (ex officio)                       MARY L. LANDRIEU, Louisiana
                                         ROBERT C. BYRD, West Virginia
                                           (ex officio)

                               Professional Staff

                              Patricia A. Raymond
                                  Lula Edwards
                            Chip Walgren (Minority)
                           Nicole Rutberg (Minority)

                             Administrative Support

                           Nancy Olkewicz (Minority)

                                C O N T E N T S

                                  ----------

                            Thursday, April 26, 2001

                                                                       Page

    Department of the Treasury: Office of the Secretary..............     1

                             Thursday, May 3, 2001

    Executive Office of the President: Office of National Drug
      Control Policy.................................................    37

                             Thursday, May 10, 2001

    Department of the Treasury.......................................    83
        Bureau of Alcohol, Tobacco and Firearms......................    97
        U.S. Customs Service.........................................   109
        U.S. Secret Service..........................................   123
        Federal Law Enforcement Training Center......................   149
        Financial Crimes Enforcement Network.........................   157
        Office of Foreign Assets Control.............................   165

                             Thursday, May 17, 2001

    Department of the Treasury: Internal Revenue Service.............   203
    Material submitted subsequent to the hearings:
        Office of Personnel Management...............................   247
        Merit Systems Protection Board...............................   248
        Nondepartmental witnesses....................................   251

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2002

                                  ----------

                            THURSDAY, APRIL 26, 2001

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10 a.m., in room SR-485, Russell
    Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)
    presiding.
        Present: Senators Campbell, DeWine, and Dorgan.

                           DEPARTMENT OF THE TREASURY

                            Office of the Secretary

    STATEMENT OF HON. PAUL H. O'NEILL, SECRETARY
    ACCOMPANIED BY JAMES J. FLYZIK, ACTING ASSISTANT SECRETARY FOR
                MANAGEMENT AND CHIEF INFORMATION OFFICER

                                OPENING REMARKS

        Senator Campbell. Good morning. The committee will come to
    order. I would like to welcome everyone to the first hearing on
    the fiscal year 2002 budget request. This morning, I am pleased
    to welcome the Secretary of the Treasury, the Honorable Paul
    O'Neill, as well as Brad Buckles, the Director of the ATF, and
    James Sloan, the Acting Under Secretary for Enforcement.
    Welcome. We are looking forward to your comments.
        I would also like to acknowledge the two new members of our
    subcommittee, Senator DeWine, who is on my right, and Senator
    Landrieu, who hopefully will be arriving shortly. Senator
    Dorgan, the ranking member of the committee, will also be just
    a little bit late.
        We look forward to learning about the new leadership at the
    Treasury Department as well as the resources necessary to carry
    out the Department's responsibilities. The Department of the
    Treasury has four main missions, as articulated by their
    strategic plan: To promote prosperous and stable American and
    world economies; to manage the government's finances; to
    safeguard our financial systems, protect our nation's leaders,
    and secure a safe drug-free America; and fourth, to continue to
    build a strong institution. These are obviously very broad
    areas of jurisdiction, some of which are carried out by various
    bureaus within the Department. However, the policy and the
    oversight responsibilities still rest within the Departmental
    offices.
        The Under Secretary for Domestic Finance is responsible for
    the development of domestic economic finance and fiscal policy,
    making sure that Social Security and Medicare are solvent, that
    consumers are protected from financial deception, and a number
    of other things.
        The Under Secretary for International Affairs is
    responsible for international financial policy, as well as
    trade and investment policy, such as monitoring the global
    economy, facilitating legitimate trade, and promoting stable
    international financial systems, to mention a few.
        The Department's Federal law enforcement responsibilities
    are overseen by the Office of the Under Secretary for
    Enforcement. Reducing counterfeiting and money laundering are
    probably the most important issues they deal with, but also
    stopping drug smuggling, denying criminals access to firearms,
    and the anti-terrorism efforts, to name just a few.
        Mr. Secretary, I want to take a minute to express my
    appreciation to you for your continued support for something
    that is very important to me and that is the GREAT program. I
    have a very strong feeling about our youngsters and I think
    GREAT has been a program that they have benefitted from a great
    deal, if I can use that term. I have also been a strong
    supporter of a number of other programs that deal with
    youngsters, but that one is of particular interest to me.
        Everyone knows that the Internal Revenue Service implements
    and enforces tax laws, but the developments of the policies
    underlying those laws takes place at the Departmental level and
    the Secretary of the Treasury is ultimately responsible for
    everything. The buck stops on your desk, Mr. Secretary. I look
    forward to hearing how you plan to lead the Department into the
    21st century.
        We have been joined by our ranking member, Senator Dorgan.
    I would like to now recognize him.

                      STATEMENT OF SENATOR BYRON L. DORGAN

        Senator Dorgan. Mr. Chairman, thank you very much. Mr.
    Secretary, welcome today. I have been at an Energy Committee
    hearing and I was delayed arriving, but thank you very much for
    being here today.

                               PREPARED STATEMENT

        I think what I will do is put my statement in the record
    and I will be here to ask a number of questions of Secretary
    O'Neill. I am anxious to hear his testimony.
        Senator Campbell. Without objection, the complete comments
    of all members will be put into the record.
        [The statement follows:]

                 Prepared Statement of Senator Byron L. Dorgan

        Thank you Mr. Chairman: Mr. Secretary, I also want to welcome you
    for your first appearance before this Subcommittee. I commend you for
    your willingness to re-enter public service at a time in your life when
    others might be looking forward to a much more hassle-free existence.
    As you well know, you can do a great deal of good in your new position,
    but there is also a great deal of heartburn which comes with the job.
        You have only been in your current position for just over three
    months and you have many things to learn and see. For instance, you
    probably have not yet been to the Northern Border. I hope you will go--
    North Dakota has a great border with Canada and we'd love to host you.
    Your Department plays a major role in border issues. The Customs
    Service both facilitates trade while at the same time attempts to
    interdict drugs and terrorists. For instance, you may not know that at
    dozens of ports of entry along the Northern Border orange cones such as
    this are the only nighttime protection from drug runners and
    terrorists.
        I use this to illustrate that while trade under NAFTA and other
    trade agreements has risen 75 percent since the mid-90s, and while
    drugs continue to stream across our borders--north as well as south--in
    many cases we are not making the necessary investments to meet the
    fast-growing needs; either in infrastructure at our 192 border ports of
    entry, nor in the manpower to adequately staff those ports.
        For instance, your second important area of focus in your prepared
    statement is ``continuing efforts to fight drugs and crime.'' Yet, this
    budget requests no funds for hiring additional Customs agents and
    inspectors who are this nation's front line in protecting our borders.
    This budget does not request a dime to alleviate the over-worked men
    and women on the border despite the growing threat of transnational
    crime. Nor does it adequately address the burgeoning trade expected to
    double over the next five years.
        This budget is a straight-line, no-frills, ``maintain current
    levels'' budget, designed--I imagine--not to meet the needs of the
    agencies under your jurisdiction, but instead, adjusted to meet the
    trade-offs required by a too-large tax cut.
        I say this not so much as a criticism but as more of a cautionary
    note for future consideration and debate. And drugs and trade are just
    a portion of this larger debate.
        The 800 pound gorilla for your Department and this Subcommittee is
    the Internal Revenue Service. It consumes nearly 65 percent of your
    Department's budget. The President's budget calls for an increase for
    the IRS of between 3.4 percent and 6.6 percent depending on how you
    count the numbers. We both want to see the IRS succeed--to see
    Commissioner Rossotti and his team turn the IRS around and really
    return ``Service'' to the IRS.
        Yet the independent, congressionally mandated IRS Oversight Board
    recently submitted a budget request which is over $800 MILLION above
    President Bush's budget. A great deal of thought went into the
    Oversight Board's budget submission and the bulk of their suggested
    additional resources would go to increase technology enhancements.
    While we all may have a different opinion about what the ``right''
    number for the IRS should be, the Board notes further deficiencies or,
    at a minimum, issues which warrant further discussion.
        I look forward to your testimony and your responses to our
    questions. More importantly, I look forward to exploring these and many
    other issues during the months and years ahead.

        Senator Campbell. Senator DeWine, do you have a statement?
        Senator DeWine. Mr. Chairman, thank you very much. Mr.
    Secretary, thank you very much for being with us here today.
    Mr. Chairman, I am delighted to join the committee today.
        As one of the newest members of the committee, let me
    welcome you, Mr. Secretary, to this hearing and thank you for
    your hard work on the Department's budget proposal for fiscal
    year 2002. There are a number of programs of particular
    interest to me in this budget, mainly law enforcement and
    counterdrug activities. Let me commend you and commend
    President Bush for addressing these very important law
    enforcement related issues and I look forward to working with
    you and my colleagues to ensure that programs in these areas
    are adequately funded.
        I also commend our chairman, Senator Campbell, for
    scheduling a separate law enforcement hearing next month. I
    look forward to that hearing. This recognizes the importance of
    law enforcement activities and the need to provide appropriate
    resources.
        Today, though, for a moment, I would like to discuss a
    specific matter of importance to my home State of Ohio and to
    this entire nation, and that is the implementation of the
    Continued Dumping and Subsidy Offset Act. As you know, I wrote
    this Act, and thanks to the help of my good friend and the
    ranking member on the full committee, Senator Byrd, that
    measure is now the law of the land.
        We need this law, Mr. Secretary and Mr. Chairman, because
    some of our trading partners are simply not playing by the
    rules. What I mean is that there are many foreign producers
    who, in hopes of securing a greater share of the U.S. market or
    eliminating their U.S. competitors altogether or selling their
    products in the United States at or below production costs.
    This practice, as we all know, is commonly referred to as
    dumping.
        Alone or coupled with other unfair and illegal practices
    like subsidization, dumping hurts a number of our nation's
    vital industries, such as agriculture, textiles, and steel.
    Despite the imposition of duty orders in a number of cases,
    these practices continue. In certain cases, these unfair trade
    practices have been going on for more than 25 years.
        Dumping has been particularly hard on America's steel
    industry, an industry that has long been vital to our nation's
    economic well-being and our national security. Because of the
    worldwide overproduction of steel, our domestic industry has
    been forced to withstand an onslaught of cheap foreign steel
    imports. Our steel producers here at home are suffering as a
    result and we must come to their aid.
        The Tariff Act of 1930 gives the President the authority to
    impose duties on imports being dumped in U.S. markets or
    subsidized by foreign governments. Our new continued dumping
    and subsidy offset law takes that 1930 Act one step further by
    imposing a heavier price for dumping and subsidization. As you
    know, revenues raised through import duties currently go
    directly to the U.S. Treasury. But under our new law, the
    duties collected would be redirected to eligible injured U.S.
    businesses, mills, farms, and ranches with qualified
    expenditures, such as modernizing manufacturing facilities,
    providing worker training and health care, and purchasing of
    safety and environmental equipment. The funds cannot be used to
    cover any legal fees associated with the anti-dumping or
    countervailing case.
        Mr. Secretary, free and fair trade cannot flourish unless
    we use our trade laws to encourage all competitors to play by
    the rules. We must do all that we can to make this a reality.
    The Continued Dumping and Subsidy Act is a critical first step.
    Currently, Customs is writing the implementation regulations,
    which were expected to be forwarded to the Treasury Department
    several months ago. It is my hope that your Department will
    take the necessary action to ensure that the proposed
    implementation regulations are published in the very near
    future. It is also my hope that the Department, once the
    regulations are in place, will meet all the statutory deadlines
    for distribution of duties and full implementation of the Act
    in a timely manner.
        In conclusion, Mr. Chairman, when the Department reaches
    that point, Mr. Secretary, I would like to sit down with you
    and personally discuss this matter and the state of our
    nation's steel industry. Again, thank you for joining us today.
    I have enjoyed talking with you in the past about the steel
    problems. I have appreciated those conversations very much and
    look forward to working with you. Thank you very much, Mr.
    Chairman.
        Senator Campbell. I hope our colleagues and people in the
    audience heard you, Senator DeWine. I understand your
    microphone is not working and they need to switch it off.
        Senator DeWine. I think the Secretary did.
        Senator Campbell. The Secretary, I am sure, did hear you.
        Secretary O'Neill. I did. Thank you.
        Senator Campbell. While we are doing that, I might mention,
    Mr. Secretary, while Senator DeWine was making his statement, I
    was reviewing your biographical sketch, which is a lifetime of
    accomplishments and awards and I certainly commend you for the
    many accomplishments you have made. I noted with interest that
    even now, as busy as you are, you have time to work with some
    of the students at your old alma mater, the University of
    Maryland, and still teach on a part-time basis. I think that is
    wonderful, because rarely do kids in school get a chance to
    interact with government officials and I think that is a
    terrific thing that you are doing.
        I think we are hooked up now, Mr. Secretary, if you would
    like to proceed. By the way, your complete written testimony
    will be included. If you want to stray from that and make
    comments or abbreviate, you are welcome to do so.

                          Statement of Paul H. O'Neill

        Secretary O'Neill. Mr. Chairman, it is a pleasure to be
    here. Senator DeWine and Senator Dorgan, I am glad to have the
    opportunity to meet with you today. I will take advantage of
    the opportunity to simply put my prepared statement into the
    record and perhaps summarize a few key points.
        The Treasury Department request, I think, is clearly
    consistent with the principles that President Bush has
    suggested to the Congress, that we should be very prudent in
    the amounts of money that we claim and ask for from the
    American people to discharge our responsibilities, and I think
    this budget bears witness to those principles in a good way.
        Mr. Chairman, you have summarized very clearly what the
    responsibilities are of the Treasury, and in the few months
    that I have been here, I have been on a part-time quest. I must
    say, there are an awful lot of things to do in this position,
    but I have been on a part-time quest to better understand the
    details of what the Department management activities are and
    how well we work to discharge in the most responsible and
    fiscally cautious way the things that the Congress has
    entrusted to the Treasury as responsibilities, including making
    some field trips to look at our manufacturing operations last
    week or the week before in Philadelphia at the Mint.
        I am particularly interested in knowing more about the
    specific aspects of the Treasury Department's activities and
    operations that the members of this Congress are interested in
    so that I can become as knowledgeable as you are about these
    activities and, hopefully, bring greater satisfaction to your
    expectations for how the Treasury will do its work.
        As I have indicated at the end of my statement, I do take
    seriously the leadership and management and administrative
    responsibilities of this job and I bring with me some fairly
    deep knowledge of how these leadership, management, and
    administrative things are done in the very best organizations
    outside of the Federal Government. It does seem to me that it
    is appropriate to work toward the same levels of achievement in
    the prosecution of Federal work activity as one could find in
    the private sector. I must say, I think we have some ways to go
    in rising to that level, but you have my commitment that I will
    bring every day to the questions that I ask and to the
    expectations that I create within the Treasury Department the
    very highest standards and expectations.
        I have to say that this budget as proposed to you does not
    yet reflect my own deep involvement in creating measurements of
    what we should expect and follow through on what we should
    expect. But when I come before you in the fall, or when we put
    together our proposals in the fall for next year's budget, you
    can be assured that I will have spent my own time in becoming
    an expert about these things so that I can answer any questions
    you may have in detail and be prepared to say to the American
    people, it cannot be done better than we are doing it, with
    fewer resources than we are doing it.
        And I might say, I have some expectation that it may be
    useful to suggest levels of resources for some of our
    activities that have not been proposed in the past because, as
    an example, it does seem to me, as one would find in the
    private sector, for example, an expectation that when a private
    citizen, for example, calls the Internal Revenue Service, that
    the service expectations would not be different from what one
    would expect in calling an airline to make a reservation, which
    is to say calls must be answered in a reasonable period of time
    and the answers received ought to always be correct. From the
    reports that we have all seen from both the internal auditors
    and from the GAO, our response times are not adequate, and so I
    think there is truly an important question to ask about how we
    square ourselves with the standards that one should expect from
    government performance of duties.
        And I want to hasten to add, as I did in my prepared
    statement, that I think Federal employees are every bit as
    good, if not better, than what one could find on average in the
    private sector. And so none of what I would suggest to you has
    anything to do with finding fault with Federal employees to the
    degree our organizations do not perform at levels one would
    expect to find in the private sector.
        I guess, rather than characterize the administrations of
    the past, I would say to you I will propose the resources I
    think are necessary to meet what the law says we should do and
    work to bring innovation and ideas to bear on responsibilities
    we are supposed to discharge and make it possible for Federal
    employees to hold their head high, that they are associated
    with the very best organization, public or private, and that
    they have the resources and ideas that are necessary to be a
    singularly impressive organization.

                               Prepared Statement

        With that, Mr. Chairman and members of the committee, I
    would be very happy to respond to whatever questions you may
    have.
        [The statement follows:]

                     Prepared Statement of Paul H. O'Neill

        Chairman Campbell, Senator Dorgan, and Members of this
    Subcommittee, I appreciate this opportunity to discuss Treasury's
    fiscal year 2002 budget request. With me today is Jim Flyzik, the
    Acting Assistant Secretary for Management.
        This is my first time before this Subcommittee. I look forward to
    continuing the tradition of cooperation between the Treasury and
    Members of this Subcommittee and to working with Senators DeWine and
    Landrieu, the new Members of the Subcommittee.
        The Treasury Department's fiscal year 2002 budget supports the
    Administration's major goals: providing tax relief, moderating recent
    rapid growth in spending, while funding national priorities, paying
    down the debt, and protecting Social Security surpluses. Our budget
    request for fiscal year 2002 totals $14.631 billion and balances fiscal
    accountability with the need for the resources required to maintain
    Treasury's operations and implement the President's priorities.
        We have provided the Committee with a detailed breakdown of
    Treasury's entire fiscal year 2002 budget request. Let me highlight
    three important areas of focus.
      --First, improving service to taxpayers and ensuring compliance with
            the tax laws.
      --Second, continuing our efforts to fight drugs and crime.
      --And third, improving management and performance.
        I will address each of these items in turn.
    First, Improving Service to Taxpayers and Ensuring Compliance with the
            Tax Laws
        In its mission statement, the IRS has pledged to focus on two core
    priorities: ``Provide America's taxpayers top quality service by
    helping them understand and meet their tax responsibilities, and apply
    the tax law with integrity and fairness to all.''
        Like President Bush, I believe strongly that the IRS should enforce
    the tax code fairly and evenly with the least imposition on the
    taxpayer. And consistent with that goal, the President has requested
    adequate resources to fund necessary IRS improvements. This budget
    represents a 6.7 percent increase over the 2001 budget, and recognizes
    the investments needed to modernize the IRS.
        Commissioner Rossotti and the IRS have made progress implementing
    the 1998 reforms mandated by Congress, and the IRS has a plan to
    improve service and enforcement, while protecting taxpayer rights. But
    clearly there is much more to accomplish.
        The Administration's budget request includes close to $400 million
    in investments to modernize the IRS' outdated computer systems. This
    multi-year project will help provide the IRS with better tools to
    improve both customer service to America's taxpayers and compliance
    programs designed to administer the tax code in a fair manner. The
    Committee has shown its support for this program in past years by
    making available needed funds, and we ask you to continue to support
    this critical program.
        The President's budget also includes follow-on funding for the
    STABLE initiative to complete the hiring of almost 4,000 staff to
    address these same issues. This investment is important for the
    integrity of the tax system, which depends heavily on maintaining
    voluntary compliance, and to provide the service the American taxpayers
    deserve.
        The amount in the President's budget will allow the IRS to provide
    America's taxpayers better quality service and help to enforce the tax
    laws with integrity and fairness.
    Second, Continuing Our Efforts to Fight Drugs and Crime
        Treasury's law enforcement bureaus perform critical roles in
    implementing the Administration's anti-drug and anti-crime policies.
    Treasury's budget request continues to support our responsibilities in
    law enforcement and oversight, including efforts: (1) to reduce the
    smuggling and trafficking of drugs while facilitating lawful trade; (2)
    to deter firearms violence; (3) to combat financial crimes and money
    laundering; (4) to protect our nation's leaders; and (5) to provide
    quality law enforcement training. Although the range of involvement in
    law enforcement issues across the Department is broad, I want to
    highlight some specific examples of Treasury efforts that support the
    President's priorities of combating crime and drug abuse and that
    emphasize improved public safety and enhanced security for our
    citizens.
        In recognition of the President's promise to increase spending to
    implement the Western Hemisphere Drug Elimination Act, the Customs
    Service, in coordination with the United States Coast Guard, requests
    $35 million for acquisition of selected air and water craft and
    surveillance and safety equipment to improve interdiction efforts
    against illegal drugs.
        The budget recognizes the need for Customs to modernize its
    automated systems. Continued rapid growth in trade transactions has
    magnified both the urgency of proceeding with the overall modernization
    effort and the critical need to maintain viability of the existing
    Automated Commercial System, which, until recently, had been subject to
    an increasing number of system outages.
        Therefore, the budget seeks (1) additional investments in the
    Customs automation modernization program to facilitate and manage its
    trade operations ($130 million) through the Automated Commercial
    Environment and to provide for a government-wide trade data interface
    through the International Trade Data System ($5.4 million); and (2)
    sufficient funding to maintain the existing Automated Commercial System
    while the modernization effort is underway.
        This budget provides for the Bureau of Alcohol, Tobacco and
    Firearms to continue its ongoing efforts in the following programs: the
    Integrated Violence Reduction Strategy, the Youth Crime Gun
    Interdiction Initiative, nationwide crime gun tracing, and the National
    Integrated Ballistics Information Network.
        Enforcement of money laundering laws also contributes to stemming
    the flow of drugs, weapons and other contraband. This budget request
    maintains support for the Financial Crimes Enforcement Network to
    strengthen anti-money laundering efforts and enforce regulatory
    compliance of the Money Services Business industry, as required under
    the Money Laundering Suppression Act.
        The threat of global terrorism, whether conventional or cyber, has
    intensified the demands on Treasury's enforcement bureaus to formulate
    innovative protective strategies that seek to integrate cyber security
    with traditional physical security. The budget request maintains
    support for the Secret Service to continue to address their complex
    workload and multiple mission requirements. This includes protecting
    our nation's leaders and our financial payment infrastructures,
    protecting the integrity of our currency in light of global
    dollarization, and safeguarding the public against terrorist acts, both
    conventional and cyber in nature.
        Ensuring the physical protection of our nation's leaders and
    visiting world leaders in an environment of increased threats to
    political leaders remains one of Treasury's top priorities. We are
    requesting funding for pay reform for the U.S. Secret Service Uniformed
    Division (authorized in December 2000) to provide adequate incentive to
    attract highly qualified recruits and retain skilled and seasoned
    personnel.
        The Department will ensure that specialized funding sources to
    support unique programmatic requirements are spent wisely. The
    Department will continue the practice of supplementing selected
    Treasury law enforcement bureaus' non-recurring operations and
    investments through the Treasury Forfeiture Fund. Another fund, the
    Counterterrorism Fund, supports emergency efforts across the
    Department. Treasury will rely on this fund to assist in covering of
    costs associated with, among other priorities, Treasury's role in the
    upcoming Salt Lake City Winter Olympics.
    Third, Improving Management and Performance
        This budget request also provides resources to sustain the
    programmatic oversight and technical support provided by Treasury
    Departmental Offices. This oversight and support is essential to our
    overall leadership role in law enforcement, tax administration,
    international and domestic economic and tax policy, and financial
    management. The request includes funding required to sustain previously
    approved staffing levels, with no increase in staffing levels being
    proposed in this request.
        Throughout the Department, I am taking a keen interest in
    performance and the budget, viewing them as integral to our efforts to
    establish goals and measure results. Part of this process will require
    us to improve our performance measures to make them more useful in and
    relevant to the decision-making process, as well as the improving the
    timeliness and accuracy of the information systems that capture and
    report performance data. This is an opportunity to fundamentally review
    what we do and why we do it. Therefore, the fiscal year 2001 and fiscal
    year 2002 Performance Plans presented in the budget may be revised
    pending completion of this review. Treasury will notify Congress of any
    such revisions in a timely manner.
        Good stewardship of taxpayer resources is a responsibility I take
    seriously. We must provide the taxpayers with real value for the hard-
    earned tax dollars they entrust to the Treasury.
        Treasury has a rich reputation for leadership and quality and I
    want to be a part of continuing that tradition. My notion of leadership
    centers on excellence.
        I am thoroughly convinced that if your organization is not striving
    to be the best in the world at everything you do, then you are unlikely
    to be truly excellent as an organization. Let me take this down from
    the lofty to the concrete. In the organization that I left in December,
    it took us 2\1/2\ days to close our financial books at more than 300
    locations in 36 countries. It takes the Federal Government five months
    to close our books; and then the auditors give us a qualified opinion.
    This is not the stuff of excellence.
        Let me hasten to add, this is not the fault of the workforce. They
    can deliver what the leadership asks for. I proved in my previous work
    life that it is possible to build an organization that is known for
    excellence, based on a foundation of dignity and respect for every
    individual. Caring about the health and safety of the 150,000 people in
    Treasury who depend on me for leadership is important, and it will
    continue to be important as I lead a Department with such a rich
    heritage

                                   CONCLUSION
        In summary, Mr. Chairman, I believe that Treasury's $14.6 billion
    request for Fiscal 2002 will enable us to continue the important
    initiatives underway throughout the Department, as well as advance
    those key priorities set out by the President. I ask for your support
    of our fiscal year 2002 budget request so that the Treasury Department
    can fulfill its wide range of responsibilities in serving the American
    people.
        Thank you very much.

        Senator Campbell. Thank you. I will tell you that in the
    years I have been with this committee, I have enjoyed working
    with Treasury and you have inherited some very, very fine
    people on the staff, as you probably know. I might tell you,
    they sure know how to put a positive influence on this
    committee, particularly Art Cameron. He knows that the chairman
    is a licorice freak, and look what I found next to my
    microphone when I showed up.

                    Western Hemisphere Drug Elimination Act

        Do not blush, Art.
        Let me start by asking a couple of questions, because it
    has recently been in the headlines a lot, and you may or may
    not know the answer, but at least you can give us your
    perspective on it. The only major initiative for the Department
    is to provide funding for the enhanced implementation of the
    Western Hemisphere Drug Elimination Act by the Customs Service.
    That includes funding for interception boats, maritime patrol,
    upgrade to the P-3 airplane program, and so on, as you probably
    know.
        I was wondering, will the recent shooting-down incident in
    Peru and the President's decision to suspend U.S. surveillance
    flights have any impact for the need for your budget requests?
        Secretary O'Neill. No, I do not see this incident having an
    effect on our budget request at all.
        Senator Campbell. Do you see that as a temporary decision
    by the President or do you have any information on that?
        Secretary O'Neill. There is an ongoing investigation. I
    think we need to be careful not to get in the way of that
    investigation. But it does seem very clear in reviewing the
    history of the work with countries in Latin America that there
    has been a very beneficial effect in the surveillance and
    interdiction process that has been put in place by the
    Congress, or put in legislative intent by the Congress and put
    in place by the operational organizations in the Federal
    Government.
        This incident is certainly an unfortunate incident, but I
    think from the Treasury Department's point of view and
    particularly from the Customs Department point of view, the
    idea of helping other countries to reduce the production and
    transportation of illegal and harmful drugs into our own
    society is a useful and beneficial thing to do and I think the
    record clearly shows that.
        Senator Campbell. I do not want you to say anything in the
    committee that would jeopardize any kind of investigation, so
    that is an adequate answer. Thank you. I appreciate that.

                       IRS Computer Modernization Program

        Mr. Secretary, your budget is pretty lean this year. Its
    increase over the current fiscal year is only about 5 percent,
    which is enough to maintain current levels and pay for the
    automatic employee pay raises, which are certainly important.
    Yet, there are a few big-ticket items. One of them is $397
    million for the next phase of the IRS computer modernization
    program, and as you know, we put a ton of money into the IRS
    the last few years to have them upgrade their systems.
        How is the Treasury Department keeping tabs on the progress
    of that project, to make sure that we do not make the same
    mistakes we made in the past in funding big-ticket items for
    IRS that were not compatible with the ongoing systems?
        Secretary O'Neill. Mr. Chairman, as you know, there is a
    process in place with an independent outside review group
    headed by Larry Levitan, and the Secretary of the Treasury by
    statute is a member of this group. I have had an opportunity
    now to attend two of their oversight meetings and to personally
    ask questions about the milepost for implementation of systems
    improvements that Charles Rossotti has designed in concert with
    the people in the IRS.
        So I personally had an opportunity to look at this on an
    ongoing basis. As recently as Monday of this week, I spent an
    hour and a half with Charles Rossotti to talk with him about
    the progress and, in fact, to push hard on the question of
    whether there is not a way that we can move even more quickly
    than what has been in the plan and what has been discussed to
    achieve higher levels of performance in executing IRS
    responsibilities, and in addition to that, there is an ongoing
    administrative process and review process inside the IRS and
    inside the Treasury to keep track of this.
        I am aware that large amounts of money were provided over
    the last ten years, apparently not to good effect, supposedly
    for achieving some of these same purposes. And so I would say
    to you there is a great sensitivity in the Treasury and in the
    IRS and personally in Charles Rossotti to using the taxpayers'
    money wisely and to actually producing the foundation systems
    capability to discharge these duties, which involve, in one way
    or another, every American citizen.
        So I feel good about the review process and as I have sat
    for several hours and listened to the technical experts talk
    about what they are doing, I guess I find some comfort in the
    news not always being good, because when the news is always
    good, sometimes you are very disappointed when you get to the
    end of the process and find out you have got interim reports
    that are too good to be true. I am not finding that in the work
    that we are doing with this review committee.
        There are acknowledgements of delays of a month or 6 weeks
    in the pieces coming together, which means that there is
    pursuit of inadequate performance and working with the
    contractors as the pieces are coming along. And at least for
    me, with some expertise in matters of systems and computer
    programming, this is developing in a way that I think will
    provide satisfaction to the Congress that the funds are being
    used wisely and in an intelligent way.
        And again, I would say to you my intervention and
    involvement with Charles and the people at the IRS so far has
    been to question whether there is not a way that we can advance
    the state of activity so that we can more quickly get to a
    point that we can say, we have a perfect administration of the
    Internal Revenue Service laws and the code and that we are
    collecting every penny that people are supposed to owe, but we
    are doing it respectfully. But nevertheless, we are doing it
    and we are operating at a service delivery level that would be
    agreed is the highest service delivery one could find in public
    or private service. I think we are not there yet, and frankly,
    we are not moving fast enough for my taste. It is an ongoing
    conversation with Chairman Rossotti.
        I must say one other thing. I think the country is very
    lucky to have a person of Charles Rossotti's stature and
    intelligence doing this work, a person such as Charles who has
    a profound understanding of U.S. Government processes from the
    days when he was a whiz kid at the Defense Department in the
    late 1960s and then to become the organizer and the creator of
    American Management Systems, a corporation of over $1 billion
    worth of annual revenue, and doing exactly the kind of work he
    is doing as a Commissioner of IRS is a wonderful testimony to
    the good spiritedness of American systems, particularly in this
    case Charles Rossotti, and to his personal commitment to make a
    difference for the country.
        Senator Campbell. That question was prompted by a press
    report I read the other day, saying how much money the IRS will
    not be able to collect this year because of inadequate funding
    for the manpower. I view Mr. Rossotti as you do. I think they
    have had a major transformation since he has taken over and I
    am very proud of the work he is doing. I think he is doing a
    fine job, considering he would be somewhere else making a lot
    more money in the private sector. To give up that time to do
    public service, I think was just terrific and we are lucky to
    have him in government service.
        What I want to do is try and limit maybe each of us to 5
    minutes and go back and forth so everybody has a chance before
    we have to run off. Senator Dorgan, did you have some
    questions?
        Senator Dorgan. I do.
        Senator Campbell. Go ahead. We will just switch off every
    few minutes.
        Senator Dorgan. Mr. Secretary, again, I indicated to you
    previously, thanks for offering yourself to serve this country.
    You have a very distinguished background and we appreciate your
    service.
        I want to ask a series of questions, and this is an
    opportunity for us to talk not just about money but about
    policy and so I will ask about both.
        First, let me say I share your feelings about Commissioner
    Rossotti. I think he is a very talented fellow. We are lucky to
    have him. Having said that, of course, the term IRS
    modernization is almost an oxymoron, almost a contradiction. We
    have been talking about IRS modernization forever and it just
    never seems to happen. It is nowhere close to being able to do
    what a credit card company can do when you call up and they go
    into the file and tell you what the answer is. The IRS does not
    seem to have that capability.
        But recent stories, Washington Post article dated April 4,
    2001, says that Treasury investigators posing as taxpayers--you
    are familiar with this, I am sure--over a 4-day period made 368
    random test calls of the IRS toll-free number and gained access
    only 37 percent of the time and received incorrect answers 47
    percent of the time. Clearly, that is unacceptable, to you, to
    me, to Congress, I assume to Commissioner Rossotti. What is
    being done to respond to that?
        Secretary O'Neill. Well, as you know, I believe, from the
    Treasury Department budget request this year, we are asking for
    the next block of money to continue with what has been an
    agreed and, I think, program worked out with the Congress, in
    fact, to tend to the continuing modernization of the IRS, and I
    think that is all well and good. At the moment, I do not have
    personally a better idea about specifically what we should do
    with modernization in the sense that Charles Rossotti has
    developed it now over the last few years. But I do have
    continuing engagement and conversation with Charles and with
    other people in the Treasury and with some of you, which I
    would like to do more of, around this proposition.
        I believe, as I have been saying frequently, that every
    word in the 9,500 pages of the tax code has some justification
    and sponsor behind it. Otherwise, it would not be there.
    Ninety-five hundred pages of very fine print. But having said
    that, I believe when you take the whole 9,500 pages and put it
    together, it is an abomination. It is the equivalent of asking
    people in the IRS to execute this 9,500 pages, it is the
    equivalent to giving people a glass wall that is 40 feet high
    and telling them, whatever their human limitations are, they
    should climb up it every day, maybe 10 or 15 times, just for
    the exercise.
        It is an awful thing, I believe, to ask human beings to do
    an impossible thing, and I think, in fact, administering the
    9,500 pages in the IRS code on a failsafe basis, which you
    would do in a private sector activity so that you never, ever
    make a mistake, I would submit to you is impossible. I do not
    care how much money we spend in educating IRS people on the
    other end of a telephone. If you can imagine being the subject
    of a random telephone call from any one of more than 200
    million adult Americans with that person being able to ask the
    most complicated question out of a tax return that is maybe 700
    pages long and expecting an IRS person on the other end to be
    able to immediately zero in on your answer, I think is clearly
    an impossibility. It screams out for rationalization.
        I am sure you have the same experience I do. If I go out to
    any audience in the country and talk about tax code
    simplification, you are guaranteed that people will stand up
    and applaud long and loud about the idea that we are finally
    going to give the American people back a tax code that most of
    them can understand and do not need expert financial assistance
    to help them respond to the most consistent interaction they
    have as citizens with the Federal Government.
        Now, I have started a conversation inside the Treasury
    about what it is that we could recommend to the Congress to
    change the administrative tasks that exist in the IRS so that
    it is more likely that we can always answer the phone on time
    and we can always provide the correct response. Simplification
    is part of the answer. Training of people is also part of the
    answer. And it may very well be that in order to rise to the
    level of 100 percent performance, that more people are
    required.
        And I have said to Charles Rossotti, I would like to know,
    if we set a standard of 100 percent performance, how many more
    people do we need in the IRS to meet that outside standard, and
    frankly, he has been a little shocked that I would even ask the
    question, because it seems that we have had a tradition in this
    process of accepting the notion that the performance levels
    that you report to me are okay.
        I must say to you, I would like for--once I am satisfied
    myself that there is not something else we can do, I would like
    to put the burden on the Congress to say, we are not prepared
    to provide the resources that are necessary to discharge the
    laws of the United States as they have been written, rather
    than be engaged in a process that, it seems to me, is demeaning
    to the people who have been asked to do the work because it is
    impossible for them to do the work. I would like to very
    clearly center this question so that we are not just going
    along as though this is government work and whatever we do is
    good enough for government work.
        I, frankly, do not want to be part of that. I suspect most
    of you do not want to be part of that. And so I am going to see
    if I cannot, over the next several months, get these issues
    centered up so that, once and for all, we can be clear about
    what it is we are doing and what it is we expect of one another
    in discharging the laws of the United States.
        Senator Dorgan. Mr. Secretary, I appreciate that, but I
    frankly would think, and I do not know this to be a fact, but I
    would think it to be the case, that your investigators would
    not have gone to a telephone to phone the IRS to create a
    complicated question for them. I mean, you are not going to
    call the IRS and say, all right, I am doing a test here and I
    want to have your evaluation of how passive loss relates to
    foreign tax credits in a tax haven for a company that is doing
    the following. That is not exactly what you present to somebody
    on the telephone.
        You construct a series of questions that they should easily
    be able to answer and then evaluate whether you get different
    answers or the correct answers from different respondents.
    Apparently, the test showed about two-thirds of the time, they
    could not get through on the phone, and half the time, they got
    the wrong answer.
        So I do not want you to just lay it off on 9,500 pages,
    because that is not what your investigators would be testing
    telephone IRS service for. People with more complicated systems
    are going to accountants and others to have their taxes
    prepared.
        But I think what we should do is have a benchmark goal
    here. Put somebody in charge and say, look, you tell us what we
    need to do to get to 80 percent response when you are calling,
    so that you are getting through at least 80 percent of the
    time, and you ought to be able to expect 80 to 90 percent
    accuracy if you are calling the people that are administering
    the law. So we ought to find a benchmark that we want to meet
    and then put the resources and people in place to meet it, and
    if they do not do it, say we will find some new people that
    will, and----
        Secretary O'Neill. Senator, I would stipulate that except
    for one thing. I do not know why we want anything less than 100
    percent.
        Senator Dorgan. Well, I am for 100 percent, but if we are
    only half right and we only get there a third of the time, we
    are so far away from our goal, we need to at least start
    somewhere. I guess I would just encourage Treasury and the IRS
    to report to us on what are the objectives in the next few
    years. This is not a problem that has arisen under your watch.
    This is a problem that has occurred for 10 and 20 years and we
    need to fix it and I think you are the kind of person that
    comes from a background that can fix this.
        Let me ask you briefly about, first, the Olympics. I have
    four or five questions to ask and I will not spend a great deal
    of time. I know that my colleague has questions, as well.

                              2002 Winter Olympics

        A recent compilation of appropriations for Federal support,
    U.S. Federal support for the Olympics, says that we are going
    to spend somewhere around $360 million in support of the
    Olympics, including, for example, $1.2 million for the National
    Weather Service for improved predictions. I am going to ask the
    Weather Service about that. They need a million dollars to
    improve predictions during the 2 weeks these athletes are
    meeting in Utah? I want to understand what that million dollars
    is going for and how they can improve them during those two
    weeks but cannot seem to do it the rest of the year, or is
    there an enhanced service that they are going to make available
    for athletic events and it only costs a million dollars for 2
    weeks? That is strange.
        But in your agency, we have, I believe, $45 million for a
    counterterrorism fund, and I would be the first to admit that
    when we have Olympic games on our soil, we want to make
    certain--and that would be the case anywhere in the world, but
    we want to make certain that we are not going to have a
    terrorist act that is going to threaten the lives of people and
    so we need to be prepared for that.
        On the other hand, the counterterrorism fund was created to
    respond to unanticipated events and we have put money in that
    fund. The Olympics are not unanticipated, and so it appears to
    me that we are spending money out of a fund that was to be set
    up primarily for unanticipated events for something that we
    well know is going to happen and probably ought to be funded in
    the regular course. Can you give me your thoughts about the
    amount of money we are spending in public support of the
    Olympics through the Federal Treasury and especially that
    particular issue?
        Secretary O'Neill. Senator, I understand that this
    designation of the Secret Service as the lead agency for the
    Winter Olympics was done, I do not know, a couple of years ago.
    Frankly, I am mystified why, at the time it was done, that the
    funds were not provided to take care of this responsibility.
        What we have done in this budget is say that there are
    funds in the fund that you have indicated that we believe under
    a reasonable interpretation of the law could be used for this
    purpose, and rather than be hog-tied, because a good part of
    this money is necessary for preparation and we are running up
    to those Winter Olympics already, we have suggested to the
    committee and more broadly to the Congress that we should use
    these funds and we should do what is necessary through the
    Secret Service and the allied activities in the Treasury
    Department to ensure that we do not have an incident in the
    United States that is a blemish on these Olympic games. How we
    got here, why the Congress did what it did a few years ago when
    we saw these Winter Olympics coming, I frankly do not
    understand.
        Senator Dorgan. Why do you not go ahead, Mr. Chairman.
        Senator Campbell. Along that line, I have a particular
    interest in it, since I am the only Member of the Senate that
    was on an Olympic team. Under the provisions of the Directive
    62, it was called, the Presidential Directive 62, the Secret
    Service is the lead agency and a number of other agencies also
    have some responsibilities. It is my understanding that the
    2002 Olympics costs, the Department estimated would be in the
    range of a little over $51 million, but the budget request for
    the Secret Service, the Customs Bureau, ATF, and so on, do not
    include any additional funding. So perhaps you could give us an
    idea of how the Department plans to handle those costs.
        And clearly, we know that since Munich, in which the
    members of the Jewish wrestling team were murdered by
    terrorists, that the Olympic games have become a focal point
    for terrorism because they get international publicity from
    acts of terrorism. So we have to be involved. I think most of
    us know that. But how are we going to cover that?
        Secretary O'Neill. It is our intent to use the
    counterterrorism fund and it was my impression that there has
    been some conversation with committee staff about using this
    approach to make sure that we do have the funds and they are
    available in that fund.
        Senator Campbell. You may have the funds in some other part
    of the budget that is going to be transferred, but as I
    understand the request, there was not a request for that $51
    million.
        Secretary O'Neill. There is not a line item, but my
    understanding is there is enough flexibility in the
    appropriating language of the counterterrorism fund that we can
    use those funds for this purpose.
        Senator Campbell. All right.
        Senator Dorgan. But I think that is the point I was making,
    that that counterterrorism fund is for unanticipated needs----
        Senator Campbell. This is not.
        Senator Dorgan [continuing]. And incidentally, my staff
    advises me that particular approach was not established by
    Congress but by the National Security Council when they met and
    decided how they wanted to do this. It seems like an odd way to
    do it to me. It seems to me it would be more appropriate and
    straightforward simply to say, here is what we propose to
    contribute to meet our responsibilities with respect to the
    Olympics.
        Secretary O'Neill. Excuse me, Senator. This is an action by
    the past administration----
        Senator Dorgan. Right.
        Secretary O'Neill [continuing]. And frankly, I do not
    understand why they did it this way.

                           Use of Government Vehicles

        Senator Campbell. Let me just switch to something else, and
    that is the use of government vehicles. In the past, the
    subcommittee has been concerned for some time about the
    increasing number of vehicles that we are asked to provide or
    money to provide for the vehicles. We have been somewhat
    successful in getting the Department to take the initial step
    to establish a centralized motor pool, as you probably know,
    Mr. Secretary. I suppose that is working pretty well, but I
    noticed that additional funding is being requested to enhance
    that system. Have you had a chance to review that system and
    can you tell the committee what you intend to do, how those
    vehicles will be handled?
        Secretary O'Neill. You know, it is an area that I kind of
    stumbled into inadvertently because I had a request----
        Senator Campbell. So did we.
        Secretary O'Neill. I had a request come to me to--as I
    understand it, I have the sole authorizing capability for
    people, for example, to use government vehicles for home-to-
    work transportation, and I had a request saying, will you
    please give us this kind of an authorization, and it tumbled me
    into this whole area of how many cars and vehicles do we have
    and what are their character and what are their appropriate
    uses and what are their special characteristics.
        I was amazed to find how much of this there is, and it
    caused me to write a note on a memo that I had saying, as I
    establish my residence here, I am providing my own home-to-work
    transportation, and it seems to me that is not a bad model for
    everyone. I understand that there are so-called call-out
    requirements when law enforcement people really do have a need
    to have a specially equipped government vehicle to go directly
    from their home to the scene of an emergency, and it seems to
    me those are very appropriate circumstances.
        But it also seems to me that the prejudice ought to be that
    government vehicles are used for directly and clearly
    identified work activities and not home-to-work activities
    related to hierarchical status in an organization or tradition
    or anything else, and so I am pressing on these issues,
    frankly, with a prejudice that says less is more from a
    taxpayer's point of view, and that prestige and the rest of
    those things should not play in the question of how we use
    vehicles that are provided for official government business.
        I am not prepared to tell you yet that we should have less,
    but I suspect I will be able to do that in a while.
        Senator Campbell. I might tell you, I drive a 1980 Plymouth
    with a cracked windshield and a dented fender to work and I
    have always had some concern about the amount we spend on some
    of the vehicles.
        Senator Dorgan. Mr. Chairman, you might want to confess,
    however, that you have a brand new motorcycle.
        Senator Campbell. I am not talking about the motorcycle. I
    knew you would bring that up.
        Senator Dorgan. And I see it parked in front of the Capitol
    with the red, white, and blue----
        Senator Campbell. I should have kept quiet.
        Senator Dorgan [continuing]. And it is not inexpensive.
        Senator Campbell. I know. The bank and I like it very well.
        Senator Dorgan. That is a gorgeous piece of equipment.
        Senator Campbell. Let me say, there are different kinds of
    vehicles, obviously, in the Federal inventory, and I think that
    the automobile, the use of automobiles is one thing, and I know
    you are on top of that, but there are other kinds, emergency
    vehicles. I remember a couple of years ago that we even had a
    request from one of the Federal agencies for a kind of a
    private war wagon, you know, one of the armored, bulletproof
    kind of vehicle for his personal use. Some of those vehicles,
    you do not just park them on the street. I mean, they have to
    have a supporting staff, they have to have a secure garage,
    they have to have a whole bunch of other things that go with
    that type of vehicle. So I would hope you would be particularly
    careful and interested in how those vehicles are used.
        Your turn or my turn? You got me distracted on the
    motorcycle.
        Senator Dorgan. Mr. Chairman, let me apologize for
    disclosing that you had purchased a new motorcycle, but----
        Senator Campbell. It was for a good cause.
        Senator Dorgan [continuing]. It actually was for the
    inaugural parade, was it not?
        Senator Campbell. Yes, and it was for a good cause, my
    personal happiness.

                           Trade Policy and Sanctions

        Senator Dorgan. Mr. Secretary, let me ask you about a trade
    policy issue. You have a responsibility to publish regulations
    to implement legislation that I authored last year on the issue
    of sanctions. As you know, I feel very strongly that I want to
    lift sanctions with respect to food and medicine applying to
    every country in the world. I think it is immoral for this
    country to use food and medicine as part of any sanctions
    anywhere. You take aim at dictators and hit poor people, hungry
    people, and sick people. It is a thoughtless thing to do and we
    ought to remove the sanctions.
        So I am trying very hard, and have met with some success.
    We passed an empty shell of a bill last year dealing especially
    with Cuba. It has grip and will eliminate the use of food and
    medicine as part of sanctions with respect to most other
    countries, and that is progress. But with respect to Cuba, it
    is kind of an empty shell because of the restrictions on
    financing and so on.
        I want to ask you a policy question on that, because I am
    going to try again this year in the Appropriations Committee to
    remove the restrictions with respect to Cuba so that it is
    treated like all other countries, able to purchase from us or
    receive from us shipments of food. Can I ask how you feel about
    the issue of using food and medicine as part of sanctions?
        Secretary O'Neill. I think, philosophically, it should not
    be the intent of the United States to punish innocent people.
    And at the same time, I think it is true that the Congress of
    the United States has passed some laws that identify certain
    nations as, in effect, outlaw nations, and in that context has
    decided that we should have, in effect, no regular interaction
    with some of those designated places. I, frankly, do not
    understand what created that context, and so I guess I would
    not judge those who put those things in place. But it does seem
    to me philosophically that innocent people should not be hurt
    as a consequence of arguments or disputes or dislikes that
    exist between sovereign nations.
        Senator Dorgan. Well, I support the use of sanctions. I
    just believe we ought not ever include food and medicine as a
    part of the sanctions, and I think the wide majority of the
    American people believe the same. We are struggling to change
    that here. I would hope that as you think through that, you
    might give us your support. It just makes sense and we ought to
    decide we will never use food as a weapon.

                      IRS Income Tax Filing Simplification

        I want to talk about the issue of the cost of the Internal
    Revenue Service and propose to you a way to save money and hope
    that you might engage with me to do so. Previous secretaries
    have not seemed very interested in this.
        About 30 other countries that have income taxes allow
    return-free filing. We do not, by and large. And they do that
    by having an employee, whose sole income is the salary at that
    workplace file a W-4 form that has maybe a couple of extra
    boxes on it and the W-4 then determines what the withholding is
    and the withholding becomes the actual tax liability. No return
    needs to be filed on April 15, no long line at the post office,
    no extra paper for the Internal Revenue Service to have to file
    and process. It is a remarkably effective way to allow a choice
    for probably 70 million people in this country to not have to
    file an income tax return and still meet their tax obligation
    by having their withholding adjusted by a W-4 adjustment so
    that it becomes the actual tax liability.
        In order to do that, you have to have a threshold of de
    minimis interest and capital gains. I would propose in the
    neighborhood of $2,500 single, $5,000 married. It provides an
    incentive for savings and investment at that level. And you
    can, up to about $100,000 married, filing jointly, have a plan,
    an optional plan by which taxpayers, up to 70 million of them,
    can use what I call a fast and simple tax plan using a single
    rate up to that level, $50,000 single, $100,000 married, filing
    jointly, and save a great deal of money for the Internal
    Revenue Service, a great deal of headache for the American
    taxpayer, and dramatically simplify the income tax compliance
    for a lot of Americans.
        I have a plan that I have introduced here in Congress with
    Senator Judd Gregg and Senator Dick Durbin. We have not been
    able to get much interest from Treasury because Treasury is,
    with all due respect to all the great people that work there,
    kind of institutionally muscle bound on these things. There is
    a way of doing things, and by God, that is the way we have
    always done them and that is the way we always want to do them.
        Would you, because you have, I think, a kind of fresh
    perspective about a lot of these things, would you take a close
    look at this plan with us and see if you would not agree that
    it makes a lot of sense to save time and effort by the American
    people and save money by the Treasury and IRS and simplify this
    system at least for perhaps 50 to 70 million Americans? Would
    you be interested in that?
        Secretary O'Neill. Senator, in getting ready for this
    hearing, I had an opportunity to look through lots of
    background material and I saw this idea. I guess I should tell
    you parenthetically about experience that I have over the last
    40 years or so where it seemed to me there is such a clear need
    for the kind of change that you are proposing, and I am a
    maverick kind of person, so I have lots of these kind of ideas
    and I have too frequently experienced people saying, that is a
    really brilliant idea, but here are the 40 reasons why we
    cannot do it.
        So I will commit to you that I will find out, what are the
    reasons why we should not do this, because on the face of it,
    it seems at least directionally correct and consistent with
    what I said to you myself earlier about the need to press on
    simplification so the tax code, in fact, can be administered.
    We will have to find out, what are the fiscal consequences that
    we might suffer as a consequence of going in this
    simplification.
        When I hear bypassing $2,500 or $5,000 worth of income and
    we are not going to tax that, it, frankly, makes me worry a
    little bit because I want to make sure that we have enough
    money to pay for all the things that members of Congress would
    like to have as program activities.
        But, you bet, I will commit to you I will get deeply into
    what this idea is about and with a prejudice of saying, I would
    like to do this. Tell me why it is not a brilliant idea that we
    should pursue.
        Senator Dorgan. I hope that we could meet on it at some
    point. I would like to call and meet with you. I will just say
    that when you talk about a de minimis on interest and capital
    gains in order to allow this to happen, that is simply part of
    a tax cut. You decide how you want to cut taxes. This is
    another way to do it.
        And when you talk about making room for other expenditure
    needs, that is something we have been debating here for the
    last month or two and will until we finish the budget and
    decide what kind of a tax cut we are going to have. This ought
    to be part of that discussion, because it is the only idea here
    on Capitol Hill that really addresses simplification. Everyone
    wants it. Everybody talks about it. No one does anything about
    it.
        I want to ask you about trade in just a moment, one
    additional point, but I want to certainly have the chairman
    continue his questioning.

                           Trade Policy and Sanctions

        Senator Campbell. Let me say that I agree with Senator
    Dorgan about the use of the sanctions. They are okay when they
    work. Unfortunately, we do not have a way of monitoring many of
    our sanctions or enforcing them. If we try to do something good
    for children or sick people in the countries that we have
    sanctions against, we do not have a way of distributing the
    things that we want to give them, and so we end up sending
    medicine to the children of Iraq and they end up being used for
    the Red Guard or something and I think that is the weakness.
        In the meantime, it sometimes hurts our manufacturers and
    farmers more than it hurts the people we are putting the
    sanctions on, so they have proven to not work very well unless
    you have some international compliance, and what happens is we
    put sanctions on them and the country with the sanctions, they
    simply buy Canadian wheat and they buy manufactured goods from
    somebody else and it collapses. It does not work well.

                       Treasury Incident Reporting System

        But let me get back to a couple more questions. In your
    budget, there has been $400,000 requested to develop an
    information system that will track and maintain records of
    occupational injuries and illnesses. I guess there has been
    some action taken to resolve them, but do you now have in place
    some kind of procedure to track conditions that are associated
    with an unsafe environment? I can believe ATF and some agencies
    have an unsafe environment out in the field, but would you
    expand a little bit on that?
        Secretary O'Neill. Yes. Thank you, Mr. Chairman. Indeed, we
    do have a process that has been put in place. In fact, there is
    now a computerized capability to keep track of incidents that
    occur to Treasury employees around the world and it was
    instituted for the first time, I think, on the 26th or 27th of
    February.
        Frankly, it comes from my experience where I was before
    that if leadership pays attention to the health and the well-
    being of the employees and puts in place a data capturing and
    monitoring system and information sharing process with all the
    employees, that it is possible to, over time, achieve a
    workplace where people do not get hurt at work.
        And to give you some contrast from real life facts, last
    year, the place that I was before, where there were 140,000
    employees, nearly the same amount as the Treasury but in 36
    countries and 350 locations, there were 207 individuals out of
    a population of 140,000 who had a safety incident at work that
    caused them not to be able to come to work the next day. The
    Treasury Department last year, with nearly the same number of
    employees, had something over 2,700 people, more than ten times
    more people, hurt at work, in spite of the fact that in the
    benchmark place, there is metal at 2,000 degrees and huge
    moving machinery. While we do have some manufacturing exposure
    at the Treasury, it is nothing like that, and this is not a
    record in the private sector that everyone has. In fact, it
    took 13 years to get from where that previous organization was
    to where it is today.
        But I have no doubt that we at the Treasury can accomplish
    the same thing, and an important part of being able to
    accomplish an effective safety--an incident-free workplace is
    the necessity of information on a real-time basis that is
    shared with every employee so that we can learn from each
    other.
        And I would further say to you, it is my hope and
    expectation that we can do this for less than $400,000. Four-
    hundred-thousand is what I hope to be an outer limit on what is
    required to produce this result.
        Senator Campbell. I laud the efforts. I guess I was just a
    little bit puzzled, because the range in your Department of
    potential workplace injuries is so darn broad that I do not
    know how you get a handle on that. It is one thing to get an
    injury from operating a computer at the IRS. It is a whole lot
    different than being an ATF agent trying to arrest some
    subversive drug dealer or something. I did not know if that all
    comes under one heading when you are trying to compile
    statistics and make a safer environment or not, but I will move
    on to something else, also dealing with your budget.
        I might mention, I was just reminded by staff and I want to
    interject this, that today is ``Bring Your Daughter to Work
    Day'' and my daughter is clear out in Colorado, but I note with
    interest that Senator Dorgan's daughter is here to witness our
    proceedings, so let us not disappoint her.
        Senator Dorgan. Thank you.

                              Labor Infrastructure

        Senator Campbell. Let me ask you, you have requested $5.659
    million for labor infrastructure. What does that mean?
        Secretary O'Neill. What that means is that, again, this is
    part of, conceptually, the same thing I was saying to you about
    IRS. The Department has had authorized positions and it has not
    requested the amount of money that is required to fill the
    authorized positions. I would say to you, for me, this is a
    placeholder.
        Senator Campbell. It is a placeholder?
        Secretary O'Neill. It is a placeholder, because I want to,
    frankly, satisfy myself that every one of the existing filled
    positions is necessary and has a good rationale, and I am told
    that these resources are required to fulfill our statutory
    responsibilities. I will make sure that, in fact, that is my
    judgment, as well, one by one. But it does seem to me
    consistent for us to say, we are going to ask for the amounts
    of money and positions that we believe are necessary to
    completely fulfill the statutory responsibilities and this
    money would permit us to do that.
        Senator Campbell. I see. Every year, we are going to have
    to look at every single dollar we spend and we will probably
    need a real strong definition of what placeholder means when we
    have to start lopping some things off that we do not
    necessarily want to lop off.

                       National Threat Assessment Center

        In fiscal year 2001 Congress provided $6.4 million for the
    establishment of the National Terrorist Asset Tracking Center,
    which will be housed in the Office of Foreign Assets Control.
    Can you tell us what progress has been made on that effort?
        Secretary O'Neill. As I understand it, the pieces are being
    put in place and we are operating against a plan that would
    incrementally bring this up to a full state of operation. But
    again, if you do not mind, I would say I have been struck as I
    have worked my way through the budget to find what I would
    consider to be a relatively low expectation level for
    implementing things or for responding to requests for reports
    from the Congress or implementing regulations for laws that you
    all have authored and expected, I think in good faith, to be
    implemented fairly quickly.
        I was astounded, for example, to read that we agreed to do
    a report 6 years ago and we are now saying that we are rounding
    the corner on finally being able to provide a report that we
    agreed to do 6 years ago. I just do not understand that.
        Senator Campbell. Welcome to Washington.
        Secretary O'Neill. I would like to change the idea that
    that is the way we do business here. And so even in this
    particular area that you have asked about, I would like to see
    us have an expectation that if there is serious public work
    that needs to be done, we do it against a standard that says we
    do not know why we did not get it all done yesterday and not
    forgive ourselves with slow implementations. If there is an
    important public purpose to be served, we ought to provide the
    money and get at it.

                ATF National Lab Center and Fire Research Center

        Senator Campbell. One last question and I will submit the
    rest of my questions in writing to you, and that is, Congress
    has provided a total of $83.9 million for the construction of
    the ATF National Lab Center and Fire Research Center, as you
    probably know. But there is going to be apparently a
    significant funding shortfall. How do you plan to deal with
    that?
        Secretary O'Neill. I think there is three-part financing
    for that and it is going to come out of flexible funds. I think
    there is a $6 million request in this year's budget and there
    is some money coming out of the counterterrorism fund so that
    it is going to be taken care of.
        But again, the thing that is striking to me about this is,
    in my previous incarnation, if I had a $60 million project and
    it turned out to have a $25 million overrun, I would shoot
    somebody, and so----
        Senator Campbell. You cannot do that around here.
        Secretary O'Neill. Well, I think maybe we ought to
    institute a tradition that says we expect to get what we
    bargained for, almost without fail, and I, frankly, do not
    understand how we could be that far off unless there were major
    changes in the specifications of what it was agreed we were
    going to try to do. I, frankly, do not understand that level of
    performance.
        And again, I will commit to you, for things that we have
    undertaken, that we say we are going to build a major building
    or training facility or something, we will bring it in on
    budget, and we will tell you at the outset how much it costs in
    fact, not some starry-eyed estimate, knowing full well that we
    are going to have to come back to you for more, because I would
    like for our word to be our bond, and when we tell you we can
    do something for an amount of money, we should do it.

                            New Buffalo Nickel Coins

        Senator Campbell. We should. That is the last question I
    will ask. I might just tell you that, not allied directly with
    your job, but certainly since the Mint is part of it, we are
    going to be stamping the new buffalo nickels next week in
    Denver, Colorado, as you probably know, which was a 5-year
    effort to raise money for the Museum of the American Indian and
    they estimate it might raise between a half and three-quarters
    of a million dollars for the construction of that building. The
    new buffalo nickel, as you might guess, is not the size of a
    nickel, but I guess it will still be worth a nickel.
        I had no idea that it could be so doggone complicated just
    to restamp some old coins, but boy, did we go through a bunch
    of hassles with that because the law has changed. Now, for
    instance, it has to have ``In God We Trust'' on all the coins.
    The original one did not. To make matters worse, the Mint lost
    the dyes of the original one, and so they did not have the
    original pattern to go by and it was a five-year job.
        I know your schedule is such that you will not be able to
    come out to it, but we will be thinking of you, and thanks to
    all the Treasury people that helped us put that together and
    get it through Congress.
        Senator Dorgan, did you have a few wrap-up questions?
        Senator Dorgan. I do, just a couple of additional areas.

                                Sacajawea Dollar

        Mr. Secretary, have you ever been shopping and been given
    in change a Sacajawea dollar?
        Secretary O'Neill. No. I had to ask for one.
        Senator Dorgan. I have the same experience. I wonder if the
    chairman has received in change a Sacajawea dollar.
        Senator Campbell. The only ones I have are the ones I
    pressed the button to stamp in Denver as the chairman of the
    subcommittee. I have not seen any since in the marketplace at
    all.
        Senator Dorgan. I was not going to ask you about that, but
    because the chairman mentioned the buffalo nickel, I am kind of
    distressed about that. We spent a lot of time on that. We
    created the so-called Golden Dollar, produced a lot of them,
    and they are nowhere to be seen. Frankly, I think vending
    machine operators, consumers, and others would like to have
    them in circulation.
        Some say that they are being hoarded in one place or
    another, but could you take a look at that with the Mint and
    report to us what is happening and what can we do to see if we
    cannot put finally a dollar coin in circulation that works.
    This coin is the one to make work. It is one that people find
    appealing, but you cannot find it anywhere. Since we spent the
    money to produce it, why don't we find a way to see if we
    cannot make it usable and make them available in this country.
        Senator Campbell. Are there any regulations or anything
    dealing with how many you can buy or how many you can have? I
    mean, I think a lot of these are picked up by collectors. You
    can call them whatever name you want, but I think they are
    bought up in bundles and then resold at a later date for a
    profit, but there is nothing that prevents people from doing
    that, I guess, is there?
        Secretary O'Neill. No.
        Senator Dorgan. But the more we make, the less valuable
    they will be to those who collected them. My point is, at some
    point, you make enough so that they will be widely available in
    circulation, but I have never seen them.
        Secretary O'Neill. I will push on this issue. In fact,
    there really is a strange phenomenon, I think, because on the
    one hand, just as you say, the coins that have gone out there
    in the first round of circulation, people apparently loved
    having the uniqueness of that coin and so they take it home and
    put it on the shelf or they carry it in their pocket as a good
    luck piece or something. And so all the coins that have been
    shipped out there have disappeared into the hands of people who
    loved having the coin.
        At the same time, I am told, much to my surprise, in the
    background briefing material I was reading last night that
    there is a substantial inventory of these coins at the Federal
    Reserve distribution centers. I do not understand why it is
    that the Federal Reserve distribution centers are not pushing
    these out into the commercial bank distribution process, but I
    will find out and we will give the committee an answer.
        Senator Dorgan. While I am on the subject, just in one
    sentence, almost everyone has a huge jar of coins at home and
    we take them----
        Secretary O'Neill. I do.
        Senator Dorgan. You do and I do, and do you?
        Senator Campbell. I do not have one yet, but----
        Senator Dorgan. I hope you have got one.
        Senator Campbell. I am going to start one.
        Senator Dorgan. Would you? And you take them to a bank and
    they will not accept them, they will not wrap them----
        Senator Campbell. Do you not count them into rolls?
        Senator Dorgan. Why do you not find a way to get the banks
    to be required to accept coins and collect them and wrap them
    like they used to. If you will do that, I would certainly
    appreciate it.
        Senator Campbell. Have you had a chance to visit----
        Secretary O'Neill. Maybe it is a project we could enlist
    the Boy Scouts and the Girl Scouts of America in wrapping the
    coins and we give them something for helping to be an
    intermediary. We need some innovation here.
        Senator Campbell. It sure beats selling cookies.

                International Terrorism and Our Nation's Borders

        Senator Dorgan. Let me just mention two additional areas.
    We talked about terrorism and counterterrorism this morning.
    We, as you know, leading up to Y2K and all the great concerns
    about that, we arrested at a northern border, I believe in the
    State of Washington, some suspected terrorists, who I believe
    are still awaiting trial. With Mr. Bin Laden and others who
    would like to wreak havoc on the world, we need to be very
    concerned and careful about terrorism.
        We have all of this apparatus at our border concerned about
    terrorism and I want to show you the barrier that exists at
    most of my border ports. We have a lot of border crossings in
    North Dakota, and here is the barrier that exists in Noonan,
    North Dakota, for example, or Dunseith, North Dakota. At 9 or
    10 o'clock at night when they close, someone puts this cone in
    the middle of the road, they turn off the lights, and they go
    home.
        Senator Campbell. Very secure.
        Senator Dorgan. And that is our barrier at most of the
    northern ports. We have people who are polite enough when they
    come through and break the barrier to actually get out of their
    car, remove the cone, drive into the country, and then they
    stop and put the cone back, and good for them, except they are
    entering illegally. We have port after port after port after
    port at the northern border that is protected by an orange
    cone, and we are all concerned about terrorists and drug
    smuggling and all that sort.
        I would just ask you, as I have asked the Customs Service,
    to think through with us how we respond to this growing
    international terrorism threat and this problem, a fully
    inadequate barrier system made up of rubber cones. I will not
    ask for a response to that, but if you would just be aware of
    it, I would appreciate that.
        Senator Campbell. If you would yield for a moment, even if
    we did have some secure methods in the normal roads that come
    in, my gosh, that is such a long border, what would prevent
    them from just not using the road, coming in on sleds or
    snowmobiles or something else right through the woods?
        Senator Dorgan. Well, I am asking the questions at the
    moment.
        Senator Campbell. Oh, okay, I am sorry.
        Senator Campbell. I did not mean to distract you there.
        Senator Dorgan. That is a tough one to answer, Mr.
    Chairman.
        Senator Campbell. One thing at a time, right.
        Senator Dorgan. You are absolutely right about that, but
    because it is tougher in other areas ought not persuade us not
    to have appropriate surveillance and barriers in the ports
    where you do have authorized entry. The point you raise is
    another issue, as well, that we need to deal with.

                                 Trade Deficit

        Let me just mention one final issue, and that is the issue
    of trade. As Treasury Secretary, you have to be very concerned
    about the strength of the dollar, what is happening in our
    current accounts deficit, and so on. There are only a few of us
    in Congress who routinely go to the floor of the Senate and
    talk about trade deficits. We have a serious, growing,
    mushrooming trade deficit. The merchandise trade deficit is
    around $450 billion a year. Our current accounts deficit is
    swelling.
        I am sure you read ``The Lexis and the Olive Tree'' by Tom
    Friedman in which he describes the electronic herd. If I had
    your job, I would sit on pins and needles worrying that, one
    day, someone will make a judgment in the electronic herd that
    the current account deficit in this country is a serious
    problem and start moving investment away and weakening the
    dollar and causing all kinds of chaos in this country's
    economic system.
        No one seems to care much. We muscled our way through this
    issue on the fiscal policy budget deficit, spent a lot of time,
    gnashed our teeth and had a lot of anguish about it, and
    finally got through it, and now we have this mushrooming trade
    deficit and nobody seems to give a damn.
        Do you worry about it? Do you worry about its consequences,
    because it is getting worse, not better? I know last month it
    was marginally better, but I am telling you, it is historically
    getting worse, worse, and worse, not better. Can you give me
    some description of that? That is not a money issue----
        Secretary O'Neill. It is a very complicated question. Let
    me tell you how I think about it. First of all, I think we
    should be very glad that our economy is so admired by people
    around the world that this is where people want to send their
    investment capital because we treat it better than anyplace
    else in the world, which means on a risk-adjusted basis,
    investors around the world believe that they can get a better
    return on their capital at the same risk level than any other
    place in the world. This is a much to be desired condition for
    the United States.
        Now, how do we get there? The answer is, we are very good
    at what we do in this country in terms of producing value, and
    over the last 15 years, I would say especially over the last 15
    years, we have opened up an appreciable gap between ourselves
    and the other nations of the world in terms of our ability to
    produce high productivity, high value creation as compared to
    other places around the world.
        And so, frankly, I am not concerned about the current
    account deficit so long as it is based on the United States'
    relative competitive economic position. But it does make a
    singularly important point, which is this. We must keep racing
    ahead quickly with productivity improvement in this country at
    a rate faster than what one can find in other places in the
    world in order for those holders of capital not to decide to go
    somewhere else.
        Senator Dorgan. But is this not like a bank perception is
    reality? If people perceive a bank is in trouble, they run on
    the bank, and the electronic herd description is one that
    applies the same approach, it seems to me, to economies. I
    agree with everything you have said except that I think we need
    to be very concerned about the growing trade deficit.
        Secretary O'Neill. I will tell you another question that I
    have, and it is a question about the way that we think about
    these issues and problems. If you look for the parentage of the
    idea of the current account deficit, you will find it in work
    that was done in the late 1930s and early 1940s by an economist
    named Simon Kuznets and his associates, which was the creation
    of the whole set of ideas of national income accounts and gross
    domestic product and the national product and current account
    deficits and national income accounts, the subsets of the
    national income accounts.
        In the days when the United States was an, if I can say it
    this way, an isolated, nationalistic, kind of self-contained
    economy, I think these ideas or ways of keeping score were
    appropriate. But I would submit to you, in the world that we
    live in now, I am not so sure that the devices and measures
    that we use to think about these things are any longer
    appropriate, and let me deconstruct the current account deficit
    idea in this way.
        If you took those same set of ideas and applied them on an
    internal basis to the United States and looked at where the
    current account deficits are among and between the 50 States,
    you would be horrified to find that there are enormous current
    account deficits between and among the 50 States and we do not
    worry about that.
        Now, there is an article which you may have seen 2 weeks or
    so ago by Bob Solow, the noted Nobel economist, and Franco
    Modigliani, another noted Nobel economist, raising concern
    about the current account deficit and about the implication of
    the proposed tax changes and fiscal policy on the current
    account deficit. Since Bob is an old friend of mine, I called
    him up and said, Bob, I care a lot about what you think and I
    am calling to find out if this is political economics that you
    wrote in the New York Times or if you really think I should be
    more concerned than I am about the current account deficit. And
    at the end of the day, he chuckled a little bit and said,
    ``Well, maybe a little bit more concerned than you are.''
        But there is a school of thought out there that thinks we
    do not pay enough attention to the current account deficit. I
    think we are paying an appropriate amount. But I would say if
    we need an emphasis, we need an emphasis on sustained real
    growth of economic activity in this country at the 3 or maybe
    even 4 percent real level and we need productivity improvement
    at the 3 or 4 percent level on an ongoing, sustained basis,
    which I think we can do.
        And then the current account deficit will sort itself out,
    and frankly, maybe we can get our friends like Bob Solow and
    Franco Modigliani and the other noted economists in the country
    to reinvent the way we keep score and think about these things
    in a way that is consistent with economic ownership and
    movement of assets around the world, and then I think maybe we
    would not be quite as fearful as some are about this issue.
        Senator Dorgan. I will tax the chairman's patience if I go
    further. Let me just say that I have studied and taught
    economics, but I certainly have not won a Nobel prize. I,
    however, think that we are headed towards very serious trouble.
    I think our trade policies are disastrous, just disastrous, and
    I think the growing, mushrooming trade deficit will come to
    haunt this country unless we decide to do something about it.
        You and I need to have longer discussions. I want to talk
    to you about Canada, Mexico, Japan, China, and the European
    Union, and it will take a lot longer time than this to do it.
        Let me make one final comment. I recognize this budget is
    really not yours. You have not in just several months been able
    to put all of your fingerprints on what you want your agency to
    be, and I recognize that and I look forward to working with
    you. We want the same thing for our country. We want this
    country to do well and succeed. I want your agencies to do well
    and succeed and I look forward to working with you.
        Secretary O'Neill. Thank you very much.
        Senator Campbell. Senator, you are closer to getting a
    Nobel prize in economics than I am. I majored in P.E.

                                Energy Problems

        But let me also make a comment. This is off the subject a
    little bit, but we are talking about the deficit, and I agree
    with Senator Dorgan. I think we are heading for some deep
    trouble because it keeps going up. But I also note with great
    interest some of the numbers we are getting in the Energy
    Committee, that we are spending $300 million a day on foreign
    oil and that one-third of our deficit is related to oil
    imports. I will tell you, unless we get more energy
    independent, I do not know how you turn that deficit around.
    You simply cannot use more and more energy, as California is,
    and not have more production of energy. I mean, it is bound to
    collapse. Sooner or later, it is going to collapse.
        We were down in the production of oil last year by 14
    percent and our use went up by 17 percent. That simply is not
    sustainable. It is not sustainable. And so what happens is we
    get more and more dependent on foreign oil, which tends to
    drive that trade deficit worse and worse every year.
        I do not know how to turn that around. There has to be
    somebody smarter than me, and perhaps smarter than you, and
    certainly it is not in your purview to fix the whole thing,
    either, but clearly, productivity is related to energy and if
    we do not find some way to increase the energy, we are not
    going to increase productivity.
        I mean, you see blackouts and brownouts in California. We
    have energy-related companies, they just simply have to shut
    them down. They cannot operate them. They say that the computer
    industry alone is in deep trouble in California because of
    that. We have been able to buoy that up a little bit because
    they have been able to purchase, with emergency appropriations
    through the legislature, they have been able to purchase some
    power from the rest of the States that are in the same grid,
    including Colorado and Washington, Oregon, and so on, but that
    will not last forever, either. The day will come when they
    simply have to produce more energy and not just simply be
    reliant more and more on foreign energy if we want to turn that
    deficit around.
        Mr. Secretary, we thank you very much for appearing.
        Secretary O'Neill. Thank you.

                         Additional Committee Questions

        Senator Campbell. We will be looking forward to working
    with you. I might say that we will submit some questions. Other
    members have some and I have some. If you could promptly answer
    them, we would 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 Ben Nighthorse Campbell

                                   YEAR 2000
        Question. You were recently quoted as saying that this
    Administration will focus on changes to the Social Security System as
    soon as tax relief is enacted. I am also told that you indicated the
    Administration will push for voluntary personal accounts. Would you
    care to expand upon that proposal?
        Answer. I share President Bush's goal of making Social Security
    stronger and more secure for this generation and for future
    generations. We must take action now to enhance personal retirement
    security by putting Social Security on a firm financial footing so we
    can keep our commitment to current seniors and also meet the needs of
    our children and grandchildren. Ownership, access to wealth and
    independence should not be the privilege of the few. They are the hope
    of every American, and we must make them the foundation of Social
    Security. Modernizing Social Security with voluntary personal
    retirement accounts will enable individuals to build financial wealth
    and retirement security in a way that the current Social Security
    system does not. Personal accounts invested in safe private financial
    markets will earn higher rates of return than the traditional system
    and help workers enhance their personal savings and their freedom to
    retire. Individual ownership of a real financial asset will protect
    against political risk over retirement investment decisions, providing
    more security for working Americans. Since at least 1926, the real
    return on a portfolio of equities held for 40 years has always exceeded
    the real return on a portfolio of government bonds held for 40 years.
    It's time to put the miracle of compound interest to work for all
    Americans.

                      TREASURY SECURE DATA NETWORK (TSDN)
        Question. Every establishment today is looking for a technology-
    driven process to transfer information through a secure data network.
    You have requested $3 million to enhance security of critical
    information systems. Will these funds be used for equipment?
        Answer. The $3 million provides the recurring costs under the SEAT
    management contract for operating and maintaining the system for 400
    users at a cost of $7,500 per user including the desktop equipment and
    much of the standard network components.
        Question. Will this upgrade be done in-house or will it be out-
    sourced?
        Answer. The management, design and security functions will be
    supported in-house. The majority of the standard equipment will be
    installed and maintained by contractors.
        Question. What are the out-year costs to maintain this system?
        Answer. The out-year costs are $3 million each year to support 400
    users. Under the SEAT management contract, the costs of operating and
    maintaining the system is approximately $7,500 per year per user
    including the desktop equipment and much of the standard network
    components. The SEAT operations and maintenance cost also pays for
    ongoing system maintenance, training, software upgrades, security, etc.

                       OUTSOURCING INFORMATION TECHNOLOGY
        Question. The cost for outsourcing information technology (IT)
    services has continued to soar over the years. Do you expect that this
    reliance on outsourcing will continue?
        Answer. Outsourcing is an effective and necessary response to
    address the relatively rapid growth and evolution of IT. Acquiring and
    retaining skilled information technology workers in the current labor
    market is a challenge that extends across all sectors of the economy.
    The shortage of skilled IT workers will likely increase, particularly
    with strong global and national economies and the relatively low
    unemployment rate. All of these challenges contribute to both the
    reliance and cost of outsourcing IT services.
        To meet these challenges, the Department recognizes that workforce-
    planning issues, particularly for IT, must be addressed. For example,
    the Department's CIO organization has undertaken initiatives to build a
    compelling retention program for its existing IT labor force. Some of
    these initiatives include a commitment to professional development
    through the CIO's Executive Potential Program, training opportunities,
    flexible work schedules, and telecommuting. The CIO organization has
    also conducted focus group interviews with IT staff members to identify
    factors that motivate retention. Additionally, through the CIO's
    Information Technology Workforce Improvement Program (ITWIP), the
    Department continually strives to develop comprehensive strategies for
    the recruitment, retention and development of Treasury's IT workforce.
        Question. Is it more cost effective to out-source rather than hire
    qualified ``IT'' staff?
        Answer. Outsourcing is expanding in both private and public sectors
    and is recognized as a necessity to keep pace with the constantly
    evolving IT environment. In many cases, outsourcing is beneficial in
    augmenting experienced in-house IT staff who have extensive knowledge
    of the organization and its processes. Outsourcing provides the
    Department with IT professionals and fosters a collaborative work
    environment with existing staff. The monetary benefits of outsourcing
    typically include reduced workload in the areas of human resources
    since the contractor hires, trains, and provides benefits for the
    employee. However, outsourcing should not be viewed as an alternative
    to hiring qualified IT staff but instead viewed as a necessary tool in
    providing access to a variety of technical candidates to address
    project workflow demands or procure specific technical skills.
        I noted that the request for the Bureau of Alcohol, Tobacco and
    Firearms contains sufficient funding to continue the operations of the
    50 Youth Crime Gun Interdiction Initiative cities. As you are aware,
    there have been concerns expressed about the management of these
    programs. Because they will not be working to expand into additional
    locations, ATF and the Department should have time to really
    concentrate on making the existing programs as effective as possible.
        Question. What steps is the Department taking to make sure that
    this $85 million effort is managed effectively?
        Answer: The Youth Crime Gun Interdiction Initiative (YCGII) is a
    focused component of ATF's firearms enforcement effort. In 1996, ATF
    created YCGII to develop better information about how youthful
    offenders obtain firearms and to use that information to arrest illegal
    gun traffickers and reduce youth gun violence. The initiative, which
    consists of partnerships with State and local law enforcement agencies
    in 50 metropolitan areas, involves the tracing of every crime gun
    recovered in those localities.
        To ensure effective investment of the program dollars associated
    with YCGII, we will continue the innovative use of technology to
    utilize the information cornerstone of crime gun data and to advance a
    collaborative enforcement effort. ATF will expand our collection of
    crime gun data gathered from YCGII cities. ATF will share these crime
    gun data with State and local law enforcement partners to assist them
    in their fight against firearms-related crime. ATF will use the crime
    gun information to focus investigative and enforcement activity on
    trafficking channels identified through analysis of the data obtained
    from YCGII cities. ATF will focus annual regulatory inspections of
    Federal firearms licensees tailored to subvert illegal channels of
    firearms trade.
        Finally, ATF will monitor and evaluate the results of firearms
    trafficking investigations to determine the magnitude of our impact on
    firearms-related violence. Such monitoring will be accomplished with
    assistance from the academic community. With several years of data
    collection now under our belts for many cities, and our increasing
    quality of information collected, we feel that trends and changes in
    these fields can be an indicator of our impact in this unique area of
    law enforcement. These include, but will not be limited to:
      --Reduction in the ``time to crime'' of firearms possessed by these
            violators, as this can tell us if we are forcing the illegal
            market buyers further away from legal commerce.
      --Reduction in the average number of guns trafficked per
            investigation, as this is indicative of ATF's ability to
            interdict trafficking schemes early on in their development,
            mainly through our advances in information technology.
      --Reduction in the percentage of persons under the age of 24
            illegally possessing guns of the total persons illegally
            possessing guns in a YCGII city.
              funding for customs automated commercial environment
        Question. The previous Administration consistently proposed funding
    for the Customs automation modernization project by establishing a user
    fee. That proposal was consistently rejected by Congress. This budget
    instead proposes direct appropriations for this effort. Thank you.
        Is a second installment of $130 million enough to keep this project
    moving forward?
        Answer. With the fiscal year 2002 President's Budget of $130
    million, the project will move forward. Customs will be able to finish
    increment one. Because the $130 million requested is less than planned,
    the modernization initiative cost will increase and the schedule will
    be extended. The cost increases are caused by several sources:
      --Increased development costs for prolonged software development
            activities resulting from software integration, testing,
            configuration management, and revisions to address operating
            system changes.
      --Hardware and software license and maintenance costs are covered as
            development costs until development is complete. Delaying
            development increases these costs.
      --Inflation costs.
      --Extended operation of Modernization office.
      --Extended operation of Prime integration contractor's management
            office.
                                     ______

                   Questions Submitted by Senator Mike DeWine

                    CONTINUED DUMPING AND SUBSIDY OFFSET ACT
        Question. Promulgation of the implementing regulations is a major
    concern for those seeking the speedy and full implementation of the
    Continued Dumping and Subsidy Offset Act.
        Can the Secretary identify whether the proposed regulations have
    been forward from Customs to Treasury?
        Answer. The draft Notice of Proposed Rulemaking (NPRM) just arrived
    at the Treasury and we are expediting internal review.
        Question. If yes, when such forwarding occurred and if not, when
    the draft will be forwarded?
        Answer. The forwarding of the draft proposed regulations from
    Customs to Treasury occurred on May 21, 2001.
        Question. What steps Customs taking to expedite forwarding to
    Treasury?
        Answer. Not applicable.
        Question. Which offices within Treasury will be reviewing the draft
    regulations?
        Answer. The draft regulations will be reviewed within Treasury at
    least by the Offices of General Counsel and Enforcement at Treasury.
    The Office of Enforcement will be responsible for coordination of the
    review of the regulations by other offices within Treasury. Customs
    review was coordinated by the Chief Counsel.
        Question. What steps have been taken to see that the review and
    clearance of the draft regulations for publication receives priority
    attention?
        Answer. The Offices of General Counsel and Enforcement are aware of
    the importance of promptly implementing this legislation.
        Question. Can the Secretary confirm that the regulations will be
    published for comment by July 6, 2001? If this cannot be confirmed, the
    Secretary is asked to establish a Treasury taskforce to expedite
    completion of the proposed regulations as quickly as possible and to
    provide a monthly report to this Subcommittee, and to be available for
    monthly meetings to identify problems with completing the process in a
    timely manner.
        Answer. Treasury will expeditiously review the regulations. If
    problems are found which could delay publication, the Subcommittee will
    be advised.
        Question. How long will the public be provided to comment on the
    proposed regulations?
        Answer. At least 30 days.
        Question. What is the target date for publishing the final
    regulations?
        Answer. The target date for publishing the final regulations is
    September 1, 2001.
        Question. If it is later than August 31, 2001, can the Secretary
    indicate how Customs will be able to comply with the statutory mandate
    of distributing all funds by a date ``not later than 60 days after the
    first day of a fiscal year from duties assessed during the preceding
    fiscal year''--i.e., not later than November 30, 2001?
        Answer. We believe that Customs will comply with all the statutory
    requirements of the bill.
        Question. What steps if any has Treasury or Customs taken to see
    that between the U.S. International Trade Commission and Customs,
    domestic producers are able to get clarification of what companies
    qualify and do not qualify as ``affected domestic producers'' ahead of
    the Commissioner of Customs publishing in the Federal Register the
    ``list'' referenced in 754(d)(2) of the Tariff Act of 1930, as amended.
        Answer. We have been in regular contact with the International
    Trade Commission (ITC) regarding their list of domestic producers. We
    have posted their original list on the Customs web site and will
    publish future additions to or clarifications of the list by the ITC on
    the web site.
        Question. If the answer is none, will Treasury include within its
    regulations prepublication process to permit clarification of the list
    where parties believe statutory criteria are not satisfied?
        Answer. Under the legislation, we believe it the ITC's
    responsibility to compile the list and transmit it to Customs.
        Question. If not, what steps are envisioned to permit an early
    resolution of this type of this issue?
        Answer. I am sure that, if necessary, we would alert the
    International Trade Commission or the Department of Commerce, as
    appropriate. The decision would be that of the other agencies, not
    Customs, which normally has no responsibility for antidumping or
    countervailing duty substantive matters. Customs performs a ministerial
    act by providing information to the responsible agencies, obtaining
    security, requiring deposits and collecting the AD/CVD duties that are
    assessed. As written, the Continued Dumping and Subsidy Offset Act
    (CDO) envisions that ``affected domestic producers'' with ``qualifying
    expenditures'' will submit evidence of such expenditures and that
    Customs will make ``pro rata'' distributions based on ``new and
    remaining qualifying expenditures.'' Since it is anticipated that
    generally there will be much larger qualifying expenditures than there
    are monies assessed, the term ``pro rata'' was included to provide
    guidance on how Customs would distribute amongst competing requests.
        As written, the CDO Act envisions that ``affected domestic
    producers'' with ``qualifying expenditures'' will submit evidence of
    such expenditures and that Customs will make ``pro rata'' distributions
    based on ``new and remaining qualifying expenditures. Since it is
    anticipated that generally there will be much larger qualifying
    expenditures that there are moneys assessed, the term ``pro rata'' was
    included to provide guidance on how Customs would distribute amongst
    competing requests.
        Question. Can the Secretary confirm that the proposed regulations
    will identify how Customs would intend for this language to work both
    with regard to situations where there are more qualifying expenditures
    than monies assessed and in the converse situation?
        Answer. The Notice of Proposed Rulemaking (NPRM) will address these
    issues.
        Question. Will the Secretary provide this Subcommittee with a
    letter by the end of May outlining how the Treasury sees challenges to
    decisions of the Customs Service being handled (e.g., statutory basis,
    court of jurisdiction, etc.)? Can the Secretary confirm that Treasury
    and Customs will take steps to minimize the need for litigation in the
    regulatory drafting process? If not, why not?
        Answer. Customs advises it has taken appropriate steps in an effort
    to minimize the need for litigation in the drafting of the Notice of
    Proposed Rulemaking (NPRM). It would be inappropriate for Treasury to
    comment on the question of court jurisdiction, as this is an issue for
    the Department of Justice, Civil Division. As issues surface, or are
    raised by public comment, we anticipate discussing them in a timely
    manner with the appropriate Congressional committees.
                                     ______

                 Questions Submitted by Senator Byron L. Dorgan

                   NEW CURRENCY GUARDS AGAINST COUNTERFEITING
        Question. The time line currently laid out for redoing the U.S.
    currency sets 2003 for the new rollout. Do you think that this time
    line and the suggested changes will keep us ahead of the game of
    counterfeiters or are there additional resources that need to be
    devoted to this effort?
        Answer. The time line currently in place and changes being
    evaluated for the next generation (NexGen) of currency should keep us
    ahead of the counterfeiters. The goal of staying ahead of the
    technological threat requires the U.S. government to plan ahead and
    have a new series in development several years before the threat is
    projected to materialize. Accordingly, research and development in this
    area is an ongoing process. Planning and development work for the next
    generation of notes began long before all denominations of the 1996
    redesigned series were introduced to the public. Treasury continues to
    devote the necessary resources needed in developing the technological
    expertise necessary to ensure the security and integrity of our
    Nation's money supply. Treasury coordinates counterfeit deterrence
    strategy with the Federal Reserve through the Advanced Counterfeit
    Deterrence Steering Committee (ACD) that includes representatives from
    the Bureau of Engraving and Printing and the United States Secret
    Service. We are also involved in a 24 country international effort to
    implement a system, which would deter counterfeiting using personal
    computers. In addition, the Bureau of Engraving and Printing
    established the Securities Technology Institute (STI), which has
    engaged the Johns Hopkins Applied Physics Laboratory to conduct long-
    range research and development of new and effective counterfeit
    deterrent techniques.

                                 IDENTITY THEFT
        Question. Identify theft is an enormous concern to the average
    person and most people aren't aware just how easy it is to accomplish.
    Given the expertise of the Secret Service in this area, where do you
    think our State and local law enforcement agencies are on countering
    these crimes?
        Answer. Numerous metropolitan police departments are taking a
    proactive approach to the problem of identity theft. One example is the
    Los Angeles County Sheriff's Department, which initiated a multi-agency
    identity theft task force to combat identity theft in the Los Angeles
    metropolitan area. Additionally, the Los Angeles County Sheriff's
    Department was exclusively responsible for designing, producing and
    distributing a pocket guide on identity theft to all of its deputies.
    This guide ensures that deputies deal appropriately and uniformly with
    victims, and provide them with information on resources they will need
    in their efforts to restore their credit history, and rectify any
    damage done to their existing accounts.
        However, not all police departments and sheriff's offices are this
    aggressive concerning these types of crimes. Many do not have
    sufficient resources to thoroughly investigate identity theft crimes,
    and jurisdictional issues often hamper the efforts of those that do. In
    order for law enforcement to properly combat identity theft, steps must
    be taken to ensure that local, State and Federal agencies are
    addressing victim concerns in a consistent manner. All levels of law
    enforcement need to be familiar with the resources available to combat
    identity theft and to assist victims in rectifying damage done to their
    credit. It is essential that law enforcement recognize that identity
    theft must be combated on all fronts, from the officer who receives a
    victim's complaint, to the detective or special agent investigating an
    organized identity theft ring. The Secret Service has already
    undertaken a number of initiatives aimed at increasing awareness and
    providing the training necessary to address these issues, but other
    similar steps could be taken to try to reach a still larger audience.
        Question. What resources are being devoted to training and
    providing support to them?
        Answer. The Secret Service has tried to increase awareness and
    provide training on the relevant issues to state and local law
    enforcement agencies through a variety of partnerships and initiatives:
        Criminals increasingly employ technology as a means of
    communication, a tool for theft and extortion, and a repository for
    incriminating information. As a result, the investigation of all types
    of criminal activity, including identity theft, now routinely involve
    the seizure and analysis of electronic evidence. In response to this
    trend, the Secret Service developed, in conjunction with the
    International Association of Chiefs of Police (IACP), the ``Best
    Practices for Seizing Electronic Evidence Manual'', to assist law
    enforcement officers in recognizing, protecting, seizing and searching
    electronic devices in accordance with applicable statutes and policies.
        As a follow-up to the ``Best Practices'' guide, the Secret Service
    and the IACP developed ``Forward Edge'', a computer-based training
    application (CBT) designed to allow officers to seize in a virtual
    environment different types of evidence, including electronic evidence,
    at various crime scenes.
        In December of 2000, the Secret Service coordinated an Identity
    Theft Workshop in Washington, DC. This workshop was designed for the
    criminal investigator and was attended by investigators from agencies
    throughout the nation. The workshop provided investigators with a
    detailed explanation of how identity theft can occur, as well as an
    explanation of what tools are available to investigators.
        In May of 2001, the Secret Service made an identity theft
    presentation to the International Chiefs of Police, Advisory Committee
    for Police Investigation Operations. During this presentation, the
    Secret Service proposed the production of an identity theft video
    geared toward police officers throughout the nation. The purpose of
    this video will be to emphasize the need for police to document a
    citizen's complaint of identity theft, regardless of the location of
    the suspects (if any). In addition, the video and its companion
    reference card will provide officers with phone numbers that will
    assist victims with remediation efforts. The Advisory Committee is
    supportive of this effort, and is considering providing funding for it,
    and pursuing it jointly with the Secret Service, as was done with the
    ``Best Practices'' initiative.
        Also in May of 2001, the Secret Service detailed a Special Agent to
    the Federal Trade Commission (FTC) to assist them in funneling
    information developed through their database of victim complaints to
    the appropriate law enforcement entities. This agent is also involved
    in supporting ongoing FTC initiatives aimed at educating state and
    local law enforcement agencies concerning identity theft issues.
        The Secret Service is also actively involved with a number of
    government-sponsored initiatives. At the request of the Attorney
    General, the Secret Service joined an inter-agency identity theft
    subcommittee that was established by the Department of Justice. This
    group which is made up of Federal, State, and local law enforcement
    agencies, regulatory agencies, and professional agencies meets
    regularly to discuss and coordinate strategies for investigation and
    prosecution, as well as consumer education programs.
        Question. What additional Federal resources may be needed to move
    these agencies along with the ever increasing technology available for
    these types of crimes?
        Answer. It is the responsibility of government regulators, law
    enforcement agencies, financial institutions, and other private sector
    entities to work together to identify, investigate, and prosecute those
    individuals responsible for perpetrating identity theft schemes. It is
    the belief of the Secret Service that the successful investigation of
    identity theft and identity fraud, including the compromise of
    consumers' identities through electronic means, can best be
    accomplished through a task force approach. Accordingly, the Secret
    Service would like to implement five Financial Crimes Task Forces, and
    five Electronic Crimes Cooperatives, in major cities to decrease the
    incidence of identity theft and other financial and electronic crimes.
    Through the strategic placement of these specialized task forces, the
    Secret Service, working in conjunction with other Federal, State and
    local law enforcement entities, would decrease the incidence of
    identity theft and other financial and electronic crimes in the
    targeted cities through the arrest and prosecution of individuals and
    organized criminal enterprises involved in the commission of financial
    crimes.
        Question. What can we do to further educate American citizens to
    protect themselves against these crimes?
        Answer. The Identity Theft and Assumption Deterrence Act
    established the Federal Trade Commission (FTC) as the central point of
    contact for identity theft victims to report all instances of identity
    theft. The FTC has done an excellent job of providing people with the
    information and assistance they need in order to take the steps
    necessary to correct their credit records, as well as undertaking a
    variety of ``consumer awareness'' initiatives regarding identity theft.
    As mentioned previously, the Secret Service has detailed a special
    agent to the FTC on a permanent basis to support their public education
    and liaison initiatives.
        The Secret Service also continues to be involved in a variety of
    public education efforts:
      --The Secret Service, in conjunction with the U.S. Postal Inspection
            Service, and the Federal Reserve Bank System, produced an
            identity theft awareness video. The video, which explains how
            easily one can become a victim and what steps should be taken
            to minimize damage, has been made available to Secret Service
            offices for use in public education efforts.
        In April of 2001, the Secret Service designed an identity theft
    brochure, containing information to assist victims on how to restore
    their ``good name'', as well as how to prevent becoming a victim. Upon
    its completion, the brochure will be shipped to Secret Service offices
    for distribution in public education efforts.
        However, it is important to recognize that public education efforts
    can only go so far in combating the problem of identity theft. Because
    Social Security numbers, in conjunction with other personal
    identifiers, are used for such a wide variety of record keeping and
    credit-related applications, even a consumer who takes appropriate
    precautions to safeguard such information is not immune from becoming a
    victim.

                                  TAX REBATES
        Question. The Senate-passed budget resolution assumes a tax rebate.
    The Financial Management Service will be responsible for processing the
    estimated 130 million individual check payments and would cost FMS an
    additional $49 million which is not included in the fiscal year 2002
    budget. How is the department planning on absorbing these costs if and
    when a tax rebate package is passed?
        Answer. The Financial Management Service would be unable to absorb
    within the fiscal year 2002 President's Budget the costs of a tax
    rebate program. The $49 million estimate is composed primarily of
    postage costs related to the mailing of the estimated 130 million
    refund checks. If the tax rebate is enacted into law, the Department
    would seek a supplemental to cover the costs associated with
    implementing the program.

                    OFFICE OF FOREIGN ASSETS CONTROL (OFAC)
        Question. The Office of Foreign Assets Control is under your
    management. While the office provides a valuable program to protect
    U.S. security interests, it has a problematic customer service record.
    Are there any plans under consideration to streamline and clarify the
    process for U.S. exporters looking for clearance from OFAC?
        Answer. Treasury's OFAC is acutely conscious of the legitimate
    expectations of U.S. exporters for an expeditious and simple process to
    obtain export licenses. In most instances, exports are authorized by
    specific licenses, and are subject to an interagency review process of
    which OFAC is only one of the agencies, and it is a process which OFAC
    is without an option to follow.
        OFAC has received over 20,000 applications for specific licenses
    over the past year and responded to over 18,500 applications. This is
    handled by a licensing staff of 18 individuals. In addition, OFAC's
    licensing staff has responded to approximately 44,000 telephone
    inquiries in a year's time. We are looking for more resources so we
    have what is needed to meet our goal of 2-week response time for most
    applications.
        OFAC administers some twenty-one separate sanctions programs. Many
    have been added in the past few years, dramatically increasing the
    Office's workload and the demand for information and services from
    OFAC. For its own part, OFAC has done much to streamline its procedures
    and to become a part of the solution, rather than an impediment, to the
    legitimate needs of the exporting community.
        Improved customer service is an OFAC program goal and we have
    undertaken measures or identified several areas addressing this issue.
    These include:
      --A commitment to process licenses within two weeks absent the need
            for interagency consultation
      --Hiring additional personnel to respond to phone inquiries to
            increase the timeliness and quality of information provided to
            the public
      --Promoting transparency of agency action by publishing interpretive
            rulings on OFAC's website
      --Issuing implementing regulations within sixty days of the issuance
            of an Executive order or enactment of legislation with an
            opportunity for public comment
      --Promulgating regulations to reflect internal policies regarding
            civil penalties
      --Adding a section of frequently asked questions (FAQ's) to the
            website.

                          ATF STAFF HIRING SUSTAINMENT
        Question. The fiscal year 2001 appropriations bill provided for the
    hiring of 300 ATF special agents and 200 inspectors to enforce existing
    firearms laws. Does the fiscal year 2002 request provide the resources
    necessary to sustain this increase in personnel, or will erosion occur,
    making it difficult for ATF to meet the enforcement expectation set by
    Congress? The Secret Service and Customs Service face the same issue.
        Answer. The fiscal year 2002 request allows ATF to sustain the
    increase in personnel as provided for in the fiscal year 2001
    appropriations bill.

                             U.S. CUSTOMS STAFFING
        Question. We understand from the hearing held yesterday by this
    subcommittee's counterpart, that Customs originally requested 1,000 new
    agents and inspectors to better manage their dual responsibility of
    protecting our nation's borders from transnational crime, while at the
    same time facilitating trade and trade compliance. However, this
    increase was denied. Concurrently, however the Administration chose to
    request funds for the Department of Justice bureaus, (specifically the
    Border Patrol and INS) to hire 1,140 additional agents over the next
    two years, so as to bring them to the authorized level of 5,000 new
    agents. If indeed there is a critical need for staffing in the Customs
    Service--and I believe there is--why was their request denied while
    others granted?
        Answer. Under the current Administration, there was no fiscal year
    2002 budget request process from bureau to Department, or from
    Department to OMB. The current Administration has not validated the
    previous Administration's estimate.

                              PROGRAM ABSORPTIONS
        Question. During the budget briefings provided by your agencies in
    the two weeks since the budget request was released, we received
    information that they will have to find significant savings via
    programmatic absorptions (reductions). These absorptions would offset
    projected inflation for non-pay expenditures, as well as a variety of
    other mandated costs increases. For instance, Customs must find
    approximately $35 million in savings and the Secret Service
    approximately $14 million. The agencies suggested that they will
    realize these absorptions through improved resource management and
    exploration of potential efficiencies.
        What if the required absorptions cannot be realized through these
    methods?
        Answer. These management efficiencies will not compromise the
    security of the United States.
        Question. Can you guarantee that the critical missions performed by
    these agencies for the country's security will not be denigrated?
        Answer. These management efficiencies will not compromise the
    security of the United States.

                      BORDER PORTS OF ENTRY INFRASTRUCTURE
        Question. Customs, GSA, and INS severally own 192 Ports of Entry
    (POEs) on the Northern and Southern Borders. A recent joint
    infrastructure study identified 822 projects with an estimated gross
    cost of $784 million. The budget request for design or construction is
    only $11 million for six projects. While this is not directly a
    Treasury Department funding issue, there is a growing backlog that
    needs to be addressed. We were only able to provide funds for two
    border projects in fiscal year 2001. Although NAFTA has enabled trade
    to grow by 75 percent between the U.S., Canada, and Mexico, the
    capacities and capabilities of our Nation's POEs have not kept pace.
        How can we call for more trade agreements and Fast Track when our
    infrastructure can't support it?
        Answer. The joint study was a preliminary one in determining the
    border's infrastructure needs. Therefore, as noted in the study, GSA is
    performing a more detailed analysis of the situation based upon the
    preliminary information found in the study. This follow-up information
    then will be presented to the Border Station Partnership Council (BSPC)
    for review. The Council is comprised of FIS Agencies. The BSPC will
    make recommendations to the Administration and based upon these
    recommendations the Administration will determine the best course of
    action. Until the BSPC recommendations are complete, the GSA is
    proceeding with its priority list of Border Station projects. There is
    currently $17.3 million for six border stations requested in the fiscal
    year 2002 President's Budget.

                U.S. CUSTOMS AIR AND MARINE INTERDICTION (AMID)
        Question. Customs AMID has continually expressed a need for
    equipment, training and infrastructure to meet the growing narcotics
    threat and mission requirement at U.S. borders and at sea. Recent
    budget allocations have been insufficient to do all but maintain the
    existing, inadequate and aging fleet of aircraft and vessels. Based on
    a recent report provided to the Appropriations Committees, Customs has
    identified requirements totaling $187 million in fiscal year 2002 alone
    to upgrade their fleets. Yet the budget only seeks $35 million for
    counterdrug efforts in Latin America--which only scratches the surface
    of the growing needs. Similarly, there appears to be an effort by the
    Air Force to transfer to Customs operation of the aerostats (anti-drug
    radar balloons) along the Southern border, which currently track
    potential drug-smuggling aircraft. This fits the Customs counter-drug
    mission, but there is no guarantee the resources would transfer with
    the mission from DOD.
        If we are serious about interdicting drugs, we need adequate
    resources to do so. Why were not more funds requested for these
    interdiction activities?
        Answer. Customs planning is guided by the AMID Modernization Plan.
    The $35 million Western Hemisphere initiative starts Customs down the
    path to fund its most critical and highest priority needs as detailed
    in the AMID Modernization Plan: safety, maintenance enhancements, a new
    maritime patrol aircraft (MPA), vessel replacements and communications.
    Options for transfer of the aerostat program, which originally surfaced
    as an issue during the final months of the previous Administration, is
    under thorough review for consistency with the current Administration's
    drug control policy direction.

                              Subcommittee Recess

        Senator Campbell. This subcommittee hearing is recessed.
        [Whereupon, at 11:19 a.m., Thursday, April 26, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2002

                                  ----------

                             THURSDAY, MAY 3, 2001

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:30 a.m., in room SR-485, Russell
    Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)
    presiding.
        Present: Senators Campbell and Dorgan.

                       EXECUTIVE OFFICE OF THE PRESIDENT

                     Office of National Drug Control Policy

    STATEMENT OF EDWARD H. JURITH, ACTING DIRECTOR
        Senator Campbell. The Subcommittee on Treasury and General
    Government will be in session. Good morning.
        This is the second of a series of budget hearings before
    the Subcommittee on Treasury and General Government. The Office
    of the National Drug Control Policy, called the ONDCP, advises
    the President on the national drug enforcement strategy.
    However, the purpose of this hearing is to discuss the fiscal
    year 2002 request for the ONDCP. This includes the Counter-drug
    Technology Assessment Center, called the CTAC, the High
    Intensity Drug Trafficking Areas, called HIDTA, the anti-drug
    media campaign and grants authorized by the Drug Free
    Communities Act.
        This morning we welcome Edward H. Jurith, the acting
    director, of the ONDCP. The national youth anti-drug media
    campaign initiative was described in 1997 as a 5-year project
    to reduce drug use by the young people of our country. Congress
    has provided a total of $750 million for this effort so far,
    and another $185 million is being requested for the fiscal year
    2002. That is getting pretty close to $1 billion, and I am
    looking forward to learning whether this ad campaign has had an
    effect on the use of drugs by America's youth.
        I am particularly impressed by the technology transfer
    program administered by CTAC. I might tell you, Mr. Jurith,
    that I have gone to several of the forums where these wonderful
    Buck Rogers apparatus has been shown to local law enforcement
    agencies, and they are thrilled with the opportunity to be able
    to access some of those materials.
        Hopefully we will learn more about plans for the increased
    funding that has been requested. And finally we will talk about
    the HIDTA program and how additional funding provided last year
    has been allocated. Along that line, I constantly talk to local
    law enforcement officials, county sheriffs, State police and so
    on, who believe the HIDTA is a very good program. It is in fact
    helping them do some of their coordinating.
        It should be an interesting morning and I look forward to
    your testimony.
        Senator Dorgan, did you have an opening statement?
        Senator Dorgan. Mr. Chairman, I will put the opening
    statement in the record. But I do want to say that I agree with
    you, as we prepare to spend additional money on the national
    media campaign I think it is critically important to understand
    the effectiveness of that campaign. What are we doing with it,
    is this money well spent, and exactly how do we evaluate the
    effectiveness? I think those are some questions that we ought
    to deal with.
        I have two other hearings, one is a markup going on
    concurrently, so I am going to be in and out of this
    discussion. But there are a lot of important issues. I know
    this is not the area where we do primary work on drug
    treatment, but one of my major concerns for a long while has
    been that we spend a great deal on the issue of interdiction,
    and now we are doing some work on education. We need to be as
    committed to providing drug treatment opportunities for those
    that want to shed themselves of their drug addiction. We have
    not been nearly as attentive to that as we should be. So I want
    to talk a little about that today as well.
        There are a number of issues that I think we should
    evaluate with respect to how we spend money in ONDCP, and I
    want to raise some questions about that. President Bush has
    requested a new initiative, parents for a drug-free future, and
    they have requested $5 million for that program. But we have
    been able to get very little information about how that money
    would be spent. While it sounds like a good idea, I am not
    interested in just having an idea without a framework of
    understanding how this money would be committed, and giving me
    the opportunity to evaluate whether I think it is worthy given
    the other needs that we have.

                               PREPARED STATEMENT

        So Mr. Chairman, thank you, and I look forward to hearing
    from Mr. Jurith.
        [The statement follows:]

                 Prepared Statement of Senator Bryon L. Dorgan

        Thank you Mr. Chairman. Mr. Jurith, thank you for taking the time
    to testify before the subcommittee and for your valuable service with
    the Office of National Drug Control Policy. I look forward to
    continuing our working relationship and creating one with the Director
    once he is appointed. You have an enormous responsibility in overseeing
    our entire drug control policy and I want to work with you to ensure
    that we are targeting and affecting the appropriate people.
        First I would like to mention the issue of drug treatment. I have
    been focused on this for quite some time and it is one I believe which
    does not get the resources and attention it so desperately deserves.
    Drug treatment is a necessary and vital component of our drug control
    strategy yet in recent years, the lack of facilities and options have
    left 57 percent of people who needed treatment out in the cold.\1\ We
    need to make sure that there is a proper balance of resources for
    interdiction, prevention, and treatment when formulating the overall
    drug control policy. Since that is the direct jurisdiction of ONDCP,
    that responsibility falls on you.
    ---------------------------------------------------------------------------
        \1\ Provided by 1998 Data from Substance Abuse and Mental Health
    Services Administration.
    ---------------------------------------------------------------------------
        There will always be demand for drugs when you are not countering
    both the supply and its patrons equally and efficiently. It is clear to
    me that the United States drug policy is not adequately addressing this
    correlation. In my role as the Ranking Democrat on this subcommittee, I
    will make it a priority to see that these limited resources are
    adjusted to reflect the increasing need for treatment.
        Another area on which I plan to focus my attention and scrutiny is
    the National Media Campaign. To date, over $700 million has been spent
    on this campaign, but is it working? The only supportive data to its
    effect comes from government funded research. I have yet to see
    qualitative data that reflects the fruits of this program from an
    independent source.
        The statistics you have provided on this program detail how many
    kids have seen the advertisements and messages. But when you dig a
    little deeper, the data also shows that these advertisements are
    helping increase the anti-drug sentiment in non-drug users. I agree
    that this is a crucial group of people which needs reinforcement and
    support through their tough decisions and ongoing peer pressure, but it
    is the marginal kids that I believe are not affected by these messages.
    Are we really doing everything we can with our scarce resources to
    reach these borderline kids?
        The July 2000 GAO report entitled ``ANTI-DRUG MEDIA CAMPAIGN ONDCP
    Met Most Mandates, but Evaluations of Impact are Inconclusive'' pointed
    out a number of concerns and made recommendations to ONDCP on how to
    improve upon them. The most alarming of its findings is on the review
    of the media campaigns' effect. ``First, ONDCP stated that indications
    from the NCADI (National Clearinghouse for Alcohol and Drug
    Information) and focus groups `support that the Campaign has positive
    effects on changing you attitudes toward drug use.' As discussed in
    this chapter we found that information from NCADI and focus groups
    provided indications that the Campaign may have had some positive
    effects on anti-drug awareness. We did not find, however, that these
    sources provided indications of the Campaign having positive effects
    specifically on youth attitudes toward drug use.'' We are being asked
    to appropriate $1 billion for a media campaign that we don't know is
    having any effect in changing attitudes.
        I would also like to take a moment to focus on the chosen mediums
    for delivering these communications and how these messages are tailored
    and chosen. The purpose of this campaign is to target our youth and the
    parents; however, I don't know many kids, let alone parents, who read
    Education World, Atlantic Monthly, and literature handed out in malls.
    I know this campaign is hitting the mainstream literature like Time,
    Newsweek, and People, but you are expending limited resources on other
    sources that deserve some scrutiny.
        One final point about the media campaign concerns the designated
    drug targets. Since its inception, the targets have been mostly the
    mainstream drugs, such as marijuana. Data that you are presenting to us
    today in your testimony show that there is a notable increase in MDMA/
    Ecstasy use among 8th, 10th, and 12th graders, yet your budget
    eliminates the $5 million Ecstacy initiative in the media campaign.
        My final area of interest is President Bush' new initiative--
    Parents for a Drug Free Future. You request $5 million for this
    program, but you have provided my staff with little information on how
    you plan to spend the money. It appears to be an attitude of ``Give us
    the money, then we'll get back to you on how we plan to spend it.'' Now
    the idea behind this program may have merit, but I am concerned when
    the Administration is requesting funding for a program that they will
    figure out the details without Congressional directive.
        Before you get too far along in this initiative, I want to take
    this opportunity to prevail upon you to investigate the opportunities a
    program like this might have being directed at young children and their
    parents. There is an increasing number of statistics correlating time
    children spend with their parents at the dinner table with how well
    they do in school, youth violence, etc . . . This isn't the kind of
    activity parents can start when their kids are 13 and 15. I have young
    children myself and we already designate times during the week devoted
    to family activities, which is something that would be increasingly
    difficult to start when they are 15 years old. They need the guidance
    and support to know that it is never too early to talk to their kids
    about drugs and to initiate an open dialogue.
        Your job goes beyond changing drug use on the streets and attempts
    to venture into the American home. It is a daunting task to reach out
    and try to alter the behavior of our younger generations. I look
    forward to your testimony and your responses to our questions. More
    importantly, I look forward to exploring these and many other issues
    during the months and years ahead.
        Thank you Mr. Chairman.

        Senator Campbell. By the way, Mr. Jurith, how long have you
    been with the agency?
        Mr. Jurith. I have been with the agency since August of
    1993.
        Senator Campbell. So you were with the agency when we did a
    couple of oversight hearings about how the money was being
    spent on the media campaign?
        Mr. Jurith. Correct. Yes, sir.
        Senator Campbell. And you knew that we were not totally
    thrilled because we were out of the loop on some of the
    negotiated deals that were made on how that money was spent.
        Mr. Jurith. Yes, sir. That is correct.
        Senator Campbell. Thank you. Why don't you go ahead and
    proceed. And your complete written testimony will be included
    in the record if you would like to depart from that.

                         Statement of Edward H. Jurith

        Mr. Jurith. Thank you. Chairman Campbell, Ranking Member
    Dorgan, my name is Edward Jurith. I have the honor of coming
    before the subcommittee today as the acting director of the
    Office of National Drug Control Policy. My official capacity in
    the office is that of general counsel, but I am serving in an
    acting capacity pending the designation by President Bush and
    confirmation by the Senate of a director of the office.
        Prior to coming to ONDCP I served on the staff of the old
    House Select Committee on Narcotics Abuse and Control for about
    12 years, so I bring to my position as acting director about 20
    years of drug policy experience in Washington. It is indeed an
    honor to be able to head up the agency for this interim period.
        I want to thank the subcommittee for the opportunity to
    testify before you on ONDCP's fiscal year 2002 budget request.
    All of us at ONDCP greatly appreciate the bipartisan efforts of
    this subcommittee to support not only ONDCP but our overall
    national counter-drug efforts. I would also like to thank your
    subcommittee staff, Pat Raymond, Chip Walgren, Lula Edwards,
    and Nicole Rutberg for the excellent assistance they have given
    my staff in preparation for this hearing. I realize my time is
    limited so I will keep my remarks brief and directed at ONDCP's
    2002 budget request. As the Chairman indicated, I request that
    my full statement be entered into the record.

                                    Overview

        In fiscal year 2002, ONDCP is requesting $519.1 million in
    budget authority, and that is an increase of $19.24 million, or
    3.8 percent over the 2001 enacted level. As the chart details,
    the budget request reflects four program accounts: Salary and
    Expenses, CTAC, the Special Forfeiture Fund, out of which the
    Media Campaign and other programs are funded, and the High
    Intensity Drug Trafficking Area program, HIDTA.

                             Salaries and Expenses

        In terms of salaries and expenses our request provides
    $25.1 million to support 116 FTEs and 30 non-reimbursable
    detailees. The S&E account also supports ONDCP conferences, the
    drug policy information clearinghouse, policy research, and
    support for the National Alliance for Model State Drug Laws. As
    you know, the Administration is preparing a budget amendment
    that will propose consolidating all S&E accounts in the
    Executive Office of the President into a single appropriation.

                            Special Forfeiture Fund

        Our Special Forfeiture Request is for $247.6 million. This
    request supports a diverse group of ongoing programs, the media
    campaign, the Drug-Free Communities program, the counter-drug
    intelligence executive secretariat, CDX, the National Drug
    Court Institute, and our support of U.S. Olympic anti-doping
    efforts.
        Furthermore, the Special Forfeiture Fund supports the
    President's request for a Parents for a Drug-Free Future
    Program to create a Parent Drug Corps. Of course, we understand
    the subcommittee's longstanding interest in this program.
        We are, again, requesting $185 million in fiscal year 2002
    for the Media Campaign, to use paid media and messages to
    change youth attitudes about drug use and its consequences.
    Strategic targeted, high impact, paid media messages are the
    most cost-effective, quickest means of altering drug use
    behavior through changes in adolescent perceptions of the
    dangers and social disapproval of drugs.
        During past years the Campaign has reached 90 percent of
    America's youth four times a week through our targeted
    advertising. The Campaign is the largest multicultural
    advertising and communication effort ever undertaken by the
    Federal Government with messages and delivery tailored to
    target audiences in nine languages.
        Overall, the Campaign has generated a 108 percent pro bono
    match in advertising dollars. As you know, when Congress
    established the program it required ONDCP to obtain a dollar
    for dollar match of public funds that we expended on the
    Campaign. We have gone beyond that 100 percent match. The
    Campaign has also generated more than $544 million in private
    sector matches, buttressing and leveraging the public
    contribution.
        The non-advertising portion of the Campaign delivers anti-
    drug messages from public affairs coverage in radio and
    television broadcasts as well the print media, the Internet, as
    well as working with community organizations and coalitions.
    For example, we recently published with the American Bar
    Association a pamphlet on how the legal community can not only
    discourage drug use within their profession, but also work
    within their communities in effective drug prevention efforts.
        The Campaign's Internet activities include two web sites,
    Freevibe.com and The AntiDrug.com that appeal to our target
    audiences of youth, parents, and other adult influences.
    Highlights include nearly 24 million page views on our Media
    Campaign web sites and more than 287 million pro bono Internet
    match impressions. In addition, we have web-based programming
    for parents in Spanish and four Asian languages.
        The Campaign's presence has served as a catalyst for an
    increased demand for anti-drug information. For example,
    inquiries received by the National Clearinghouse for Drug and
    Alcohol Information, NCADI, have increased dramatically.
        The branding component of the Campaign was launched in
    September 1999 to unite the Campaign message themes. For young
    people the brand, My Anti-Drug, is a call to action for every
    youth to help them think about and consider what is important
    in their lives and serves as their motivation for rejecting
    drug use. In response to that national outreach, the Campaign
    has received from young people more than 75,000 submissions
    about what their personal anti-drug is.
        We take great pride in the fact that our Campaign is the
    subject of a multifaceted evaluation effort that is coordinated
    and contracted out to the National Institute on Drug Abuse, the
    Nation and the world's leading drug abuse research center. The
    phase three evaluation managed by NIDA is a comprehensive
    system developed to gauge the extent to which drug use,
    knowledge, attitudes, beliefs, and behavior can be attributed
    to the Campaign.
        Findings from the second phase three evaluation report were
    shared with the subcommittee last week and they indicate high
    levels of awareness of anti-drug ads among our target audiences
    of youth and parents. Subsequent reports will continue to track
    changes in anti-drug attitudes and behavior and provide more
    conclusive evidence of whether these changes in attitude can be
    directly attributed to the Media Campaign.
        With the subcommittee's permission, I would like to show a
    brief video with examples of new research-based parent ads,
    followed by two ads that are based upon the anti-drug branding.
        Senator Campbell. Go ahead. I saw that ad on television
    last night.
        Mr. Jurith. With regard to the Drug-Free Communities
    Program, the President is requesting an increase to $50.6
    million to expand the program. This program provides matching
    Federal grants to local community anti-drug coalitions to
    improve and expand their ongoing efforts. We are proud that the
    program currently supports 307 communities in 49 States, Puerto
    Rico, the Virgin Islands, and the District of Columbia.
    Furthermore, 25 grants have been awarded to communities with
    predominantly Native American and Native Alaska populations.
        As you know, ONDCP and the Office of Juvenile Justice and
    Delinquency Prevention in Justice, our grants management agency
    for this program, have conducted a comprehensive study of the
    administrative costs connected with the program and produced a
    report on the findings which we submitted back to the
    subcommittee in January.
        The report concluded that amending the administrative cost
    limitation in the program's authorization from not more than 3
    percent to not more than 8 percent per fiscal year is necessary
    for ONDCP and OJJDP to continuing managing the program
    effectively, to include program oversight, training and
    technical assistance, and program evaluation.
        However, notwithstanding the requested increase in the
    administrative cap, of the $50.6 million ONDCP is requesting
    for this program in 2002, $46.6 million will be granted
    directly to coalitions. We anticipate awarding 145 new
    coalitions in fiscal year 2001, and an additional 150 in fiscal
    year 2002, bringing the total coalitions under the initial
    five-year authorization of this program to over 600.
        Under the proposed 8 percent cap, only $4 million is for
    purposes other than providing grants directly to communities.
    ONDCP will allocate these funds as follows: for grant
    administration by OJJDP, $2.35 million; technical assistance to
    the coalitions, $750,000; evaluation of the program, $750,000;
    and for program administration at ONDCP, not only to support
    the program but the Drug-Free Communities Advisory commission
    that meets approximately three times a year, $200,000.
        So we believe the 8 percent cap represents a modest
    increase in administrative funding for this program to enable
    both ONDCP and OJJDP to better manage this effort.
        In response to your concern, as you know the President has
    proposed a new initiative, Parents for a Drug-Free Future. The
    Administration is requesting $5 million to create a parent drug
    corps to support and encourage parents to help children stay
    drug-free. This new program will provide matching grants to
    national parent organizations for the following purposes:
    assisting training of parents to help anti-drug efforts among
    young people, promote cooperation among the various national
    anti-drug parent efforts, as well as local community coalitions
    to increase their overall impact, and to provide science-based
    prevention strategies, information, and materials to parents
    and parent organizations.
        I believe Senator Dorgan is correct, OMB requested ONDCP to
    prepare authorizing language for this program and provide it to
    OMB by March 1. We have done that. The Administration has made
    the determination to await the nomination and confirmation of
    an ONDCP director before submitting that language to the
    subcommittee. I will certainly report back to them the
    legitimate concern of the subcommittee that you see the
    authorizing language for this effort as soon as possible as you
    go about developing ONDCP's appropriation.
        ONDCP is requesting $1 million for the National Drug Court
    Institute. These funds will enable the Institute to expand
    their training programs for drug court practitioners, convene
    special advisory groups on practices, and develop a national
    community probation initiative.
        We are very proud of what the drug courts have done around
    this country. There are almost 1,000 drug courts in operation
    or in planning around the Nation. They serve a critical
    catalyst, Senator Dorgan, to steer more drug-addicted
    defendants into treatment. That is the whole aim of a drug
    court, to get non-violent drug offenders out of the criminal
    justice system and into treatment diversionary programs.
        ONDCP is requesting $3 million for the counter-drug
    intelligence executive secretariat, or CDX. Since its inception
    in July 2000, CDX has worked to implement many of the 73
    priority action items in the General Counter-Drug Intelligence
    Plan, as well additional taskings on new agency counter-drug
    issues. CDX continues to improve our Nation's counter-drug
    intelligence architecture by enhancing information sharing,
    operational coordination, and technical connectivity between
    Federal, State, and local anti-drug efforts.
        The U.S. Olympic Committee has done yeoman's work in
    bringing attention to the problem of doping in sports. ONDCP is
    requesting $3 million to support the U.S. Olympic Committee's
    anti-doping efforts. These funds will assist the USADA, the
    U.S. Anti-Doping Agency, to administer an independent,
    transparent, and effective anti-doping effort for the Olympics
    as well as out-of-competition testing within the United States.
    These funds will support research, administrative initiatives,
    and education programs among the athletes.

                     High Intensity Drug Trafficking Areas

        ONDCP is requesting $206.35 million for HIDTA program. This
    will enable the current 28 HIDTA's to coordinate efforts to
    reduce the production, manufacture, distribution, and
    transportation of illegal drugs as well as anti-money
    laundering efforts.
        Intelligence sharing will continue to improve as we expect
    all 28 HIDTAs to be connected via the regional information
    sharing systems network, the RISS.net, by the end of the
    calendar year. This will allow the HIDTAs to instantaneously
    share criminal intelligence information in a responsible
    manner. Maintaining regional flexibility while demanding
    accountability is an essential part of our HIDTA oversight
    efforts.
        The budget request includes $2.1 million to continue
    conducting internal reviews and external financial audits of
    individual HIDTA's effectiveness and their budgetary
    compliance. Internally, ONDCP has begun its own review process
    that includes on-site visits to the HIDTA by an interagency
    review team. These reviews strengthen the management at the
    individual HIDTAs as well as at ONDCP. To date we have
    completed six reviews of the 28 HIDTAs and we will continue
    that effort.
        HIDTA recently contracted with a leading accounting firm,
    KPMG, to perform external financial audits. While we are
    pleased that these reviews have not discovered any major fiscal
    problems, the audits and program reviews have resulted in ONDCP
    providing some HIDTAs with conditional grant language to bring
    outstanding financial efforts into compliance.

                    Counterdrug Technology Assessment Center

        Lastly, the CTAC program. ONDCP is requesting $40 million
    for CTAC; $18 millions for the research and development
    program, and $22 million for the Technology Transfer Program.
    The counter-drug R&D program addresses scientific and
    technological needs of the drug control agencies related to
    both demand and supply efforts.
        Demand reduction components support projects in brain
    imaging technology, therapeutic medications, and the assessment
    of treatment programs. Supply reduction projects including
    cargo inspection, counter-drug smuggling, drug crime
    information, handling communication and surveillance
    capabilities.
        CTAC will also support the U.S. Anti-Doping Agency by
    investigating innovative drug-testing protocols to further
    enhance their anti-doping efforts for the Salt Lake City Winter
    Olympics and developing test protocols for the blood endurance
    boosting hormone, Epo. Finally, CTAC will complete a
    communications interoperability testbed statewide in Colorado
    by May 2002.
        The Technology Transfer Program provides technologies
    developed with Federal funding directly to State and local law
    enforcement agencies. We are quite proud of this program
    because since its inception in fiscal year 1998, the Technology
    Transfer Program has delivered over 1,800 pieces of equipment,
    new technology, to over 1,300 State and local law enforcement
    agencies. CTAC provided hands-on training and maintenance
    support to all of these recipients.
        During fiscal year 2002, the request will allow CTAC to
    transfer technology to more than 1,500 State and local
    enforcement agencies around the country. It is an important
    program and one that we need to expand and keep going.

                               PREPARED STATEMENT

        In conclusion, Mr. Chairman, Senator Dorgan, I want to
    thank the subcommittee for its continued support of ONDCP, for
    its bipartisan leadership on counter-drug efforts, and I would
    be pleased to answer any questions that you have. Thank you so
    much.
        [The statement follows:]

                     Prepared Statement of Edward H. Jurith

                                  INTRODUCTION
        On behalf of the Office of National Drug Control Policy (ONDCP), I
    want to thank the Subcommittee for the opportunity to testify before
    you on ONDCP's fiscal year 2002 budget request. Chairman Campbell,
    Ranking Member Dorgan, distinguished members of the Subcommittee, we
    greatly appreciate your continuing bipartisan commitment to, and
    support of, our counter-drug efforts. The funding this Subcommittee
    provides enables ONDCP to ensure continuity and consistency in our
    efforts to provide a comprehensive response to our nation's drug use
    problem. This comprehensive response is essential to our success, as we
    know that no single solution can effectively address this multifaceted
    challenge. Drug prevention, treatment, research, law enforcement,
    protection of our borders, drug supply reduction, and international
    cooperation remain necessary components of our efforts. In addition to
    setting forth in detail ONDCP's fiscal year 2002 Budget Request, this
    statement provides a brief update on the consolidated Federal drug
    control budget request and current drug use trends which will
    underscore the need for continued policy coordination and programmatic
    focus on this devastating threat facing our nation.
        Although ONDCP's $519.1 million budget request comprises only a
    small percentage of the $19.2 billion consolidated national drug
    control budget, these funds are critical to our nation's efforts to
    reduce drug use and its consequences in America. Your support of
    ONDCP's budget request will enable us to continue fulfilling our unique
    dual mission of serving as the President's primary Executive Branch
    support for counter-drug policy and program oversight while effectively
    managing our own diverse programmatic responsibilities. ONDCP's policy
    role consists primarily of developing national drug control policy,
    coordinating and overseeing the implementation of that policy, and
    evaluating drug control programs to ensure that Federal departments and
    agencies remain focused and coordinated for maximum efficiency and
    effectiveness. Equally important to ONDCP's policy role is our
    responsibility to manage and evaluate our four key existing programs:
    the National Youth Anti-Drug Media Campaign, the Drug-Free Communities
    Program, the High Intensity Drug Trafficking Areas Program (HIDTA), and
    the Counterdrug Technology Assessment Center (CTAC). Furthermore, ONDCP
    is committed to developing and implementing the President's ``Parents
    for a Drug-Free Future'' initiative, which is proposed in this request.
        ONDCP is proud of the complementary efforts of the Legislative and
    Executive branches to achieve our shared goal of reducing drug use and
    its consequences in our nation, especially as it impacts our youth, and
    looks forward to achieving even greater success in the future. To
    maximize the potential for greater success, we look forward to
    supporting the new ONDCP Director in his or her review of the existing
    National Drug Control Strategy and promulgating a new Strategy to
    implement the President's counter-drug policies and programs.

                            CURRENT DRUG USE TRENDS
    Long-Term Overall Trend is Going In the Right Direction
        Overall illicit drug use rates, according to data compiled annually
    from the National Household Survey on Drug Abuse (NHSDA), have gone
    down substantially over the past 20 years. Since 1979, the rate of
    current users of any illicit drug has dropped from 14.1 percent to 7.0
    percent in 1999.
        Drug use in the U.S. reached peak levels in 1979 and then declined
    significantly through 1991, from 14.1 percent to 6.6 percent. Since
    1991, the percentage of the household population twelve and older who
    are current users of any illicit drug has remained relatively steady,
    with no statistically significant changes.
        However, it is clear that our nation still faces a serious problem
    with illicit drug use, especially among our youth and among chronic,
    hardcore drug users. There are currently more than 3.3 million chronic
    cocaine users and almost 1 million chronic heroin users in the United
    States. These users consume the bulk of the cocaine and heroin; and are
    responsible for a disproportionate amount of the crime, health, and
    social consequences attributed to drug use.
    Youth Drug Use is Declining
        The 1999 NHSDA (the most recent available), provides some good news
    about youth drug use. After a five-year period of rising drug use, the
    rate of current use of any illicit drug among 12-17 year olds declined
    for the second straight year, dropping from 11.4 percent in 1997 to 9.0
    percent in 1999 (returning to the 1996 level). This may indicate that
    the increases that began in 1993 finally have been reversed.
        However, not all of the news is positive. For those aged 18-25
    years, the current rate of use of any illicit drug has risen--up from
    13.1 percent in 1992 to 18.8 percent in 1999. Without appropriate
    treatment, this 18-25 age cohort, which includes many of those who
    started using drugs in the early 1990s, is expected to continue to
    relatively higher rates of drug use as they age.
        A second key source of data on youth drug use comes from the
    Monitoring the Future Study (MTF), a yearly survey of 8th, 10th, and
    12th graders. The latest MTF data, for 2000, provides additional
    support for the good news in youth drug use--2000 is the fourth year in
    a row that drug use rates have leveled or declined since their rapid
    rise in the early 1990s. Use of most illicit drugs in all three grades
    remained unchanged from 1998 and 1999. As reported by the NHSDA,
    marijuana use dominates youth drug use and the situation is serious,
    with more than one in twenty high school seniors reporting daily use of
    marijuana.
        The data from the Monitoring the Future Survey (MTF), as with the
    NHSDA, clearly shows that not all the news is good. All three grades
    showed notable increases in MDMA/Ectasy use. Specifically, MTF data
    shows past year use for 8th graders increased from 1.7 percent in 1999
    to 3.1 percent in 2000; past month use for 10th graders increased from
    1.8 percent in 1999 to 2.6 percent in 2000; and past year use for 12th
    graders increased from 5.6 percent in 1999 to 8.2 percent in 2000.
    Furthermore, among 12th graders, the perceived availability of MDMA
    rose from 40.1 percent in 1999 to 51.4 percent in 2000 (not measured
    for 8th or 10th graders). The movement of MDMA from the club or rave
    scene into schools, neighborhoods, and other venues is especially
    troublesome. Special emphasis on prevention and enforcement efforts
    must be developed and implemented immediately to reverse this trend.
    Social Costs Associated With Drug Use Remain Unacceptably High
        To fully comprehend the size and scope of the domestic drug
    situation, one must understand the consequences of drug use and its
    impact on society. The following consequences are particularly worth
    noting:
      --The social costs of illicit drug abuse total $110 billion each
            year. Major contributing costs include those associated with
            crime and incarceration ($59 billion) and health care
            (approximately $20 billion).
      --U.S. drug users spend more than $62 billion annually to purchase
            drugs.
      --The number of emergency department drug episodes has been
            increasing over the 1990s. According to 1999 Drug-Abuse Warning
            Network data, there were an estimated 554,932 drug-related
            emergency department episodes in the United States in 1999,
            compared to 371,208 in 1990.
      --Drug users are often carriers of infectious diseases including HIV/
            AIDS, hepatitis, tuberculosis, and sexually transmitted
            diseases.
      --There were more than 1.5 million drug arrests in 1999.
      --Approximately half of all adult male arrestees covered by the
            Arrestee Drug Abuse Monitoring (ADAM) program test positive for
            illicit drug use.
      --There is a high correlation between frequency of marijuana use,
            especially among youth, and aggressive and antisocial behavior.
            An increasing number of state and Federal prisoners are
            incarcerated for drug crimes. An estimated 33 percent of state
            prison inmates and 22 percent of Federal prison inmates
            reported they were under the influence of illicit drugs when
            they committed the offense that led to their incarceration.
      --According to NHSDA data, drug dependence as an adult is clearly
            related to the age at which a person starts using marijuana;
            the younger the age at first use, the higher the rate of adult
            drug dependency.
         the consolidated fiscal year 2002 federal drug control budget
        As reflected in the table below, total drug control funding
    recommended for fiscal year 2002 is an estimated $19.2 billion, an
    increase of $1.1billion (+6.2 percent) over the fiscal year 2001
    enacted level of $18.1 billion.
    <GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>

        The President's request focuses on reducing drug use by young
    people, making treatment more available to chronic users, targeting
    sources of illegal drugs and crime associated with criminal
    enterprises, and interdicting the flow of drugs at our borders. The
    President's Budget includes $2.2 billion for programs that educate and
    enable America's youth to reject illegal drugs as well as alcohol and
    tobacco, including close to $52 million in additional prevention
    research funding through the National Institutes of Health. In
    addition, for reducing the health and social costs of illegal drug use,
    including activities targeting drug treatment programs, the President's
    fiscal year 2002 Budget includes an estimated $3.3 billion, an increase
    of 6.5 percent over fiscal year 2001.
        Projected resources devoted to breaking foreign and domestic drug
    sources of supply will reach $2.6 billion in fiscal year 2002, an
    increase of 28.1 percent. This increase includes proposed funding of
    $731 million in fiscal year 2002 to support drug control activities in
    the Andean region. Further, multi-agency efforts, which target ports-
    of-entry, the Southwest Border, and implementation of the Western
    Hemisphere Drug Elimination Act, will expand funding for shielding
    America's air, land, and sea frontiers from the drug threat to an
    estimated $2.8 billion in fiscal year 2002, an increase of 8.5 percent.
    Finally, funding requested for increasing the safety of America's
    citizens by substantially reducing drug-related crime and violence is
    $8.3 billion in fiscal year 2002, an increase of 2.5 percent.

                           ONDCP'S COORDINATING ROLE
        The Office of National Drug Control Policy's legal responsibilities
    are established in the following laws and executive orders:
        The Anti-Drug Abuse Act of 1988.--Requires ONDCP to set priorities,
    implement a national strategy, and certify Federal drug control
    budgets.
        The Violent Crime Control and Law Enforcement Act of 1994.--Extends
    ONDCP's mission to assessing budgets and resources related to the
    National Drug Control Strategy.
        Executive Order No. 12880 (1993) and Executive Order Nos. 12992 and
    13023 (1996).--Assigns ONDCP responsibility within the executive branch
    of government for leading drug control policy and developing an
    outcome-measurement system.
        The Office of National Drug Control Policy Reauthorization Act of
    1998.--Expands ONDCP's mandate and authority and sets forth additional
    reporting requirements and expectations, including: Development of a
    long-term national drug strategy; Implementation of a robust
    performance-measurement system; Commitment to a five-year national drug
    control program budget; Permanent authority granted to the High
    Intensity Drug Trafficking Areas (HIDTA) program along with
    improvements in HIDTA management; Greater demand-reduction
    responsibilities given to the Counter-Drug Technology Assessment Center
    (CTAC); Statutory authority for the President's Council on Counter-
    Narcotics; Increased reporting to Congress on drug control activities;
    Reorganization of ONDCP to allow more effective national leadership;
    Improved coordination among national drug control program agencies; and
    Establishment of a Parents Advisory Council on Drug Abuse.
        Executive Order No. 13165 (2000).--Creates the White House Task
    Force on Drug Use in Sports and authorizes the ONDCP Director to serve
    as the United States Government's representative on the Board of the
    World Anti-Doping Agency.

                    ONDCP'S FISCAL YEAR 2002 BUDGET REQUEST
        ONDCP's fiscal year 2002 request for $519.1 million in budget
    authority represents an increase of $19.24 million (+3.8 percent) over
    the fiscal year 2001 enacted level. Although this request represents
    less than three percent of the consolidated national drug control
    budget, these critical funds enable ONDCP to leverage all dollars
    appropriated to Federal departments and agencies in a coordinated
    fashion to achieve desired policy and programmatic outcomes. The budget
    request reflects four program accounts: Salaries and Expenses; the
    Counterdrug Technology Assessment Center (CTAC); the Special Forfeiture
    Fund; and the High Intensity Drug Trafficking Areas (HIDTA) program.
    The Subcommittee's investment in this agency will continue to serve the
    American people through achieving our mission of reducing drug use and
    its consequences.
        Salaries and Expenses: $25.1 million.--ONDCP's budget request
    provides $25.1 million for salaries and expenses to support ONDCP's
    requested 116 Full Time Equivalents (FTEs), which includes one
    reimbursable FTE, and 30 non-reimbursable detailees--an increase of
    $395 thousand over the fiscal year 2001 enacted level. This reflects a
    reduction in personnel positions by 10 FTEs, but a realistic dollar
    value to fund fully our authorized strength. The amount of funds
    requested aligns with the revised FTE level and is essential to carry
    out our policy and programmatic responsibilities to the degree that
    Congress and the American people demand. Major expenses include:
      --$11.889 million to provide compensation for 115 FTEs. The 10 FTE
            reduction is based on several factors: first, this
            realistically reflects the staffing level--115 FTE--at which
            ONDCP has operated in recent years; second, this request aligns
            the FTE with the amount of personnel compensation provided by
            Congress over the past few years.
      --$5.342 million for professional service contracts, maintenance
            services, guard services, and related costs. Included in this
            amount is funding to support conferences (including HIDTA,
            CTAC, and demand reduction) and to operate the Drug Policy
            Information Clearinghouse.
      --$2.432 million for rental payments to the General Services
            Administration (GSA).
      --$776,000 for travel and transportation costs.
      --$701,000 for communications, utilities, and miscellaneous costs.
            This amount will fund telephone and telecommunications costs,
            postage, and translation equipment.
      --$860,000 for equipment. This amount provides for the purchase of
            required office equipment (including replacement equipment),
            such as personal computer systems, automated data processing
            equipment and secure communications equipment.
      --$1.35 million for research to develop and assess drug policy;
            identify and detail changing trends in the supply of and demand
            for illegal drugs; monitor trends in drug use and identify
            emerging drug problems; assess program effectiveness; and
            improve data sources.
      --$1.0 million for the National Alliance for Model State Drug Laws
            (NAMSDL) to encourage states to adopt and implement laws,
            policies, and regulations to reduce drug use and its adverse
            consequences. In the past, ONDCP has utilized an Interagency
            Agreement with the Department of Justice's Bureau of Justice
            Assistance (BJA) for BJA to provide program and grant
            management oversight for the NAMSDL program. As ONDCP has
            developed the requisite expertise to guide this program, ONDCP
            will assume direct program management, leaving BJA with
            responsibility only for grant management.
        As you know, the Administration is preparing a budget amendment
    that will propose consolidating all S&E accounts in the Executive
    Office of the President (EOP) into a single appropriation. This
    consolidation would give the President greater flexibility to allocate
    resources among the EOP Offices, create economies of scale and
    efficiencies in purchasing, and permit the newly-established position
    of EOP Chief Financial Officer (CFO) greater oversight of financial
    transactions and closer monitoring of expenditures. The ONDCP S&E
    request I have just described will be incorporated, without change,
    into the budget amendment that is expected to be transmitted next week.
        Special Forfeiture Fund: $247.6 million.--ONDCP's budget request
    provides $247.6 million for the Special Forfeiture Fund, an increase of
    $14.5 million over the fiscal year 2001 enacted level. This request
    funds a diverse group of critical, ongoing programs: the National Youth
    Anti-Drug Media Campaign, the Drug-Free Communities Program, the
    Counterdrug Intelligence Executive Secretariat, the National Drug Court
    Institute, and the U.S. Olympic Anti-doping Program. Furthermore, this
    request will support fully the development and implementation of the
    Parents for a Drug-Free Future Program, a new presidential initiative.
    The National Youth Anti-Drug Media Campaign
        In fiscal year 2002, ONDCP is requesting $185 million for the
    National Youth Anti-Drug Media Campaign, the same amount enacted for
    fiscal year 2001. ONDCP will continue this initiative that began in
    fiscal year 1998, and was expanded in fiscal year 1999, to use paid
    media messages to change youth attitudes about drug use and its
    consequences. Strategically targeted, high impact, paid media
    messages--at both the national and local levels--are the most cost
    effective, quickest means of altering drug use behavior through changes
    in adolescent perceptions of the danger and social disapproval of
    drugs.
        Although public service messages (PSAs) are part of this campaign,
    they alone cannot reach the specific audiences at the times and with
    the frequencies that are required to move youth drug use attitudes in
    the right direction.
        The non-advertising component of Campaign delivers anti-drug
    messages through news and public affairs coverage in radio and
    television broadcasts, as well as print media, the Internet, faith
    communities, health professionals, community organizations and
    coalitions, schools, parents, coaches, and organized sports. The drug
    prevention campaign also includes an entertainment industry component
    to provide accurate information about drug use and encourage its
    accurate depiction on television, film, and in music and to engage
    celebrities to communicate positive anti-drug messages to youth.
        The Campaign utilizes strategic partnerships to increase the number
    of organizations and businesses through which accurate anti-drug
    messages reach their target audiences. These alliances are extending
    and enhancing Campaign messages to reach youth and parents in the
    communities where they live and in places where they spend most of
    their time--including schools, on-line, at work and at play--helping to
    build long-term substance abuse prevention activities. Media and
    advertising partnerships bring expertise to every aspect of the
    Campaign. ONDCP is particularly proud that since the inception of the
    Campaign all major television networks have donated airtime, special
    programming, and production of celebrity PSAs.
        ONDCP especially is proud of our long-standing relationship with
    the Partnership for a Drug-Free America. Additional significant
    partners playing critical roles in the Campaign include The Ad Council
    and the American Advertising Federation. Other Campaign partners
    include organizations that have focused historically on young people,
    parents and substance abuse issues, education, and other fields with
    broad reach into target audiences. These include the Campaign's newest
    entertainment industry partner, the Hollywood Reporter, youth
    development partners such as YMCA of the USA, National FFA Organization
    (formerly the Future Farmers of America), and the Girl Scouts of the
    USA. Education partners helping to communicate anti-drug messages
    include the National Middle School Association, the National
    Association of Student Assistance Professionals, and the National
    Education Association. Media partners include Oxygen Media, USA Today,
    Channel One, Cable in the Classroom and the New York Times Newspapers
    in Education program.
        The Media Campaign is also partnering with interfaith organizations
    to develop, test, produce and distribute research-based, substance
    abuse prevention materials to help elevate drug prevention within the
    faith-based community.
        The Campaign's Internet initiatives combine web sites that appeal
    to our critical audiences of youth, parents, educators and other adult
    influencers with online banner ads, online sponsorships, promotions and
    interactive outreach. The Campaign's primary web sites are Freevibe.com
    and TheAntiDrug.com. Freevibe encourages young people to make positive,
    well-informed, life-style decisions. TheAntiDrug.com provides parents
    and other adult caregivers with strategies and tips on raising healthy,
    drug-free children. Web-based information for parents is also in
    Spanish, as well as four Asian languages.
        In addition, the Campaign developed Internet sites with industry
    leaders such as America Online (AOL) for parents and youth. These
    activities, combined with a rich multimedia advertising program, have
    created an unprecedented social marketing effort on the Web. Highlights
    include:
      --Nearly 24 million page views on Media Campaign websites.
      --More than 287 million pro-bono Internet match impressions attained.
        Online outreach and partnerships have distributed our Campaign
    messages throughout the Web. Critical partners in this effort have been
    a diverse set of media companies--such as Oxygen Media, Lycos.com,
    About.com, Education World, The Atlantic Monthly, Reprise Records and
    The Mills Malls--that carry anti-drug content or provide promotion back
    to Campaign sites.
        During the past year, the Campaign reached 90 percent of America's
    youth at least four times a week in nine languages to various ethnic
    groups. The Campaign represents the largest multicultural advertising
    and communications effort ever undertaken by the Federal government,
    with messages and delivery tailored to ethnic audiences. To ensure the
    credibility of the messages and to enhance their impact, the Campaign
    combines culturally appropriate and relevant messages designed by
    African American, Hispanic, and Asian-owned advertising and
    communications companies.
        The Campaign's pervasive presence has served as a catalyst for an
    increased demand for anti-drug information. For example, since the
    national launch of the Campaign in July of 1998, inquiries received by
    the National Clearinghouse for Alcohol and Drug Information (NCADI)
    have increased dramatically. Specifically, during the first three
    months of this year, NCADI saw an increase of 25 percent in inquiries
    over a year ago. Furthermore, the number of inquiries NCADI received in
    calendar year 2000 increased by 178 percent percent over the 12 months
    before the Campaign. On peak days, which corresponded with specific
    anti-drug Campaign events (e.g., an article in Parade magazine)
    requests to NCADI for anti-drug information surged by 367 percent over
    pre-Campaign levels. Finally, per month Internet requests for substance
    abuse information to NCADI have more than quadrupled since the
    inception of the Campaign.
        The ``branding'' component of the Campaign began in September 1999
    to unite message themes, create synergy between advertising and non-
    advertising programs, and maximize Campaign awareness and impact. For
    youth, the Campaign launched the brand ``My anti-drug'' in September
    2000, to coincide with kids going back to school. The launch of ``My
    anti-drug'' represented a call to action to every youth to consider
    what it is in his or her own life that is their motivation for
    rejecting drugs, to express themselves, and to be heard. In response to
    national outreach, more than 75,000 young people submitted their own
    personal ``anti-drugs.'' A special supplement in USAToday featured
    selected examples of the kids and their submissions. It is worth noting
    that individual anti-drug submissions continue to be received and
    posted through our youth Web site, Freevibe.com.
        ONDCP takes great pride in our multi-faceted methods for
    ascertaining the impact of the Campaign. Through constant evaluation,
    ONDCP is able to manage the Media Campaign to achieve the desired
    outcomes and provide progress reports to Congress and the American
    people.
        The Phase III evaluation design is a comprehensive system developed
    to gauge the effectiveness of the National Youth Anti-Drug Media
    Campaign. This evaluation, which is managed by the National Institute
    on Drug Abuse, is designed to determine the extent to which changes in
    drug abuse-related knowledge, attitudes, beliefs, and behaviors can be
    attributed to exposure to the Campaign. The evaluation is measuring and
    assessing:
      -- Changes in drug-related knowledge, beliefs, attitudes, and
            behaviors in children and parents of children;
      --Relationships between changes in drug-related knowledge, beliefs,
            attitudes, and behaviors and their associations with self-
            reported measures of media exposure;
      --Associations between parents' drug-related knowledge, beliefs,
            attitudes and behaviors and those of their children;
      --Associations between parents' drug-related knowledge, beliefs,
            attitudes and behaviors and those of their children that may be
            related to the media campaign; and
      --Changes in community-based drug prevention activities in response
            to the campaign.
        The first Phase III evaluation report, released in November 2000,
    provides data awareness, key baseline attitudes, beliefs and behavior
    and indices of exposure to the Campaign messages over the period of
    November 1999 through May 2000. The second Phase III evaluation report
    provides initial evidence of the Campaign's impact-on average, Wave I
    respondents (a Wave refers to a six month continuous data collection
    period) were interviewed 6 months before Wave II respondents, so the
    time period for change is brief. Key findings include evidence of
    increased anti-drug sentiment among older non-drug using teens (aged 14
    to 18) with regard to trying marijuana between the first and second
    data collection periods. Six outcomes related to anti-drug attitudes
    showed significant change in the desired direction. Regarding the
    Campaign's effects on parents, there was a consistent pattern of
    association between exposure to the Media Campaign messages and
    outcomes, such as talking with their children about the dangers of
    drugs and monitoring their children.
        The analysis of change for the Wave II report is not definitive;
    Wave I was collected during the early months of Phase III, and there
    was relatively little time for additional change to occur, given only 6
    months between Waves I and II. While over the course of the evaluation,
    change in a desirable direction for outcomes is strongly expected,
    change between Waves I and II is less definitive. Research indicates
    that it will take one to two years to affect attitudes and two to three
    years from the launch of the fully integrated Campaign (i.e., mid-2002)
    to demonstrate reductions in youth drug use that can be attributed to
    the Campaign. Subsequent reports, which will be provided every six
    months, will provide more definitive information on the extent to which
    changes in attitudes and behavior can be attributed to the Campaign.
        Findings from the second Phase III evaluation report indicate high
    levels of awareness of anti-drug ads among both youth and parents
    across all media. There is good evidence of increased anti-drug
    sentiment among older non-drug-using teens (aged 14 to 18) with regard
    to marijuana trial between Waves 1 and 2, which may signal subsequent
    declines in marijuana use in future waves of the evaluation-with 87
    percent of teens reporting that they did not intend to try marijuana
    even once or twice in the next year. For youth aged 12 to 13 years of
    age, all of the questions on regular use of marijuana also appeared to
    move in an anti-drug use direction, although there was not a consistent
    pattern of change nor consistent evidence of an association between
    exposure to anti-drug messages and outcomes. For parents, the NIDA
    evaluation indicates a consistent pattern of association between
    exposure to anti-drug messages and three key outcomes (talking with,
    monitoring, and engaging in fun activities with youth), meaning that
    parents who reported high levels of exposure to anti-drug messages were
    more likely to have engaged in the three activities with their
    children, but no change over time. There was a statistically
    significant increase in the percentage of parents reporting hearing a
    lot about anti-drug programs in the community in the past year from 32
    percent in Wave 1 to 36 percent in Wave 2. Subsequent waves of data
    collection will continue to track changes in anti-drug attitudes and
    behavior and provide more conclusive evidence of whether these changes
    in attitudes and behavior can be attributed to the Media Campaign.
        In addition to the NIDA evaluation, ONDCP utilizes data from other
    research to manage the Campaign for results. Several other studies have
    reported the positive impact the Campaign is having on youth awareness
    and behavior. For example, results from the Campaign's tracking study,
    which is being conducted by Millward Brown, show that as of mid-
    February 2001, 52 percent of youth reported seeing ``anti-drug''
    advertising, and 69 percent of those report having considered their own
    ``anti-drug.'' Visual recognition of the anti-drug logo more than
    quadrupled from 10 percent to 46 percent in nearly half the time
    expected in an average new product launch.
        The Partnership for a Drug Free America (PDFA) reported in its 2000
    Parent Attitude Tracking Survey (PATS) that anti-drug advertising
    resulted in significant increased teen awareness of anti-drug ads--with
    more than half of teens now claiming daily anti-drug ad exposure. The
    proportion of youth reporting that anti-drug ads made them less likely
    to try or use drugs increased overall, from 30 percent to 37 percent
    from 1998 to 2000.
        PATS data also shows that the earlier upward trend in teen
    marijuana use has been reversed since its peak in 1997 and since the
    Campaign began in 1998. Concurrent with reduced youth marijuana use,
    PATS findings indicate that youth intent not to use marijuana increased
    from 1998 levels in 1999, and 2000.
    The Drug-Free Communities Program
        In fiscal year 2002, ONDCP is requesting $50.6 million to expand
    the Drug-Free Communities Program, an increase of $10.7 million over
    the fiscal year 2001 enacted level. This program utilizes a
    straightforward mechanism whereby matching Federal grants are provided
    directly to local community anti-drug coalitions for the purpose of
    improving or expanding their efforts to prevent substance use and abuse
    among children and youth (including the underage use of alcohol and
    tobacco). We are proud that the program currently supports 307
    communities located in forty-nine states, Puerto Rico, the U.S. Virgin
    Islands, and the District of Columbia. Furthermore, twenty-five of the
    grants have been awarded to communities with predominately Native
    American and Native Alaskan populations. We anticipate awarding
    approximately 145 additional grants during the fiscal year 2001 grant
    cycle (September, 2001).
        ONDCP and the Office of Juvenile Justice and Delinquency
    Prevention, Department of Justice (OJJDP) conducted a comprehensive
    study of the administrative costs associated with the Drug-Free
    Communities Program and produced a report on the findings. The report
    concluded that amending the administrative cost limitation from ``not
    more than three percent'' to ``not more than eight percent'' per fiscal
    year would maintain thorough competitive peer review of all
    applications, enhance grantee access to valuable technical assistance
    about science-based prevention practices and training in those
    practices, improve ONDCP's and OJJDP's ability to maintain an outcome-
    focused program through a comprehensive evaluation, and allow for
    greater promotion of the program to coalitions across the United
    States. This increase will ensure that the grants awarded directly to
    community anti-drug coalitions will be used in the most effective
    manner possible. ONDCP remains optimistic that the cap will be
    increased during fiscal year 2001 to alleviate the grant management
    difficulties incurred by OJJDP, and respectfully requests the
    Subcommittee's support on this issue. Pursuant to Senate Appropriations
    Committee Report 106-500 (accompanying S. 2900), ONDCP submitted this
    report for the Subcommittee's consideration on January 18, 2001.
        Of the total $50.6 million ONDCP is requesting for this program,
    $46.6 million will be granted directly to community anti-drug
    coalitions (assuming an increase in the administrative cap to not more
    than eight percent). We anticipate being able to award approximately
    150 new grants in fiscal year 2002, bringing the cumulative five-year
    total of grantees to over 600. The Drug- Free Communities Act of 1997
    (the program authorization) ensures that these grant dollars leverage
    additional funding for community coalitions by requiring all grantees
    to match their Federal grant funds with other non-Federal sources of
    support, including both cash and in-kind contributions. ONDCP policy
    provides that grantees may receive a maximum amount of $100,000 for
    years one and two, up to $75,000 for year three, and no more than
    $50,000 for years four and five. However, based on recommendations from
    the Program Administrator and the statutorily-created Advisory
    Commission, we approved a one-year waiver of this policy for fiscal
    year 2001 funding to permit coalitions in their fourth year of funding
    to receive up to $75,000.
        Of the total $50.6 million ONDCP is requesting for this program,
    only $4 million would be allocated for purposes other than providing
    grants directly to communities. These funds would be allocated in the
    following manner:
      --Grants Administration--$2.35 million. This amount is sufficient for
            OJJDP to ensure continuity in its grants management function
            through an Interagency Agreement with ONDCP.
      --Training and Technical Assistance--$0.75 million. This amount will
            permit high-quality, low-cost training and technical assistance
            via each of the six regional Centers for the Application of
            Prevention Technology (CAPTs), managed by the Center for
            Substance Abuse Prevention (CSAP). This is an especially
            important function, considering the tremendous response ONDCP
            has received from coalitions in rural or other traditionally
            under-served areas which do not have experience in successfully
            applying for Federal grant funds. ONDCP will continue to
            utilize the resources of The Community Anti-Drug Coalitions of
            America (CADCA) to provide a wide array of technical support,
            program ideas, and advocacy to community coalitions.
      --Evaluation--$0.75 million. ONDCP agrees with the strong
            recommendations of the Congress and the Advisory Commission
            that an empirically sound evaluation is of paramount importance
            to maintain the integrity of this program. These funds will
            permit a modest, but effective evaluation focused on outcome
            measures of effectiveness.
      --Program Administration--$0.2 million. These funds are used to
            support the Program Administrator and the statutory Advisory
            Commission. The Program Administrator serves a critical
            function by ensuring a high level of responsiveness to the
            grantees and applicants, as well as enhancing interagency
            collaboration. This amount remains constant and is unaffected
            by our request to increase the cap on administrative costs.
    Parents For a Drug-Free Future
        In fiscal year 2002, ONDCP is requesting $5 million to support and
    encourage parents to help children stay drug-free. This program will
    provide matching funds to national parents' organizations for the
    following purposes:
      --Assist training thousands of parents in communities nationwide in
            skills, methods, and information that help prevent drug abuse
            by young people;
      --Promote cooperation among national parent efforts and increase
            their impact through fostering partnership with the network of
            parent organization affiliates and chapters, regional and
            state-level entities that involve parents, and local community
            anti-drug coalitions; and
      --Provide science-based prevention strategies, information, and
            materials to parents and parent-serving organizations, thereby
            strengthening their ability to protect their children from the
            risks of drug use.
    National Drug Court Institute
        In fiscal year 2002, ONDCP is requesting $1.0 million for the
    National Drug Court Institute (NDCI). The NDCI will use these funds to
    continue expanding their drug court training program for practitioners,
    convene special advisory groups to develop curricula in new
    disciplines, develop a national community probation initiative, and
    expand and update the Institute's video instruction library.
        Drug courts were developed in response to the costly and time
    consuming approach to dealing with non-violent, substance abusing
    offenders that were overwhelming the criminal justice system.
    Traditionally, drug use, criminal behavior, and recidivism are reduced
    substantially for drug court participants. In contrast to the
    traditional ``revolving door'' approach, drug courts provide an
    effective solution to drug addiction and drug-related crime through the
    innovative use of and sanctions and incentives, comprehensive
    supervision, drug testing, and judicial monitoring. Defendants who
    complete the program either have their charges dismissed (in a
    diversion or pre-plea model) or have their probation sentences reduced
    (in a post-plea model). Drug courts provide closer, more comprehensive
    supervision and much more frequent drug testing and monitoring during
    the program than other forms of community supervision.
        Currently, there are almost 1,000 drug courts in existence or being
    planned across the nation. These include approximately 175 juvenile
    courts, 55 Tribal courts and 50 family courts. Since their inception,
    almost 300,000 people have enrolled in drug court programs and almost
    180,000 have graduated or remain active in their programs. The
    Department of Justice's fiscal year 2002 request for the Drug Court
    Program maintains the program at the all-time high, fiscal year 2001
    enacted level of $50 million.
    Counterdrug Intelligence Architecture
        In fiscal year 2002, ONDCP is requesting $3 million for the
    Counterdrug Intelligence Executive Secretariat (CDX). The fiscal year
    1998 Treasury and General Government Appropriations Act required ONDCP
    to improve counterdrug intelligence coordination and eliminate
    unnecessary duplication. As a result of this congressional directive,
    an interagency group created the General Counterdrug Intelligence Plan
    (GCIP). This unclassified plan was signed by eight department and
    agency principals, approved by the President, and released in February
    2000.
        The cornerstone action initiative of the GCIP establishes a senior
    interagency working group (The Counterdrug Intelligence Coordinating
    Group--CDICG) and its permanent support staff (The Counterdrug
    Intelligence Executive Secretariat--CDX). Since its inception in July,
    2000, the CDX staff has supported the CDICG in implementing many of the
    73 priority action items in the GCIP as well as additional taskings on
    new interagency counterdrug issues. ONDCP is confident that the work of
    this small but dedicated staff will continue to improve our nation's
    counterdrug intelligence architecture by enhancing information sharing,
    operational coordination, and technical connectivity among Federal
    counterdrug components and their state and local law enforcement
    counterparts.
    United States Olympic Committee Anti-Doping Effort
        In fiscal year 2002, ONDCP is requesting $3 million to support the
    United States Olympic Committee Anti-Doping Effort, a decrease of $0.3
    million below the fiscal year 2001 enacted level. This request proposes
    to provide these funds to the United States Anti-Doping Agency (USADA)
    via a ``grant or other appropriate transfer'' instead of a ``direct
    payment.'' This will ensure the Federal government can provide
    financial oversight and accountability for these funds.
        These funds will provide much needed assistance to the USADA (the
    independent drug testing agency for U.S. Olympic sports) in achieving
    their mission of administering an independent, transparent, and
    effective anti-doping program for the Olympic, Pan American, and
    Paralympic games. Specifically, these funds would support research and
    administrative initiatives, educational programs, and efforts to inform
    athletes of the rules governing the use of performance enhancing
    substances, the ethics of doping, and the adverse health consequences
    associated with doping. These funds are critical if we are to strive
    for a drug-free Winter Olympics in Salt Lake City, Utah, and provide
    continuity of effort for future competition. To achieve that
    continuity, USADA is developing an out-of-competition testing program
    that will occur during the off-years of the Olympic and PanAm games.
                High Intensity Drug Trafficking Areas (HIDTA): $206.35
                        million
        In fiscal year 2002, ONDCP is requesting $206.35 million for
    necessary expenses of the HIDTA program, an increase of more than $0.3
    million above the fiscal year 2001 enacted level. The ONDCP Director,
    in consultation with the Attorney General, Secretary of Treasury, heads
    of National Drug-Control Program agencies, and appropriate governors,
    designates these regions to enhance and coordinate America's drug-
    control efforts among local, state and Federal law enforcement
    agencies. Each HIDTA has an Executive Committee (EXCOM) which serves as
    the governing body for the individual HIDTA. The EXCOM consists of an
    equal number of representatives from local/state and Federal law
    enforcement agencies. The EXCOM is responsible for the development and
    implementation of the HIDTA Strategy and the attendant initiatives and
    budgets, as well as for the fiscal operations of the HIDTA. The EXCOM
    hires a HIDTA Director to assist with the day-to-day administration of
    the HIDTA, implement appropriate oversight controls per the EXCOM, and
    liaison with ONDCP. Operational control of initiatives is the sole
    purview of the participating law enforcement agencies.
        The HIDTA mission includes coordination efforts to reduce the
    production, manufacturing, distribution, transportation and chronic use
    of illegal drugs, as well as the attendant money laundering of drug
    proceeds. In addition, HIDTAs assess regional drug threats, develop
    strategies to address the threats, integrate initiatives, and provide
    Federal resources to implement initiatives. These resources are
    allocated to link local, state, and Federal drug enforcement efforts
    and to optimize the investigative return on limited fiscal and
    personnel resources. Properly targeted, HIDTAs offer greater efficiency
    in countering illegal drug trade in local areas by facilitating
    cooperative investigations, intelligence sharing (coordinated at HIDTA
    Investigative Support Centers), and joint operations against drug-
    trafficking organizations.
        Intelligence sharing will continue to improve, as we expect all 28
    HIDTAs will be connected via the Regional Information Sharing System
    Network (RISS.net) by the end of this calendar year. Connecting the
    HIDTAs via RISS.net, a Department of Justice program, instead of
    creating a new HIDTA-specific infrastructure, clearly demonstrates the
    HIDTA program's dedication to avoiding duplication of effort. Since
    1974, when Congress established the RISS.net program, law enforcement
    and criminal justice agencies in various regions of the country have
    been able to instantaneously share criminal intelligence information in
    a responsible manner. HIDTA looks forward to enhancing communication,
    as well as officer and public safety, through this state-of-the-art
    Web-based technology for years to come.
        HIDTAs are based on a logical, comprehensive methodology for
    prioritizing needs and working with other initiatives. This
    prioritization fosters a strategy-driven, systems approach to integrate
    and synchronize efforts as well as to maintain a focus on achieving
    measurable outcomes. Each HIDTA reviews annually their strategy and
    initiatives to improve effectiveness and to respond to changes in the
    threat. This ensures that participating agencies have a mechanism to
    quickly adapt to fluctuating drug trafficking patterns. This ability
    becomes increasingly important as drug traffickers use more and more
    complicated schemes and methods to bring illicit drugs to consumers in
    the United States.
        The ability to maintain regional flexibility while demanding
    accountability is essential to the HIDTA Program's success. Of the
    total amount requested, ONDCP's budget includes $2.1 million to conduct
    internal reviews and external financial audits of individual HIDTA
    program effectiveness and budgetary compliance. Internally, ONDCP has
    begun a review process that includes on-site visits to HIDTAs by ONDCP
    staff, as well as members from the Departments of Justice and Treasury.
    The on-site reviews help strengthen management at the individual HIDTAs
    and at ONDCP. To date, we have completed six reviews. ONDCP contracted
    with Klynveld, Peat, Marwick, Goerdeler (KPMG) to perform external
    financial audits. In order to maximize the impact of these limited
    audit resources, KPMG is currently conducting audits based on a risk-
    assessment model. While we are pleased that these reviews/audits have
    not discovered any major problems, the audits and program/budget
    reviews have provided the impetus for ONDCP to provide some HIDTAs with
    conditional grant language to bring minor issues into compliance.
        Since January 1990, counties in the following 28 areas have been
    designated as HIDTAs: Houston; Los Angeles; South Florida; New York;
    and the Southwest Border, which includes South Texas, West Texas, New
    Mexico, Arizona and Southern California (in 1990); Baltimore/
    Washington, DC; and Puerto Rico/U.S. Virgin Islands (in 1994); Atlanta;
    Chicago; and Philadelphia/Camden (in 1995); Gulf Coast (Alabama,
    Louisiana, and Mississippi); Lake County (Indiana); the Midwest (Iowa,
    Kansas, Missouri, Nebraska, North Dakota, and South Dakota); Northwest
    (Washington); and Rocky Mountains (Colorado, Utah, and Wyoming) (in
    1996); Northern California (San Francisco Bay Area); and Southeastern
    Michigan (in 1997); Appalachia (Kentucky, Tennessee, and West
    Virginia); Central Florida; Milwaukee; and North Texas (in 1998);
    Central Valley California; Hawaii; New England (Connecticut, Maine,
    Massachusetts, New Hampshire, Rhode Island, and Vermont); Ohio; and
    Oregon (in 1999); and Northern Florida; and Nevada (in 2001).
    Currently, 949 local, 172 state, and 35 Federal law-enforcement
    agencies and 86 other organizations participate in 452 HIDTA-funded
    initiatives in 41 states, the District of Columbia, Puerto Rico, and
    the U.S. Virgin Islands.
                Counterdrug Technology Assessment Center (CTAC): $40
                        million
        The Counterdrug Technology Assessment Center's fiscal year 2002
    budget request of $40 million represents an increase of $4 million
    above the fiscal year 2001 enacted level. It includes requests for:
    Research and Development ($18 million) and the Technology Transfer
    program ($22 million).
        The counterdrug research and development (R&D) program addresses
    the scientific and technological needs of the National Drug Control
    Program agencies and supports improvements to counterdrug capabilities
    that transcend the need of any single Federal agency. It includes a
    demand reduction request to support projects in brain imaging
    technology, therapeutic medications, and assessment of treatment
    programs.
        Brain Imaging Technology projects have been particularly
    successful. New CTAC-sponsored neuroimaging facilities were completed
    this year at the University of Pennsylvania, Massachusetts General
    Hospital, and Emory University. Research scientists working on grants
    from the National Institute on Drug Abuse are using this equipment to
    further their knowledge of the underlying causes and consequences of
    substance addiction and abuse. These institutions are processing new
    images of the human brain to dramatically improve the quality of
    research they are capable of performing. In fiscal year 2002, positron
    emission tomography (PET) equipment will be completed at UCLA and
    NIDA's intramural research program located in Baltimore, Maryland. This
    equipment will support research using highly resolved images of non-
    human primates. A high field functional magnetic resonance imaging
    scanner will also be completed in fiscal year 2002 at McLean Hospital
    in Boston, Massachusetts, in support of Harvard University research
    programs. New projects are planned in fiscal year 2002 with the
    University of Colorado and the Oregon Health Sciences Center to
    complement existing brain imaging technology with new four-Tesla
    functional magnetic resonance imaging systems.
        In fiscal year 2000, Congress provided ONDCP with funding for a
    research grant to the U.S. Anti-Doping Agency (USADA) to learn more
    about anabolic steroids, androgens, human growth hormones, and
    addiction. USADA held its first Anti-Doping Research Summit in October
    2000 to develop an aggressive, comprehensive research agenda. CTAC
    plans to support their research agenda by investigating innovative
    testing protocols for the Salt Lake City Winter Olympics and developing
    test protocols for the endurance-boosting hormone erythropoietin (EPO).
        The R&D program supports supply reduction projects to improve cargo
    inspection, countering drug smuggling, drug crime information handling,
    communications, and surveillance capabilities. Last year, CTAC
    conducted R&D projects for non-intrusive inspection capabilities in the
    areas of enhanced gamma ray detectors, surface acoustic wave sensors,
    selective breeding of detector dogs, and portable capabilities to
    detect drugs and contraband in sea vessels, compartments and containers
    of all sizes. In fiscal year 2002, research will continue on canine
    olfaction for detecting drugs and on exploring the phenomenology of
    illicit crops to improve the detection and identification of marijuana
    growth areas.
        CTAC uses technology testbeds to introduce emerging technologies
    and prototype systems into the operational environment and to determine
    user-related limitations and benefits of the systems from those
    agencies that ultimately use the equipment. In fiscal year 2000, a
    communications interoperability testbed was established with the
    Lakewood Police Department (Colorado) to assess off-the-shelf
    communications interoperability systems in the typical multiple agency
    drug task force environments. Based on this assessment and
    demonstration, Congress provided funding in fiscal year 2001 to
    continue this testbed in two phases: (1) a system configuration for the
    Denver metropolitan area, and (2) a state-wide configuration
    encompassing urban and rural populations that optimized the current
    communications infrastructure. The Denver phase will be completed in
    August 2001; the statewide phase will run through May 2002.
        The Technology Transfer Program (TTP) provides technologies
    developed with Federal funding ``directly to state and local law
    enforcement agencies that may otherwise be unable to benefit from the
    developments due to limited budgets or lack of technological
    expertise.'' The $39,052,000 appropriated over the past three years
    (fiscal year 1998-fiscal year 2000) for the TTP has made possible the
    delivery of 1,808 pieces of equipment to 1,325 state and local law
    enforcement agencies. CTAC provided hands-on training and limited
    maintenance support to all recipients. CTAC submitted to this
    Subcommittee performance evaluation reports on the program in September
    1999 and March 2000. During fiscal year 2002, the requested
    appropriation will allow transfer of much-needed technology to more
    than 2,400 state and local law enforcement agencies across the country.

                                   CONCLUSION
        Developing policy and implementing programs to combat the threat of
    illicit drugs requires a holistic, long-term, and research-based
    approach. While we cannot expect to eliminate illegal drugs and the
    harm they inflict upon our society overnight, we can and will continue
    to make steady and significant progress on all fronts. We look to this
    Subcommittee, and indeed the entire Congress, to provide bipartisan
    leadership in this effort. ONDCP is committed to working within the
    Executive Branch, as well as with Congress, state and local
    governments, international actors, and private citizens to reduce drug
    use and its consequences in our nation. We owe our children nothing
    less.

        Senator Campbell. Thank you. I have some questions dealing
    with youngsters and use of drug, but Senator Dorgan has a
    little tighter morning than I do so I am going to yield to him
    first.
        Senator Dorgan. Mr. Chairman, thank you very much. The
    Commerce Committee is marking up a fairly controversial bill
    right now downstairs and I must go down. I appreciate your
    courtesy.
        Let me ask about the issue of drug treatment. I know that
    ONDCP is not the primary source of drug treatment initiatives,
    and yet ONDCP has been involved in virtually everything dealing
    with drugs. Your former director was down in Colombia a good
    number of times and was involved in those initiatives.
        If one is going to try to interdict and restrict the supply
    of drugs, and a country has several million drug addicts, and
    you have got a fair number of them that would like to shed the
    addiction but there are not treatment availabilities for that.
    In other words, the slots available for getting treatment to
    shed yourself of a drug addiction are not sufficient in order
    to meet the needs. Does ONDCP talk with other agencies or talk
    internally about what we need to do to meet certain targets
    with respect to drug treatment availability?
        Mr. Jurith. Senator Dorgan, you are absolutely right. We
    estimate there are about 5 million chronic addicts in the
    country, a mixture of cocaine addicts, heroin addicts, and
    polydrug using addicts. We find it is rare nowadays that you
    find an addicted person who is only abusing one substance. Many
    of these combined with alcohol abuse as well.
        You are right, we need to do a better job. Because out of
    that 5 million figure, we estimate we have treatment capacity
    for a little over 2 million of them. So that leaves a
    substantial portion of that population that is in need of
    treatment and cannot access it.
        Senator Dorgan. You are saying we have 2 million slots for
    drug addiction treatment?
        Mr. Jurith. That is correct. For about 5 million addicts,
    that is correct, sir.
        Senator Dorgan. That is much, much more than I was told we
    had. But nonetheless----
        Mr. Jurith. We have a significant treatment gap that we
    need to address. I think efforts over the last few years and
    efforts in the President's budget attempt to address that. For
    example, in the President's 2002 budget he proposes an increase
    in drug treatment funding, including research to $3.4 billion.
    That is an increase of $245 million over the fiscal year 2001
    level, and we have been steadily increasing our treatment
    budget over the last 5 years. I think it is over a 30 percent
    increase since fiscal year 1996.
        Senator Dorgan. Let me follow this because I want to try to
    understand what you are saying. We have 5 million people who
    are drug addicts, who are chronic severe drug addicts.
        Mr. Jurith. Correct, sir.
        Senator Dorgan. A number of those are not interested in
    getting treatment. A number of them are. A number of them have
    an addiction that is a desperate problem for them. They go out
    and they prostitute themselves, they steal, they commit massive
    amounts of crime in order to buy the drugs to deal with their
    addiction. We agree on that.
        Mr. Jurith. Absolutely.
        Senator Dorgan. So that number of addicts who want to shed
    themselves of their addiction, if they show up at a treatment
    center in one city or another, the latest data for which I have
    information, 1998, 57 percent of the drug users in the more
    severe categories of abuse were unable to receive treatment. So
    we know that there are people showing up with a severe drug
    abuse problem and unable to get treatment for it.
        Mr. Jurith. That is correct.
        Senator Dorgan. Now do we have a goal or an objective, with
    ONDCP playing a role in that. Do we have an objective by which
    this country will be able to say at some point, anyone who is
    addicted to drugs who shows up at a treatment center, we have
    enough capability in this country in treatment centers to help
    them shed their addiction?
        Mr. Jurith. We need to increase our treatment capacity
    expansion. There is no question about it. The Center for the
    Substance Abuse Treatment has developed the National Treatment
    Plan. I would be happy to share a copy of that with Senator
    Dorgan and your staff.
        We are expanding treatment capacity in the President's
    budget by $40 million, including $8 million for competitive
    grants to provide residential treatment to young people. There
    is a real problem out there. Too many young people develop an
    early addiction and need residential treatment. Outpatient
    therapies are not going to work for that population because you
    need to get them out of that environment where they got their
    addiction to begin with. But many private insurers are
    reluctant to pay for that type of residential treatment, so we
    need to expand that capacity.
        The Substance Abuse Block Grant----
        Senator Dorgan. My question is whether we have targets to
    do that. Are we just saying we need to, or are we establishing
    targets? Let me tell you why I am asking the question. I was on
    an Indian reservation a while back where they have a substance
    abuse problem particularly dealing with alcoholism, but chronic
    alcoholism, and they had, I believe, 18 in-resident treatment
    slots available. Hundreds and hundreds of people who have a
    chronic alcohol problem and they had just a minuscule amount of
    in-resident treatment capability to help them.
        So I walked away from that thinking, my God, we are really
    missing the boat here. And you extrapolate that to the issue of
    chronic drug abuse with hard drugs and then realize there are
    people walking around who desperately want to shed themselves
    of this addiction and we do not have enough treatment slots
    available.
        So the question I am asking is, do we have a target in
    mind? Are we going to try to, in 2 years or 3 years--we know
    what the target is on advertising. We know how much we are
    going spend, we know the target audiences. Do we have a target
    in mind anywhere, in your agency or others, by which we are
    deciding that we are going to try to help these people who want
    to shed themselves of their addiction, to be able to do so?
        Mr. Jurith. Senator, I will have to get back to you on the
    issue of specific targets. But I do know we do have the
    National Treatment Plan developed by CSAT, and there is
    increased money in the budget to close the treatment gap. Part
    of the problem is we need to be more creative in our outreach
    efforts. As you indicated, many of these folks are in hard to
    reach communities. It is difficult to draw them out into
    treatment.
        One of the things I think we need to do and one of the
    things that we have discussed at ONDCP is, how can we be more
    creative in reaching out to these hardcore using communities
    who very often are beyond the reach of the criminal justice
    system. We have expanded drug courts and we are picking up a
    fair number of chronically-addicted folks that way. But many of
    these individuals do not come into daily or regular contact
    with the criminal justice system.
        I think one of the efforts that the President's faith-based
    initiative can do is just that--because the churches are out
    there in these communities. Not that we want them necessarily
    on the front line of providing treatment, but I think one of
    the things that faith-based organizations can do is serve as a
    lever to draw these people in and get them into treatment.
    Because it is costing us billions of dollars by having that
    untreated population out there.
        I will get back to you on the target issue and----
        Senator Dorgan. I would appreciate it if you would do that.
    I do not want to ask the chairman for indulgence much further
    except for one additional point. I am going to submit some
    questions that I have dealing with the money side of things.
        Mr. Jurith. Fine, sir.
        Senator Dorgan. But with the killing of the woman and her
    child in Peru, the shooting of that airplane by the Peruvian
    military, I must say that I am becoming less and less
    comfortable with what we are doing in that region of the world,
    Colombia, Peru and elsewhere.
        I know that we are doing that in order to shut down the
    supply of drugs. But the supply of drugs would largely be
    irrelevant if the demand did not exist. So that is why I have
    supported, and the chairman has supported, the media campaign
    and a range of other things that you have described in your
    testimony, to try to see if we cannot do something about
    demand. That is why I care so much about this issue of
    treatment.
        But I did want to say for you, for your benefit and others
    that I am becoming increasingly concerned about what we are
    doing with respect to the situation in Colombia, Peru and the
    region, and wondering if we are not getting deeper than we
    might want to get in that region in a range of very troublesome
    circumstances.
        That is not to suggest we should not care about supply. We
    should. It is not to suggest we should not attempt to
    interdict. We should. But we need a balanced program here, and
    it includes treatment and a range of other things including the
    media campaign.
        Now some of the questions I am going to submit to you deal
    with the media campaign. I am also very anxious to get someone
    outside of Government, that has a vested interest in evaluating
    the campaign, to tell us what has this done, what are we
    accomplishing with it? You have a vested interest, and we
    perhaps do as well because we have authorized the campaign. You
    have requested the money. So we all have an interest in saying,
    gosh, haven't we done a great here?
        Well, I do not have the foggiest idea whether we have done
    a great job. We are going to end up spending close to $1
    billion of the taxpayers' money. I hope it proves to be highly
    effective. But along the way, let us make sure that we are
    making some progress. I hope we can perhaps find a mechanism by
    which someone outside of the circumstances of vested interests
    can give us that evaluation as well.
        Mr. Chairman, thank you. I will submit a series of
    questions for the record. We appreciate your testimony today,
    and look forward to working with you and others in the agency
    as you pursue your mission.
        Mr. Jurith. Thank you, Senator Dorgan. We will be happy to
    bring you up to date fully on the evaluation, which is being
    conducted by an independent contractor under a contract with
    NIDA. So it is not fully a Government-run evaluation. But we
    clearly share your concerns about the efficacy of the Campaign.
        Senator Dorgan. My only point is, I assume you are paying
    the contractor.
        Mr. Jurith. I understand. Well taken.
        Senator Dorgan. I used to teach economics and have been
    around economists enough to know that whomever pays economists
    have a lot to do with the reports the economists produce, and
    the same is true with most contractors. I do not mean to be
    pejorative about whatever you are doing there----
        Mr. Jurith. I understand, sir.
        Senator Dorgan [continuing]. But I think it is something
    that we also want to discuss in more depth at some point.
        Mr. Jurith. Yes, sir.
        Senator Dorgan. Thank you very much.
        Senator Campbell. Mr. Jurith, Senator Dorgan and I have a
    lot of the same ideas about the tenets of fighting a drug war
    which is based on incarceration, education, rehabilitation, and
    interdiction. Of course, this committee deals more with
    interdiction and education, and to a lesser degree with
    incarceration. Most of the money goes through CGIS, as you
    know.
        But I have to tell you that I agree with him that I am not
    sure we are winning the war from the standpoint of
    incarceration, as I see the numbers of inmates going up in
    American prisons and something like 70 percent or more are
    somehow related to drug use, or habituate drug use. A lot of
    them are repeat offenders.
        In some cases, these towns that used to say, you are not
    going to build one of those prisons in my backyard are now
    saying, gee, I hope we will get one too because we will ensure
    jobs literally forever. There does not seem to be any end in
    sight for the number of people we are putting in prison. We
    have some towns where over half of the population base is
    employed somehow in the prison industry. To me, there is
    something wrong with a country that finds as its only recourse
    to put more of their fellow countrymen in prison instead of
    trying to help them recover.
        I have always been a big supporter of the campaign too.
    These ads that you have shown us today are pretty graphic, and
    frankly I like those.
        Mr. Jurith. Thank you, sir.
        Senator Campbell. One of the reasons we got cross-ways with
    your predecessor, General McCaffrey, was that we were out of
    the loop when the negotiations were done about how to spend
    those millions and millions of dollars. We found that, after
    some investigations, that the networks, as you remember, were
    putting subliminal messages into the text of the programs and
    that was being considered sufficient for ONDCP to pay them the
    money, and then that would free up time for the networks to go
    ahead and resell that space to other advertisers. So the
    networks really got a windfall.
        When we put this program in place 5 years ago, that was one
    of our big concerns. We created some kind of a cash flow of
    money, easy money from the Congress, that ended up having some
    detrimental effect. I did not think that was right and we
    talked to the General about the way in which it was handled.
        I also questioned some of the ads that were in magazines
    that youngsters never read. It does not do any good to put ads
    on drugs in The Economist for youngsters, or Forbes, some
    magazine like that because teenagers rarely read those
    magazines. We had a little go-around about that too, I have
    always been a steadfast supporter of the money that goes into
    the media campaign.
        I know that it is not a popular thing for elected officials
    to talk about rehabilitation because you look like you are weak
    on crime. When it comes times for reelection, you would be
    surprised at the accusations that are made at you if you talk
    about trying to help somebody recover as a drug addict rather
    than just locking them up and throwing away the key. That seems
    to sell. It gets you lots of votes. But it is penny-wise and
    pound-foolish. It is dumb not to put more into education and
    rehabilitation.
        I used to be a volunteer prison counselor years ago and I
    think I can speak from a direct relationship with some of the
    people that were in prison with drug abuse.
        You mentioned Native American and Alaskan youngsters, and
    Senator Dorgan did too. I can tell you, some of our campaigns
    might not work with them because it is a different kind of a
    drug. You go on the Indian reservations, I will tell you what
    they are using. They are using paint, spray paint, and oven
    cleaner, and canned heat, and shaving lotion mixed with orange
    juice to drink, and things of that nature. If you gear a drug
    campaign dealing with sophisticated drugs like cocaine or
    something, I think it goes right on by them. I do not think it
    does any good at all.
        But clearly Senator Dorgan is right, it is supply and
    demand. I think we need to continue in our efforts for
    interdiction. Certainly you have to incarcerate some people
    that are incorrigible or you cannot help. But as long as the
    supply is there, you have to lay that at the doorstep of
    Americans themselves that are demanding it. The supply will
    always be there as long as they demand it.
        Until we can get Americans to realize they do not need it,
    should not have it, ought to discourage their youngsters from
    using it, the supply is always going to be there. I do not care
    how many people we send to South America or how much money we
    put into South and Central America where most of the drug flow
    is coming from it is going to keep coming, I think, unless we
    do something else.
        But in any event, I want to ask you about one drug. It
    seems like every 4 or 5 years we have a new drug of choice or a
    new drug that seems to be popular. It was marijuana years ago,
    then it was something else, and then it was cocaine, and then
    the last few years we have heard so much about crack. Now we
    are hearing more and more about a drug that youngsters seem to
    be fooling with and it is killing some of them called Ecstasy.
        I would like to ask you a little bit about the findings.
    What findings has the ONDCP come across regarding the
    manufacturing and distribution of this drug called Ecstasy?
        Mr. Jurith. Very good, sir. MDMA, Ecstasy, it is a mind-
    altering synthetic drug that is both a stimulant and has mild
    hallucinogenic properties.
        Senator Campbell. Where does it come from? What is it made
    from?
        Mr. Jurith. It is basically made out of various chemicals.
    It is made primarily in Belgium, the Netherlands, and
    Luxembourg.
        It is a two-pronged effort. It is basically manufactured in
    Europe, so one of the things that we are doing very intensively
    in the last few months is trying to work very closely with our
    European allies and the European Union to get a handle on the
    reduction in trafficking out of Europe.
        We have gotten a lot of support from our European allies,
    including the Dutch, in controlling this manufacture and
    production. Recently I met with representatives from Great
    Britain, Germany, Sweden, Ireland, as well as the Netherlands,
    in terms of what we can do together, what the EU can do to
    control the production and trafficking.
        We are seeing a steady increase, you are right, Mr.
    Chairman. Since 1995 we have seen a steady increase in Ecstasy
    use by our young people. In fact last year in the Monitoring
    the Future Survey, among all age groups we saw an increased use
    of this drug by 8th, 10th, and 12th graders. So that is on the
    prevention side. We need to be more aggressive in terms of----
        Senator Campbell. Is it a vegetable or organic base?
        Mr. Jurith. No, it is chemical.
        Senator Campbell. It is chemical-based. You know the last
    couple years we have had a horrible rise in the manufacture and
    use of methamphetamines.
        Mr. Jurith. Correct.
        Senator Campbell. Is it like meth in that it is explosive,
    contaminative, flammable or something of that nature?
        Mr. Jurith. No, I do not believe it causes those
    environmental damages. There is a perception out there,
    unfortunately, that somehow casual Ecstasy use is safe. That
    has unfortunately been brought, transported to this country
    from Europe, the whole rave club scene. That somehow you can
    take this drug, dance all night, feel good, feel happy, and
    have no adverse effects.
        Senator Campbell. Yes, die later.
        Mr. Jurith. Our research at the National Institute of Drug
    Abuse shows otherwise. That there are some significant long
    term neurological effects from the use of Ecstasy. So I think
    we have a two-pronged approach here.
        On one hand we are trying to work with our European allies
    to control the production and trafficking of Ecstasy. We are
    working domestically through our own enforcement agencies to be
    more aggressive in seizing Ecstasy.
        For example, in 1999 we seized worldwide about 10 million
    Ecstasy tablets around the world. So we need to be more
    aggressive. Our Customs and DEA work together to seize these
    shipments as they are coming into the country.
        Lastly, we need to intensify our prevention efforts.
    Getting the message out to young people that Ecstasy use is not
    safe. The Media Campaign, for example, in August 2000 launched
    a special $5 million Ecstasy initiative that included Internet
    advertising and national radio ads, along with the limited use
    of print ads.
        Later in May, the Media Campaign and the American Academy
    of Pediatrics is going to conduct a background seminar for
    writers in the creative community to look at Ecstasy use to
    ensure that in our popular culture we are not borrowing this
    mistaken belief that somehow this is a safe drug to use.
        Senator Campbell. Are you familiar with fetal alcohol
    syndrome?
        Mr. Jurith. Yes, sir.
        Senator Campbell. It is as if the mother uses too much
    alcohol the baby is born with certain disabilities that are
    never--they never get well. They are never correctable. It is a
    preventable thing but not correctable. I understand from
    Senator Dorgan's staff that this Ecstasy may have somewhat the
    same effect. If pregnant women use it there is pretty good
    chance that there will be an effect, a permanent effect on the
    unborn child. Is that true?
        Mr. Jurith. There is a significant amount of ongoing
    research being done at the National Institute of Drug Abuse on
    the long term effects of Ecstasy use. I would be happy to share
    the results of all that research with the subcommittee.
        Senator Campbell. I wish you would. You mentioned that you
    are trying to work with the countries where most of it seems to
    be manufactured, if that is the proper word for how it is put
    together. What are we doing in this country to try to stem the
    rising tide of it? Are we going through the normal process that
    we do with all of our other programs to prevent drug use?
        Mr. Jurith. Correct. Also what we are trying to do on the
    enforcement end is to collect the appropriate data to see what
    locations around the country are having significant problems
    with Ecstasy use, trying to deal with the rave club scene,
    because that is where apparently the popularity of this drug
    exists, along with other club drugs. To work with rave
    operators to remind them of their obligations that in addition
    to having their raves alcohol free, they also must be drug
    free.
        We are also working with our Customs Service to seize this
    stuff before it comes into the country. And again, intensifying
    our prevention efforts not only through the Media Campaign but
    other prevention efforts as well.
        Senator Campbell. It is also my understanding that a lot of
    it is used at teenage group things rather than as an
    individual, like some of the drugs that are taken
    intravenously, and it is done at some youth nightclubs, rave
    groups they are called, and so on.
        Mr. Jurith. Yes.
        Senator Campbell. You are in charge of your own department,
    but I would encourage you to take a look at where it is being
    used in these groups and try and have some input into those
    too.
        Mr. Jurith. Yes, we are doing that. Again, by gathering
    data through our Pulse Check, for example. As you know, Pulse
    Check is a report we do every 6 months looking at drug trends
    around the country from an epidemiological point of view, from
    a basically anecdotal evidence point of view. The last Pulse
    Check report had a special section in it dealing with Ecstasy,
    and this has been supplied to the subcommittee.
        We are tracking this very closely. Working with DEA and
    Customs on the enforcement side, looking at our prevention
    efforts, including the Media Campaign, to see how we can get
    the message out to young people. Again, the National Institute
    on Drug Abuse has done very effective research in this area.
    Getting that research out that this is not a safe drug,
    contrary to an earlier European view on the subject.
        Senator Campbell. I think those ads are on the right track,
    with youngsters doing the talking, because youngsters tend to
    listen to youngsters more than they do adults. When you have
    real graphic illustrations of youngsters talking, I think that
    could be very effective.
        Mr. Jurith. Senator Campbell, the great thing about it,
    those are two of the 75,000 young people that submitted their
    anti-drug suggestion to the Campaign. Those are real kids, kids
    that reached out. We are reaching out and touching our kids
    through this Campaign, and there is good evidence how we are
    drawing young people into the Campaign. So you are right, those
    are real kids expressing their real, true anti-drug beliefs
    about whether it is drawing or cartooning or listening to
    music.

                         Additional committee questions

        Senator Campbell. I thank you. I have no further questions,
    but if I do in the next day or two I will submit them to you in
    writing.
        Mr. Jurith. Very good, sir.
        Senator Campbell. We will be looking forward to working
    with you. I might tell you, we are not sure yet how much money
    we are going to have to be able to spend----
        Mr. Jurith. I understand.
        Senator Campbell [continuing]. But we will do everything we
    can for you.
        Mr. Jurith. Thank you, sir.
        [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 Ben Nighthorse Campbell

        Question. So far, Congress has provided $750 million for the
    National Youth Anti-Drug Media Campaign. And, you are requesting an
    additional $185 million for fiscal year 2002--the fifth year of what
    was described to us back in 1997 as a five-year program. Although many
    people have seen the ads and have had favorable reactions to them,
    there appears to be little information on whether the ads themselves
    have had any impact on drug use. When will we be able to get some
    measurable results from our investment?
        Answer. ONDCP is proud to report that the National Youth Anti-Drug
    Media Campaign is undergoing a rigorous and extensive evaluation. The
    National Institute on Drug Abuse (NIDA), the world's leading drug
    research organization, is evaluating the Campaign for ONDCP. The
    National Survey of Parents and Youth-NIDA's evaluation survey--is a
    nationally representative longitudinal (i.e., the same parents and
    youth will be interviewed up to 3 times) survey of parent and child
    attitudes, beliefs, and behavior with regard to drugs. More than 34,000
    interviews will be conducted in households in 6-month waves. Reports
    detailing the findings from each of the Waves are issued every 6
    months; the second report was released in April 2001 and the final
    report is due in Spring 2004.
        The Wave 2 report presents findings from the first two waves of
    data collection (November 1999-May 2000 and July 2000-December 2000),
    focusing on evidence of change between the first two waves of data
    collection. There was a relatively short period of time for change in
    the outcome measures to occur; thus, the second evaluation report's
    analysis is not definitive. The analysis involves two complementary
    tests: (1) establishing that change has occurred, and (2) that the
    change is associated with exposure to the Campaign's messages. The Wave
    2 report shows some positive and encouraging changes that suggest the
    Campaign is having an impact, but we cannot yet definitively attribute
    these to the Campaign. Findings include:
      --There is good evidence of increased anti-drug sentiment among older
            non-drug-using teens (aged 14 to 18) with regard to their
            intentions to not try marijuana in the next year, which may
            signal subsequent declines in marijuana use in the near future.
      --The parent data indicate a consistent pattern of association
            between exposure to anti-drug messages and three key outcomes
            (talking with, monitoring, and engaging in fun activities with
            youth), meaning that parents who reported high levels of
            exposure to anti-drug messages were more likely to have engaged
            in the three activities with their children--but, there were no
            changes in the measures between Waves 1 and 2.
        Over time, because of the evaluation's longitudinal design and
    extensive set of questions measuring exposure to the Campaign and
    outcomes related to the Campaign's messages, it will be able to assess
    whether the Campaign is having an impact on drug-related attitudes,
    beliefs, and behaviors over time. The Wave 4 report (due 1 year from
    now) will include data for the first 2 years of Phase III and will be
    the first to include follow up data on the parents and youth first
    interviewed in Wave 1. The Wave 4 report will provide a more conclusive
    assessment of the extent to which any changes in beliefs, attitudes,
    and behaviors can be attributed to the Campaign.
        The National Household Survey on Drug Abuse (NHSDA) and the
    Monitoring the Future Survey (MTF) indicate that youth drug use,
    particularly marijuana use, rose in the early 1990's but has leveled
    off, and even declined, in the past 2 to 3 years. It is during this
    period of time that the Campaign was launched, with full implementation
    in mid-1999. These surveys were not designed to evaluate the Campaign
    and include no questions about target audience exposure to anti-drug
    ads and response to the campaign; consequently, any changes in
    attitudes and behavior regarding drug use reported by these surveys
    cannot be proven to be as a direct result of the Campaign. NIDA's
    independent evaluation of the Campaign, in conjunction with continued
    monitoring of drug use rates by NHSDA and MTF, will provide an
    assessment of the Campaign's impact over the next 3 years as the series
    of reports is released. Release of the 2000 NHSDA is expected in August
    2001; the 2001 MTF in December 2001; and the next evaluation report
    (Wave 3) in Fall 2001.
        Question. In addition to maintaining funding for 26 HIDTA programs,
    the fiscal year 2001 appropriations bill provided additional
    discretionary funding. I expect that every one of those 26 HIDTAs can
    justify significant increases in their budgets. I know that the Rocky
    Mountain HIDTA can always use more, especially for efforts to address
    the ever increasing methamphetamine problem. What criteria did you use
    to decide how to allocate the additional funding provided?
        Answer. ONDCP takes seriously its responsibility to allocate
    discretionary HIDTA dollars in an objective and transparent manner. Our
    first priority was to provide basic funding to establish the recently
    designated Nevada and Northern Florida HIDTAs. This funding will enable
    the HIDTAs to begin focusing on HIDTA Program priorities related to
    combating their regional threat, including intelligence/information
    sharing, training, and communications interoperability.
        The second priority was to provide funding to bring the HIDTAs
    designated in 1999 (Central Valley California, Hawaii, New England,
    Ohio and Oregon) up to the minimum $2.5 million level necessary to
    provide effective support. In order to become fully operational and
    fund a new fugitive apprehension initiative, the six-state New England
    HIDTA will receive a total of $2.85 million.
        The third priority was to establish electronic connectivity among
    the HIDTAs via the Regional Information Sharing System (RISS.net). This
    initiative will significantly enhance intelligence/information sharing,
    communication and coordination among the HIDTAs. Establishing
    connectivity between the HIDTAs also will fulfill a major requirement
    of the General Counterdrug Intelligence Plan (GCIP). This connectivity
    will also provide the network upon which the HIDTA Program fiscal
    database currently under development will operate. Connectivity costs
    between HIDTAs vary because the 11 HIDTAs identified as RISS.net node
    sites must take on the responsibility and added cost of user
    authentication for the non-node HIDTAs. HIDTAs receiving base costs of
    $22,000 will supply connectivity and allow them to operate as ``RISS
    HIDTA Client Sites'' and fund costs associated with the lines, Internet
    Sites, Internet firewalls, and routers. HIDTAs selected as RISS.net
    node sites receive $150,500. This increased funding will provide for a
    network person to assist clients, authenticate/manage users, administer
    security system(s), man help desk, etc., connection costs, and
    equipment costs (firewall, computers, smart cards and readers, etc.).
        The final priority was to carefully evaluate supplemental requests
    received from 23 HIDTAs, which totaled $48 million. Decisions to
    allocate funding for new or expanded initiatives were based, in large
    part, on HIDTA Program priorities (intelligence/information sharing
    infrastructure), and the content and composition of the supplementary
    funding requests.
        Question. Speaking of methamphetamine, we have a real problem in
    the West, as you know, and in the Denver area in particular. Now we're
    reading about folks cooking methamphetamine in pots in apartments! And,
    a recent article in the Rocky Mountain News stated that 83
    methamphetamine sites have been discovered in three months. What are
    you doing to try to educate people about the dangers of methamphetamine
    use?
        Answer. ONDCP recognizes the threat posed by this emerging drug.
    Clandestine laboratories in California continue to produce more
    methamphetamine than any other region, but the smaller ``mom and pop''
    laboratories, operated by thousands of independent U.S. traffickers,
    are found in large numbers in the Midwest and growing numbers in the
    southeast United States. The growing popularity of methamphetamine has
    led to an alarmingly high number of clandestine laboratory seizures
    across the country. According to the National Clandestine Laboratory
    Database (NCLD) at EPIC, as of March 2001 there have been 533 reports
    of clandestine laboratory seizures nationwide (there were 6,480 in CY
    2000). In CY 2000, 23 percent (1,469) of these 6,480 clandestine labs
    were seized in California. Arrests in DEA methamphetamine
    investigations increased in fiscal year 2000, to 7,519, a 22 percent
    increase over the 6,145 arrests in fiscal year 1997, and a significant
    85 percent increase over the 4,069 arrests in fiscal year 1996.
        The average purity of methamphetamine discovered in DEA
    investigations declined from 71.9 percent in 1994 to 35.3 percent in
    2000. Subsequent control measures by the US and other countries have
    reduced availability and contributed to the decrease in amphetamine
    purity since 1997. Nationally, the average purity for amphetamine has
    dropped from 56.9 percent in 1997 to 20.1 percent in 2000.
        The HIDTAs employ a comprehensive approach that includes
    specialized training and equipment for law enforcement personnel
    responding to methamphetamine labs, a plan to better coordinate
    intelligence initiatives regarding super methamphetamine labs as well
    as mom and pop labs, and the establishment of additional
    methamphetamine task forces in high risk areas and regions.
    Investigative initiatives aimed at penetrating the communications and
    dismantling the command and control elements of Mexican-based
    methamphetamine trafficking organizations are included in the strategy.
    To combat the environmental hazardous from clandestine lab waste,
    investigative efforts aimed at mom and pop labs will be expanded and
    intensified. The strategy calls for additional treatment, prevention,
    and awareness programs targeted at high-risk youths. The considerable
    resources of Federal State and local law enforcement and public service
    institutions will be orchestrated to bring about a measurable change in
    the methamphetamine situation.
        The Midwest, Central Valley California, Rocky Mountain, Northwest
    and Oregon HIDTA's focus the majority of their enforcement efforts
    towards methamphetamine enforcement. The Southwest Border HIDTA
    sponsored National Methamphetamine Chemical Initiative (NMCI) is a
    nationwide initiative that seeks to control and subsequently reduce the
    availability of precursors and chemicals to illicit manufacturers
    through education and regulation of chemical sources and through a
    unified law enforcement and prosecutorial effort. The total fiscal year
    2000 funding for methamphetamine-specific HIDTA initiatives was
    $21,033,676.
        Question. I noted that you have requested $50.6 million for grants
    under the Drug-Free Communities Act. The currently authorized level for
    that program in fiscal year 2002 is $43 million. Do you believe that
    there will be enough new communities seeking grants to justify that
    significantly increased funding? How many grants do you expect to make
    in fiscal year 2002? How does ONDCP handle the management of this
    program?
        Answer. Yes. Over the last few years we have seen growing interest
    in the Drug-Free Communities Program by state prevention network
    directors and state alcohol and drug directors. We have presented
    workshops on the Drug-Free Communities Program Application process at
    several state coalition meetings, and we have held a series of regional
    workshops for potential applicants in Mississippi, Illinois, and New
    York. Four workshops are planned in May in Georgia, Texas, Connecticut,
    and California.
        The Ad Council, working with ONDCP's National Youth Anti-Drug Media
    Campaign, is planning to launch a major public service campaign this
    fall to feature what coalitions do and the successes they have
    achieved. We believe this campaign will further stimulate increased
    interest in forming eligible coalitions around the country. Requests
    for the grant application for this year's solicitation greatly
    increased. The ONDCP Clearinghouse sent out 7,200 applications for
    fiscal year 2002 funding, double the number of applications sent for
    fiscal year 2001.
        ONDCP is proud to report that the program currently supports 307
    communities located in forty-nine states, Puerto Rico, the U.S. Virgin
    Islands, and the District of Columbia. Furthermore, twenty-five of the
    grants have been awarded to communities with predominately Native
    American and Native Alaskan populations. We anticipate awarding 140-150
    additional grants during the fiscal year 2001 grant cycle (September,
    2001).
        Of the total $50.6 million ONDCP is requesting for this program,
    $46.6 million will be granted directly to community anti-drug
    coalitions (assuming an increase in the administrative cap to not more
    than eight percent). We anticipate being able to award approximately
    150 new grants in fiscal year 2002, bringing the cumulative five-year
    total of grantees to over 600.
        The implementation of the DFCA involves the awarding of grant
    monies, through competitive peer-reviewed procedures, directly to
    community anti-drug coalitions in the United States and its
    territories. Non-Federal matching funds equal to the amount of each
    grant are required for all projects. ONDCP understands and appreciates
    the intent of Congress to ensure that the maximum amounts possible go
    directly to enhancing, expanding, and improving existing community
    coalitions. ONDCP shares this goal and has engaged the assistance of
    key Federal and private sector partners to provide low-cost, high
    quality technical training and administrative support to the grantees.
        Through a Memorandum of Understanding with ONDCP, OJJDP is
    administering the Drug-Free Communities through its Special Emphasis
    Division (SED). SED is the OJJDP division responsible for administering
    all OJJDP demonstration and replication programs. SED is comprised of
    22 professional staff, 3 administrative support staff, a deputy
    director and a director. Currently, SED staff members are responsible
    for monitoring approximately 630 local programs (307 of which are Drug-
    Free Communities grants). The seven Drug-Free Communities program
    managers are currently responsible for monitoring almost 50 percent of
    the Special Emphasis Division's workload. OJJDP collaborates with the
    Office of National Drug Control Policy, the Center for Substance Abuse
    Prevention and the CSAP funded Centers for the Application of
    Prevention Technologies.
        All of the grant awards to date have been with the assistance and
    cooperation of a small team coordinated by ONDCP. At ONDCP, the
    administrator and a program support specialist oversee the entire
    project and coordinate the work of the Advisory Commission. The
    Commission has met in formal session on six occasions and their
    recommendations and observations have guided the implementation of all
    aspects of the program. Commission members are consulted regularly by
    the administrator and kept informed about key decisions, problems, and
    issues facing the program. The Department of Justice, Office of
    Juvenile Justice and Delinquency Prevention (OJJDP), has a team of
    seven program managers and two support personnel dedicated to the day-
    to-day aspects of grants management. Each of the 307 grantees has a
    specific program manager with whom they consult on matters relating to
    their strategic plans, budgets, and reporting. At the Center for
    Substance Abuse Prevention (CSAP), there are no agency administrative
    costs supported by DFCA funds. Nevertheless, CSAP staff members assist
    the program in numerous ways. Chief among these is assisting applicant
    community leaders in the development of appropriate logic models for
    their proposals and further helping local communities select specific
    prevention strategies that have amassed better evidence for
    effectiveness through scientific study.
        As the number of grantees has increased from 93 in fiscal year 1998
    to 213 in fiscal year 1999 to 307 in fiscal year 2000 the
    administrative challenge has grown proportionally. We expect that this
    challenge will become nearly unworkable with the 150 new grants ONDCP
    expects to award in both fiscal year 2001 and fiscal year 2002,
    bringing the cumulative number of DFC coalitions to over 600. However,
    the declining administrative cap has kept constant the actual amount
    available for administration at $1.2 million annually. As a result,
    whether OJJDP has 91 grants or 300 grants, the legislation does not
    anticipate or permit the increase in costs commensurate with the growth
    of the program. OJJDP Drug-Free Communities program managers are
    currently carrying caseloads that limit their ability to monitor
    effectively the existing 307 anti-drug coalitions. The Special Emphasis
    Division of OJJDP utilizes 15 staff to manage almost the same number of
    grants in other programs as the 9 Drug-Free Communities program
    managers currently manage. In other programs, OJJDP usually assigns one
    program manager to every 25 grantees. During early 2001, OJJDP has only
    7 program managers for 307 grantees, a ratio of nearly 44 grantees to 1
    program manager. By Oct. 1 of 2001 there will be more than 450 grantees
    and OJJDP will not be able to operate the program without additional
    staff.
        If the cap on administrative costs is raised in fiscal year 2002
    ONDCP and OJJDP anticipate awarding approximately 150 new community
    coalition grants which will bring the cumulative number of grants to a
    projected estimate of more than 600. This figure assumes an 8 percent
    limit on all administrative costs, full funding of the continuation
    budgets for 447 previously awarded grants, and full funding at $100,000
    per year of 140 new projects.
        An increase in Drug-Free Communities administrative funds will
    allow ONDCP and OJJDP to administer the program and monitor the DFC
    grants in a manner intended by Congress and as necessary to comply with
    all applicable Federal regulations and policies.
        Question. I'd like to talk a bit about the anti-drug media
    campaign. As I understand it, the intent of the program is to ``educate
    and enable America's youth to reject illegal drugs''. The most visible
    of that effort is the TV ads we've all seen, followed closely by the
    print media ads. How do you determine how to place your ads?
        Answer. The Campaign purchases ad space and time using widely
    accepted standards and practices of the advertising industry, as well
    as the judgment and expertise of our advertising contractor, Ogilvy &
    Mather. The first consideration is the appropriateness of the media
    outlet for the target audience. The objective is to deliver drug
    prevention messages to the people we intend and need to reach.
        Media are generally subjected to a rigorous analysis process as
    follows:
      --Step One: Preliminary Screening.--The goal of our overall screening
            and planning process is to explore all media and narrow the
            field of consideration down to a smaller more relevant list of
            potential outlets.
      --Step Two: Quantitative Analysis.--Using syndicated research (MRI/
            Nielsen) or other studies as well as negotiated pricing, each
            medium's coverage, composition of the target audience (youth,
            parents, ethnic, etc) and Cost-Per-Thousand (CPM) is
            considered.
      --Step Three: Pro Bono Match Participation.--We conduct an evaluation
            of the ability/willingness of the particular media outlet to
            participate with the Congressionally-mandated match process,
            whereby each Federal dollar of advertising is matched by the
            vendor with a 100 percent public service contribution.
        Ogilvy & Mather uses additional leading-edge media research,
    tracking econometric analysis, and measurement tools to provide
    accountability and highly sophisticated media delivery data and
    analysis to ensure the effort delivers as planned.
        Question. Mr. Jurith, since the beginning of this program I have
    been urging ONDCP to aggressively encourage pro bono matches from media
    organizations. This is a particularly important component to this five-
    year pilot project. How successful has the pro-bono match been?
        Answer. Last year, the National Youth Anti-Drug Campaign generated
    a 102 percent pro bono match for advertising dollars. Since the
    campaign began, more than $507 million in pro bono advertising time and
    space has been received in addition to the time and space purchased by
    the campaign. An additional $37 million in donated media time has been
    received through our collaboration with the Advertising Council
    (totaling $544 million). This level of pro-bono matching is
    unprecedented and underscores the support given to the Campaign by the
    media, particularly television and radio.
        Because of the Campaign, 58 national organizations have benefited
    from 400,000 TV and radio time slots. America's Promise, Boys and Girls
    Clubs, Mothers Against Drunk Driving, National Youth Symphony League,
    and many other organizations supporting anti-drug activities have
    achieved tangible results. For example, Save the Children, USA garnered
    8,000 new mentors; National Fatherhood Initiative received three times
    as many calls to its hotline; and the Benton Foundation/Connect for
    Kids has had a 600 percent increase in user sessions for its web site
    that provides information and resources for parents to help kids.
        The Campaign has also launched, in conjunction with the Ad Council,
    the first PSA campaign to support local anti-drug coalitions. These
    PSAs have received over $33 million in donated media since August
    2000--more than an average Ad Council campaign receives in a year.
        Question. Mr. Jurith, I have been a long supporter of the CTAC
    technology transfer program. I've seen first-hand how excited State and
    local law enforcement officers have been when they see what is
    available through this program. What has the technology transfer
    program been able to deliver to State and Local law enforcement
    entities? What kinds of new technology are under development?
        Answer. The Technology Transfer Program (TTP) provides technologies
    developed with Federal funding ``directly to state and local law
    enforcement agencies that may otherwise be unable to benefit from the
    developments due to limited budgets or lack of technological
    expertise.'' Strong bipartisan congressional support has resulted in
    $39,052,000 being appropriated to the TPP over the past three years
    (fiscal year 1998-fiscal year 2000). These funds have made possible the
    delivery of 1,808 pieces of equipment to 1,325 state and local law
    enforcement agencies. CTAC provided hands-on training and limited
    maintenance support to all recipients.
        In fiscal year 2000, 1,055 agencies applied to the TTP with their
    three priority requests. Congress appropriated $13,052,000 to the TPP,
    which enabled CTAC to deliver 827 pieces of equipment to 666 agencies.
    An additional 469 agency requests, valued at $10,494,000, could not be
    delivered in fiscal year 2000. Of those 469 requests, 389 agencies
    received no items. In fiscal year 2001, Congress appropriated
    $18,209,850 to the TTP. CTAC plans to prioritize these funds to ensure
    that all 1,055 agencies that applied to the TTP during fiscal year 2000
    will receive a technology (other than only Drugwipes) by the end of
    fiscal year 2001.
        The President's fiscal year 2002 Budget Request for the TTP will
    allow CTAC to transfer much-needed technology to more than 1,500 state
    and local law enforcement agencies across the country. ONDCP submitted
    evaluation reports to Congress in September 1999, March 2000, and
    February 2001 and will continue to submit annual reports on this
    program.
        There are a number of current CTAC-sponsored R&D projects that will
    provide improved capabilities or additional options to systems
    currently available through the TTP:
      --A communications interoperability system will be demonstrated in
            Denver in August 2001. This system provides a cost effective
            option to enable the smaller state and local agencies to
            continue to use their existing radios and still be able to
            communicate with other agencies using different communications
            systems.
      --The video stabilization system has been miniaturized and made less
            expensive with improved functionality (it now uses a PC card
            for processing rather than an entire CPU).
      --Additional functionality, called CRYSTAL, will be available for the
            AG-SMS tracking system. This system links criminal and
            background information derived from drug-related investigations
            to geo-positional information in real-time.
        In addition, there are a number of CTAC-sponsored R&D projects that
    soon will be completed and considered for transition to the TTP:
      --Several case management tools are in the final evaluation stages.
            These systems, such as CrimNET, allow investigators to access
            and link data on phone records, financial information, utility
            bills, and ownership information to specific drug-related
            crimes on a scale suitable for use by smaller sheriffs offices
            and police departments.
      --Two hand-held non-intrusive inspection systems, one to identify
            drugs in the field and the other to find anomalies in storage
            tanks and hidden compartments in bulkheads are currently being
            tested and evaluated by the Federal user agencies.
        Question. I am pleased with the progress on the wireless
    interoperability pilot project in Colorado, and I am looking forward to
    a demonstration of Phase I, the Denver metro area testbed, later this
    year. When do you expect that this technology will be available on a
    state-wide basis? How long after that will other areas be able to take
    advantage of this capability?
        Answer. CTAC continues to make progress on this wireless
    interoperability project to identify and evaluate those radio
    interoperability systems that allow state and local agencies to retain
    and use their existing radios to communicate with other agencies using
    different communications systems. The following is the timeline of
    major events:
      --By September 2001: Initial installation among five drug task forces
            in the Denver area (Metro Gang, North Metro, South Metro, West
            Metro, and Boulder County), U.S. Customs Service, FBI, DEA,
            Colorado National Guard, Denver Police Department, Aurora
            Police Department, and Jefferson and Douglas counties on the
            state's Digital Trunked Radio System (DTRS).
      --By May 2002: Statewide implementation, demonstration for all LEA's,
            transition to Technology Transfer Program.
      --This technology will be available for transition to the TTP by May
            2002.
        Question. Mr. Jurith, I noted that ONDCP is requesting $5 million
    for a new program to encourage parents to help kids stay drug-free--
    Parents For a Drug-Free Future. When can we expect to receive detailed
    information on this new initiative?
        Answer. ONDCP greatly appreciates the Committee's interest in the
    details of this $5 million Presidential initiative to support and
    encourage parents to help children stay drug-free. This program will
    create a ``Parent Drug Corps'' by providing matching funds to national
    parents' organizations for the following purposes:
      --Assist training thousands of parents in communities nationwide in
            skills, methods, and information that help prevent drug abuse
            by young people;
      --Promote cooperation among national parent efforts and increase
            their impact through fostering partnership with the network of
            parent organization affiliates and chapters, regional and
            state-level entities that involve parents, and local community
            anti-drug coalitions; and
      --Provide science-based prevention strategies, information, and
            materials to parents and parent-serving organizations, thereby
            strengthening their ability to protect their children from the
            risks of drug use.
        ONDCP staff have been working diligently to develop the details of
    this proposal in consultation with anti-drug parent groups and other
    Federal agencies. We plan to have a recommendation for the next ONDCP
    Director to forward to the Committee upon confirmation.
                                     ______

                Questions Submitted by Senator Richard C. Shelby

        Question. You note in your written testimony that the ``Campaign
    reached 90 percent of America's youth at least four times a week in
    nine languages . . .'' Please specify how your office determined this
    level and frequency of saturation.
        Answer. ONDCP derived the 90/4.0 weekly reach/frequency goal in
    order to achieve the ultimate goal of reaching all of America's youth
    on a near-daily basis throughout the year in order to change attitudes
    and behaviors concerning drug use. Given that a daily rate (90/7.0) is
    cost prohibitive, ONDCP established a more attainable goal of reaching
    teens nearly every day (4 times per week). ONDCP is confident that this
    level of saturation is sufficient to achieve the goal of reducing drug
    use among youth. As a point of reference, the 90/4.0 is equivalent to
    an aggressive effort during a promotional period by a private sector
    client. The 90/4.0 is calculated by combining the delivery of all media
    combined. (i.e., television, radio, print, Internet, out of home),
    including the ``spill'' from the Parents media, to arrive at one total
    communications figure.
        Question. You also note in your testimony that the Campaign relies
    on strategic partnerships to extend and enhance the Campaign's message
    to parents and youth. Specifically, you mention the Partnership for a
    Drug-Free America, the Ad Council and the American Advertising
    Federation as well as industry, education and media partners. Please
    detail the nature of each of these relationships, including the terms
    of any contracts/agreements entered into with them and the amount of
    Federal funding associated with these partnerships.
        Answer. The National Youth Anti-Drug Media Campaign established
    over the last three years more than 150 partners from major media,
    education, industry, and other areas of the private sector. These
    partnerships include both contractual and non-contractual
    relationships. Further, the nature and cost of each of these
    partnerships varies from year to year, to accommodate changes in the
    campaign and take advantage of new opportunities. Virtually all of
    these partnerships are developed and implemented through our
    contractors. Some of the more significant partners are noted below. In
    many instances, only the labor of our contractor was paid for by
    Campaign funds:
        Partnership for a Drug Free America.--This is our key partner.
    There is a written agreement between our two organizations and a
    Congressional mandate to work with them. The Campaign relies on PDFA to
    produce a majority of our paid ads on a pro-bono creative basis. ONDCP
    pays for production of these ads, which averages about $5 million per
    year. PDFA also assists ONDCP in a wide range of strategic and media-
    related activities including assistance with our entertainment industry
    and media outreach. PDFA receives no Federal funds from the Media
    Campaign.
        Advertising Council.--The Advertising Council performs three
    functions for ONDCP. Through a subcontractor, it reviews the production
    estimates and costs for all paid advertising used in the Campaign. It
    develops and implements a specific campaign to promote the value of
    community anti-drug coalitions. It also administers the Media Match
    Task Force, which has helped to allocate more than $211 million worth
    of pro bono TV and radio time (more than 400,000 time slots) to the
    drug-related messages of 60 national organizations including the Boys
    and Girls Clubs, MADD, America's Promise, Center for Substance Abuse
    Treatment, etc. The Ad Council also provides strategic media advice to
    our campaign, and identifies potential partners for collaboration. Ad
    Council is a contractor costing approximately $2 million per year from
    Campaign funds.
        American Advertising Federation.--The AAF is a sub-contractor to
    Fleishman Hillard, our primary non-advertising contractor. It has more
    than 200 local Ad Clubs throughout the nation and they have been
    helpful in establishing local level task forces to review public
    service ads submitted by community organizations seeking free air time
    from our pro-bono match (the Ad Council does this for national
    organizations) where local media time is purchased. This costs
    approximately $200,000 per year in Campaign funds.
        American Bar Association.--Created first ever substance abuse
    prevention brochure tailored to the needs and interest of lawyers.
    Wrote copy, secured content reviews and approvals and managed design
    and layout for the brochure, and assisted in distribution of 50,000
    copies (at no cost to ONDCP).
        Boy Scouts of America (BSA).--The Campaign has partnered with BSA
    to disseminate drug prevention information to their vast network
    nationwide. The Campaign will have a major presence at the Boy Scout
    Jamboree scheduled for July 23-August 1, 2001. About 40,000 Scouts
    attend the Jamboree, which attracts an additional quarter-million
    visitors during a two-week period every four years. Activities under
    development include: a ``My Anti-Drug'' on-site activity board where
    scouts declare their anti-drugs; youth-oriented information to engage
    scouts at on-site computers; and distribution of Campaign literature
    and information.
        Girl Scouts of the USA (GSUSA).--Developed a new ``High on Life''
    badge for Junior Scouts (ages 8-11), which may be earned upon
    satisfactory completion of drug-prevention exercises; planning a
    satellite program targeting Girl Scout troops across the country
    focusing on the myths and realities faced by girls today; creating a
    series of drug-prevention materials called ``Issues for Girls,''
    customized for all five age levels of Girl Scouts, which will reach the
    more than 2 million GSUSA members. This activity will cost $40,000 in
    Campaign funds.
        YMCA of the USA.--Creating a substance-abuse prevention handbook
    for the Y's middle school after-school program (the Y is one of the
    nation's largest providers of after-school care for the Campaign's
    tween [children 9-12 years old] audience); disseminated substance-abuse
    prevention messages via various Y communications channels which reach
    nearly 21 million people; enrolled YMCA of the USA in the ``What's Your
    Anti-Drug?'' youth branding initiative; facilitated creation of
    customized Web content focusing on drug prevention and the Campaign for
    the Y's site.
        Community Anti-Drug Coalitions of America (CADCA).--The Campaign
    has partnered with local CADCA chapters to promote youth outreach
    activities at their ``Race Against Drugs'' events with Kmart; enrolled
    CADCA in the ``What's Your Anti-Drug?'' youth branding initiative to
    engage kids in considering what are the things that stand between them
    and drugs.
        Congress of National Black Churches.--In 1999, the Congress of
    National Black Churches entered into a strategic alliance with the
    Campaign to promote and assess a pilot program to incorporate substance
    abuse prevention programs into the youth programming. As a result of
    the pilot, the Campaign is developing an activity guide that will
    assist youth ministries to incorporate substance abuse prevention
    activities into their existing youth programs. This activity will cost
    $10,000 in Campaign funds.
        U.S. Hispanic Leadership Institute.--In partnership with the
    Campaign in 2000, the U.S. Hispanic Leadership Institute engaged
    Hispanic youth in the ``What's Your Anti-Drug?'' initiative and
    Hispanic leaders through programming at the U.S. Hispanic Leadership
    Conference. This activity cost $7,500 in Campaign funds.
        National Asian Pacific American Families Against Substance Abuse
    (NAPAFASA).--A key Media Campaign partner in reaching the Asian
    community is the NAPAFASA organization. NAPAFASA has assisted the
    Campaign in developing resources tailored to Asian parents and youth
    and distributing campaign resources through their network, newsletters,
    informational materials and national conferences.
        National Education Association (NEA)/Health Information Network
    (HIN).--Partnering with the nation's largest multidisciplinary
    education organization to reach 2.5 million educators and school
    personnel through multifaceted initiatives; integrating Campaign
    messages and materials into the full range of NEA's print, satellite
    and online communication channels; collaborating with NEA to enhance
    the Campaign's educator Web site www.teachersguide.org; produced
    ``Safer Schools: Helping Students Resist Drugs,'' a free national
    satellite telecast focusing on successful school-based programs that
    help students resist peer pressure to engage in drug use. This activity
    cost $50,000 in Campaign funds.
        New York Times Newspaper in Education.--Revised, edited and
    promoted ``Anti-Drug Education with The New York Times,'' a standards-
    based anti-drug classroom guide for middle-school teachers that
    demonstrates how to incorporate the daily newspaper into classroom
    lessons to help youth develop skills to resist the use of illicit
    drugs, alcohol, and tobacco; collaborated to create an online version
    of the guide. This activity cost $40,000 in Campaign funds.
        Associated Church Press (ACP).--Working with ACP on the creation
    and placement of feature articles on youth substance-abuse prevention.
    With nearly 160 member publications, ranging in circulation from a few
    hundred to 650,000, the ACP is a unique resource for the faith press
    and can provide the Campaign with access to denominational and
    ecumenical media that reach 28 million people.
        The Hollywood Reporter.--The Hollywood Reporter is one of two trade
    publications in Hollywood that is read by everyone in the industry and
    is very influential in the entertainment community. The Reporter is
    partnering with the Campaign by co-hosting a series of roundtable
    discussions for writers and industry executives in the Hollywood
    community. They have co-hosted two events so far, a session on Ecstasy
    and a session on steroid use among teens. They have committed to
    hosting a number of future sessions.
        Oxygen Media.--Oxygen Media, a multimedia company that includes
    Websites and cable broadcasting disseminates Campaign parenting and
    youth drug-prevention messages via their Websites (momsonline.com) and
    television programs. They have also co-hosted two roundtables in New
    York for NY-based television and feature writers on the topics of
    Ecstasy and Inhalants. In addition, Oxygen Media publishes and promotes
    drug prevention articles written for the Campaign's Web site for
    parents, TheAntiDrug.com. In turn, TheAntiDrug.com features parent-
    focused content provided by Moms Online.
        USA TODAY.--Partnered with USA TODAY (circulation 2.2 million;
    readership 4 million plus) to develop a special ``by kids, for kids''
    anti-drug print insert. The insert, included in the November 27, 2000
    edition of USA TODAY, showcased young people's personal ``anti-
    drugs''--those things that stand between them and drugs--through
    stories, prose, photography and artwork. An additional 500,000 copies
    are being disseminated through youth-serving organizations including
    the National Association of Student Assistance Professionals (NASAP),
    schools, and drug-prevention coalitions throughout the country. This
    activity cost $200,000 in Campaign funds.
        National Newspaper Publishers Association (NNPA).--In 2000, the
    Campaign, in collaboration with NNPA and Howard University, established
    The Charles Drew Center for Public Health Reporting Seminar Series. The
    seminars, and supporting Web site of resources, will train community
    journalists to report on substance abuse and related public health
    issues affecting the African American community. This activity will
    cost $40,000 in Campaign funds.
        Society for Human Resource Management (SHRM).--Created the first-
    ever substance-abuse prevention brochure tailored to the needs and
    interests of human resource officers and employee assistance
    professionals to facilitate distribution of drug-prevention resources
    and information in the work place.
        National Association for Children of Alcoholics (NACoA).--Developed
    and disseminated information for youth and adult influencers in daily
    contact with tween and teen children of alcoholics. Developing posters
    for distribution in local schools and libraries nationwide.
                                     ______

                 Questions Submitted by Senator Byron L. Dorgan

                                 DRUG TREATMENT
        Question. Is it your opinion that the proper balance between
    interdiction, prevention, and treatment is being struck in the overall
    drug control policy of this Country?
        Answer. Yes. Drug prevention, treatment, research, law enforcement,
    protection of our borders, drug supply reduction, and international
    cooperation are necessary components of our efforts to reduce drug use
    in our nation. The Administration is outlining a new approach to
    reducing illegal drug use that focuses on reducing the demand for drugs
    through effective education, prevention, and treatment.
        The President's fiscal year 2002 Budget Request focuses on reducing
    drug use by young people, making treatment more available to chronic
    users, targeting sources of illegal drugs and crime associated with
    criminal enterprises, and interdicting the flow of drugs at our
    borders. The President's Budget includes $2.2 billion for programs that
    educate and enable America's youth to reject illegal drugs as well as
    alcohol and tobacco, including approximately $52 million in additional
    prevention research funding through the National Institutes of Health.
    In addition, for reducing the health and social costs of illegal drug
    use, including activities targeting drug treatment programs, the
    President's fiscal year 2002 Budget includes an estimated $3.3 billion,
    an increase of 6.5 percent over fiscal year 2001.
        Projected resources devoted to breaking foreign and domestic drug
    sources of supply will reach $2.6 billion in fiscal year 2002, an
    increase of 28.1 percent. This increase includes proposed funding of
    $731 million in fiscal year 2002 to support drug control activities in
    the Andean region. Further, multi-agency efforts, which target ports-
    of-entry, the Southwest Border, and implementation of the Western
    Hemisphere Drug Elimination Act, will expand funding for shielding
    America's air, land, and sea frontiers from the drug threat to an
    estimated $2.8 billion in fiscal year 2002, an increase of 8.5 percent.
    Finally, funding requested for increasing the safety of America's
    citizens by substantially reducing drug-related crime and violence is
    $8.3 billion in fiscal year 2002, an increase of 2.5 percent.
        Question. According to data provided by SAMHSA, there is an
    enormous gap in the number of people who need treatment and can't get
    it. The most recent data shows that in 1998, 57 percent of drug users
    in the more severe categories of abuse were unable to receive
    treatment. From 1991 through 1998 that percentage has shifted between
    54 percent to 68 percent which should be unacceptable in our effort to
    curtail drugs in our country. Is there a ceiling we are trying to reach
    as a goal? Are we doing enough to decrease this gap?
        Answer. Nationwide, there continues to be a great need for
    additional capacity for effective drug treatment. The largest problem
    in treatment (the ``gap'') revolves around three issues: Accessibility,
    Affordability, and Availability. These three issues effect both private
    and public funding streams. In addition to the Federal responsibility
    to close the public system treatment gap, the National Drug Control
    Strategy also addresses private sector treatment issues through its
    efforts to ensure parity for substance abuse treatment.
        Current estimates of the treatment gap are based on methodology
    developed by the Substance Abuse and Mental Health Services
    Administration (SAMHSA) using data from the National Household Survey
    on Drug Abuse (NHSDA) and other sources. This methodology, while
    useful, has not proven sufficient to meet policy and budget needs.
    Using this methodology, SAMHSA estimated that in 1998 there were
    5,031,000 people in need of treatment and that 2,137,000 received
    treatment. The resulting difference produced a treatment gap of
    2,894,000 people.
        The Performance Measures of Effectiveness Volume of the 2000 Annual
    Report on the National Drug Control Strategy sets forth the target
    concerning reducing the treatment gap. This target is, ``[b]y 2002,
    reduce the treatment gap by at least 20 percent as compared to the base
    year. By 2007, reduce the gap by at least 50 percent compared to the
    base year.''
        Yes. The Administration is committed to reducing the treatment gap.
    On May 10th President Bush announced that his budget will provide $1.6
    billion over the next five years to close the treatment gap. The
    President also directed Department of Health and Human Services
    Secretary Tommy Thompson to conduct a state-by-state inventory of
    treatment needs and capacity, and report back within 120 days on how to
    most effectively close the treatment gap in this country.
        Specifically, the President's Budget provides an additional $60
    million ($42.6 million drug-related attribution) for the Substance
    Abuse Prevention and Treatment (SAPT) Block Grant. This increase for
    the SAPT Block Grant will provide additional funding to states for
    treatment and prevention services. This program is the backbone of
    Federal efforts to reduce the treatment gap. The President's Budget
    also provides an additional $40 million for the Targeted Capacity
    Expansion (TCE) program. This funding will support Substance Abuse and
    Mental Health Services Administration's (SAMHSA) TCE program to respond
    to emerging trends in substance abuse. The Budget proposes an
    additional $17 million for national data collection to support the
    evaluation of what works, examine what makes quality care, and
    determine whether needs and services are a good fit.
        Question. We spend almost 2\1/2\ times as much for the anti-drug
    ads than we do for drug treatment in Federal prisons ($185 million vs.
    $74 million) and we have substantive data on the effectiveness of drug
    treatment in prisons. What more could you do if additional resources or
    funding could be provided?
        Answer. A balanced approach, including both prevention and
    treatment is critical if we are to succeed in reducing drug use in
    America. The $185 million ONDCP is requesting for the National Youth
    Anti-Drug Media Campaign will enable ONDCP to continue using
    strategically targeted, high impact, paid media ads to change drug use
    behavior through changes in adolescent perceptions of the danger and
    social disapproval of drugs.
        The coercive power of the criminal justice system to provide drug
    treatment to persons under its supervision is an effective tool to
    reducing drug use and recidivism. The Administration is committed to
    criminal justice diversion programs to help more Americans break the
    vicious cycle of addiction and incarceration. Specifically, the
    President's Budget is requesting $50 million, an all-time high, for the
    Drug Court Program. This program provides alternatives to incarceration
    through using the coercive power of the court to force abstinence and
    alter behavior with a combination of escalating sanctions, mandatory
    drug testing, treatment, and strong aftercare programs. Furthermore,
    the Budget proposes an $11 million increase for the Residential
    Substance Abuse Treatment (RSAT) program. This formula grant program
    distributes funds to states to help them develop and implement
    residential substance abuse treatment programs that provide individual
    and group treatment activities for offenders in residential facilities
    operated by state correctional agencies.
        Clearly, the Campaign and programs providing treatment in the
    criminal justice system are critical to reducing drug use in America.
    It is important to note, however, that the Media Campaign is attempting
    to impact all youth and their adult influencers across the nation,
    while the programs providing treatment to those under the jurisdiction
    of the Federal prison system are targeting a significantly smaller
    population.
        Question. The Drug Court Institute has provided invaluable training
    and resources to the judicial system in almost every state. They have
    spent their appropriations wisely and have received high marks across
    the board. If they could receive more funding, what additional missions
    and goals would you like them to achieve?
        Answer. In fiscal year 2002, ONDCP is requesting $1.0 million for
    the National Drug Court Institute (NDCI). The NDCI provides valuable
    leadership to the almost 1,000 drug courts in existence or being
    planned across the nation. These include approximately 175 juvenile
    courts, 55 Tribal courts and 50 family courts. Continued support of the
    NDCI is imperative in light of the Department of Justice's fiscal year
    2002 request for the Drug Court Program which maintains the program at
    the all-time high level of $50 million.
        These funds will enable the NDCI to continue fulfilling its mission
    of promoting education, research and scholarship for drug court and
    other court-based intervention programs. With regard to education
    efforts, the NDCI provides a comprehensive drug court training series
    for practitioners. The research component will support investigative
    projects aimed at developing more effective drug court policies and
    procedures. Furthermore, the NDCI serves as an information
    clearinghouse to the drug court field professionals by disseminating
    important drug court specific research, evaluations and relevant
    commentary. Specifically the NDCI will use these funds to continue
    expanding their drug court training program for practitioners, convene
    special advisory groups to develop curricula in new disciplines,
    develop a national community probation initiative, and expand and
    update the Institute's video instruction library.

                    NATIONAL YOUTH ANTI-DRUG MEDIA CAMPAIGN
        Question. With drug trends shifting towards more illicit drugs such
    as methamphetamine and Ecstacy, why is the media campaign not depicting
    it? Specifically, why did you cut the $5 million portion of the
    campaign that focused on Ecstacy?
        Answer. The Media Campaign is a primary prevention effort. It's
    strategy is based on reaching ``tween'' youth to prevent use of entry
    level drugs--principally marijuana, which research shows is the
    preponderant drug of first initiation among youth. Until early this
    year, the Campaign had been supporting anti-methamphetamine and heroin
    advertising through spot television ads. However, advertising
    specifically against methamphetamine and heroin was eliminated to
    maximize the funds targeted to the core strategy of the Campaign--
    preventing youth from beginning drug use.
        Recognizing the rapid rise in the incidence of Ecstasy and its
    false billing as a ``safe'' drug, ONDCP used funds from the primary
    prevention campaign to launch a special, $5 million Ecstasy initiative
    within the Campaign in August 2000. The initiative consisted of
    Internet advertising and national radio ads, along with a limited use
    of print ads in some newspapers and magazines. Because of advertising
    rate inflation affecting the Campaign ONDCP made the decision not to
    renew the initiative.
        For issues such as ecstasy, a drug surging in popularity and
    affecting several age groups, we have convened a series of background
    briefings in Hollywood and New York City for writers and producers of
    television shows and feature stories. These events have been among the
    most successful of the Campaign's efforts.

                    NATIONAL YOUTH ANTI-DRUG MEDIA CAMPAIGN
        Question. With the July 2000 GAO report entitled ``ANTI-DRUG MEDIA
    CAMPAIGN: ONDCP Met Most Mandates, but Evaluations of Impact are
    Inconclusive,'' shows that these advertisements have increased
    awareness, yet there is little evidence to show attitude changes among
    our youth. Let me read you a quote from the report ``First, ONDCP
    stated that indications from NCADI (National Clearinghouse/or Alcohol
    and Drug Information) and focus groups `support that the Campaign has
    positive effects on changing you attitudes toward drug use.' As
    discussed in this chapter we found that information from NCADI and
    focus groups provided indications that the Campaign may have had some
    positive effects on anti-drug awareness. We did not find, however, that
    these sources provided indications of the Campaign having positive
    effects specifically on youth attitudes toward drug use.'' How are you
    addressing this serious concern?
        Answer. ONDCP is proud to report that the National Youth Anti-Drug
    Media Campaign is undergoing a rigorous and extensive evaluation. The
    National Institute on Drug Abuse (NIDA), the world's leading drug
    research organization, is evaluating the Campaign for ONDCP. The
    National Survey of Parents and Youth--NIDA's evaluation survey--is a
    nationally representative longitudinal (i.e., the same parents and
    youth will be interviewed up to 3 times) survey of parent and child
    attitudes, beliefs, and behavior with regard to drugs. More than 34,000
    interviews will be conducted in households in 6-month waves. Reports
    detailing the findings from each of the Waves are issued every 6
    months; the second report was released in April 2001 and the final
    report is due in Spring 2004.
        The Wave 2 report presents findings from the first two waves of
    data collection (November 1999-May 2000 and July 2000-December 2000),
    focusing on evidence of change between the first two waves of data
    collection. There was a relatively short period of time for change in
    the outcome measures to occur; thus, the second evaluation report's
    analysis is not definitive. The analysis involves two complementary
    tests: (1) establishing that change has occurred, and (2) that the
    change is associated with exposure to the Campaign's messages. The Wave
    2 report shows some positive and encouraging changes that suggest the
    Campaign is having an impact, but we cannot yet definitively attribute
    these to the Campaign. Findings include:
      --There is good evidence of increased anti-drug sentiment among older
            non-drug-using teens (aged 14 to 18) with regard to their
            intentions to not try marijuana in the next year, which may
            signal subsequent declines in marijuana use in the near future.
      --The parent data indicate a consistent pattern of association
            between exposure to anti-drug messages and three key outcomes
            (talking with, monitoring, and engaging in fun activities with
            youth), meaning that parents who reported high levels of
            exposure to anti-drug messages were more likely to have engaged
            in the three activities with their children-but, there were no
            changes in the measures between Waves 1 and 2.
        Over time, because of the evaluation's longitudinal design and
    extensive set of questions measuring exposure to the Campaign and
    outcomes related to the Campaign's messages, it will be able to assess
    whether the Campaign is having an impact on drug-related attitudes,
    beliefs, and behaviors over time. The Wave 4 report (due 1 year from
    now) will include data for the first 2 years of Phase III and will be
    the first to include follow up data on the parents and youth first
    interviewed in Wave 1. The Wave 4 report will provide a more conclusive
    assessment of the extent to which any changes in beliefs, attitudes,
    and behaviors can be attributed to the Campaign.
        The National Household Survey on Drug Abuse (NHSDA) and the
    Monitoring the Future Survey (MTF) indicate that youth drug use,
    particularly marijuana use, rose in the early 1990's but has leveled
    off, and even declined, in the past 2 to 3 years. It is during this
    period of time that the Campaign was launched, with full implementation
    in mid-1999. These surveys were not designed to evaluate the Campaign
    and include no questions about target audience exposure to anti-drug
    ads and response to the campaign; consequently, any changes in
    attitudes and behavior regarding drug use reported by these surveys
    cannot be associated directly with the Campaign. NIDA's independent
    evaluation of the Campaign, in conjunction with continued monitoring of
    drug use rates by NHSDA and MTF, will provide an assessment of the
    Campaign's impact over the next 3 years as the series of reports is
    released. Release of the 2000 NHSDA is expected in August 2001; the
    2001 MTF in December 2001; and the next evaluation report (Wave 3) in
    Fall 2001.

                    NATIONAL YOUTH ANTI-DRUG MEDIA CAMPAIGN
        Question. The GAO report also details faults in the data collected
    by ONDCP in Phase I and II. What documentation, independent of
    government funds, do you have that shows the effect of this $750
    million media campaign?
        Answer. The National Youth Anti-Drug Media Campaign is undergoing a
    rigorous and extensive evaluation by the National Institute on Drug
    Abuse (NIDA). NIDA is the world's leading drug research organization
    and has an unassailable reputation for objective research. While it's
    too early to detect many statistically significant changes between the
    benchmark first wave (November 2000) of the NIDA evaluation and the
    most recent report, we believe the major measures of trial usage, and
    the leading edge indicators of attitude and belief, are moving in the
    directions we want.
        NIDA/WESTAT says, ``There is credible evidence of an increase in
    desirable beliefs and attitudes between Waves 1 and 2.'' For example,
    it indicates the following in the areas of trying and using marijuana:
      --Statistically significant higher non-intention to try marijuana
            among 14 to 18 year-old nonusers, particularly high sensation-
            seekers (+4.3 percent);
      --Directional decrease in perceptions of friends' usage among 12 to
            18 year-old non-users.
        We are seeing good results in the area of attitudes and beliefs,
    which are precursors to behavior change. Although most increases are
    not statistically significant, they are moving in the right direction.
    For example, there are clear increases in anti-drug attitudes among 12
    to 13 year-old non-users, in terms of perceptions that using marijuana
    regularly will:
      --Make you lose your ambition;
      --Cause you to lose your friends' respect;
      --Not make you have a good time with your friends;
      --Act against your moral beliefs; and
      --Mess up your life.
        Significant increases in anti-drug attitudes among 14 to 18 year-
    old non-users, in terms of perceptions that using marijuana even once
    or twice will:
      --Make you lose control of yourself;
      --Get you in trouble with the law;
      --Not make you feel better about yourself; and
      --Not make you have a good time with friends.
        A 4.4 percent increase (not statistically significant) in anti-drug
    attitudes among 12 to 13 year-old non-users, in terms of perceptions
    that using marijuana even once or twice will not make you like the
    coolest kids. Among Hispanic youth we have seen some indications of
    increases in advertising exposure and ad recall and decreases in
    several measures of marijuana use, including ``ever used'' (-6.3
    percent) and ``past year use'' (-8.0 percent). With respect to parents,
    NIDA/WESTAT says, ``There is impressive and consistent evidence for
    associations between parental exposure and reported behavior and
    cognitions related to several Campaign objectives in the desired
    direction.''
        In addition to the NIDA evaluation, ONDCP studies other national
    monitors such as PDFA's PATS Study (which is funded independently of
    the Campaign), University of Michigan's Monitoring the Future, and our
    Ogilvy & Mather ad tracking surveys. These reviews provide additional
    indicators which lead us to believe strongly that the Campaign is
    working. In addition, the 2000 Monitoring the Future Study shows
    positive movement in anti-drug attitudes, increased perceptions of
    marijuana risk and a directional decline in use among the nation's 8th
    graders:
      --``More recent classes of eighth-graders have begun to see marijuana
            as dangerous to the user, and to become more disapproving of
            its use, which probably helps to explain the recent decline in
            use.''
        The work of the Partnership for a Drug Free America gives us
    further reason to be optimistic. Their Partnership Attitude Tracking
    Study (PATS):
      --Indicates that youth who reported seeing anti-drug ads on a daily
            basis increased overall, from 32 percent to 49 percent (a
            relative increase of 53 percent) from 1998 to 2000.
      --Specifically, Federal anti-drug media purchases resulted in
            significantly increasing teen awareness of anti-drug
            advertising: PATS shows half of teens now claiming daily anti-
            drug ad exposure.
      --Youth's perceived risk of negative consequences associated with
            marijuana use increased significantly from 1998 to 2000.
      --There was an approximate increase of 6 percent in youth's
            perception of losing friends (from 47 percent to 50 percent),
            or missing out on good things (from 53 percent to 56 percent).
      --Linking this finding to advertising, data indicates that youth who
            saw anti-drug ads more frequently were more likely to be aware
            of the risks of using drugs.
      --Youth's perception of difficulty to say no to marijuana decreased
            in 1999 & 2000.
      --Youth intent not to use marijuana increased in 1999 and 2000.
      --The proportion of youth who report that anti-drug ads made them
            less likely to try or use drugs increased overall, from 30
            percent to 37 percent (a relative increase of 23 percent) from
            1998 to 2000.
        PATS data shows that the upward trend in teen marijuana usage is
    now being reversed since it's peak in 1997:
      --Lifetime use of marijuana is down from 44 percent to 40 percent (a
            relative decrease of 9 percent)
      --Use in the past year has decreased from 36 percent to 33 percent (a
            relative decrease of 8 percent)
      --Use in the past month has decreased from 24 percent to 21 percent
            (a relative decrease of 3 percent)
        Ad Tracking and Copy Testing. Further audience survey work within
    the advertising campaign itself provides additional indicators of
    effectiveness:
      --Data indicates that advertising levels are directly related to
            agreement with anti-drug belief statements.
      --Data shows that as anti-drug beliefs increase, intent to use
            marijuana decreases.
      --Many of the commercials created for the campaign significantly
            strengthen anti-drug beliefs and/or reduce intent to use.
      --Visual recognition of the anti-drug logo more than tripled from 10
            percent to 46 percent in nearly half the time of what is
            expected in the average new product launch.
        Taken collectively, this information paints a clear picture of the
    campaign's growing impact.
        Question. When will you have data from your review of Phase III?
        Answer. The National Survey of Parents and Youth--NIDA's evaluation
    survey--is a nationally representative longitudinal (i.e., the same
    parents and youth will be interviewed up to 3 times) survey of parent
    and child attitudes, beliefs, and behavior with regard to drugs. More
    than 34,000 interviews will be conducted in households in 6-month
    waves. Reports detailing the findings of each Wave are issued every 6
    months; the second report was released in April 2001 and the final
    report is due in Spring 2004.
        Over time, because of the evaluation's longitudinal design and
    extensive set of questions measuring exposure to the Campaign and
    outcomes related to the Campaign's messages, it will be able to assess
    whether the Campaign is having an impact on drug-related attitudes,
    beliefs, and behaviors over time. The Wave 4 report (due 1 year from
    now) will include data for the first 2 years of Phase III and will be
    the first to include follow up data on the parents and youth first
    interviewed in Wave 1. The Wave 4 report will provide a more conclusive
    assessment of the extent to which any changes in beliefs, attitudes,
    and behaviors can be attributed to the Campaign.
        Question. Your statistics show different trends among different
    teenage age groups (12-17 and 18-25 year olds). How does your campaign
    reach these groups individually or are the same messages being sent to
    both?
        Answer. The Primary objective of the National Youth Anti-Drug Media
    Campaign is to reach tween and teen youth, and their parents with an
    education message that will help them stay free of drug use. Young
    adults are not part of our target audience set and would require a
    different strategy if they were. Media time/space is purchased
    targeting teens 12-17 and their parents. The 18-25 year old segment was
    not the original focus of the Campaign, which reinforced the idea that
    this is an inoculation effort targeted primarily at non-users, with a
    secondary emphasis on occasional users. Research data, including from
    Westat, confirm that occasional usage rises with age, and the idea of
    reaching tweens as the primary focus of a prevention effort continues
    to be a sound strategy.
        However, given the mix of media utilized for teens 12-17, which
    includes a significant television and radio presence, and the nature of
    how media is consumed, the Campaign also has a significant presence
    among 18-25 year olds. The extensive use of television on networks such
    as the WB, UPN and cable channels MTV and ESPN provides strong delivery
    to both teens and young adults 18-25. Other media also work this way.
    For example, a recent analysis of our Ecstasy radio effort revealed
    that many of the top radio stations targeting teens are also the lead
    stations for adults 18-25. Given the recent reported rise in Ecstasy
    trial and usage among the 12-34 segment, the Campaign has been flexible
    and accommodated this dynamic via an anti-Ecstasy effort on radio
    stations appealing to teens and young adults.
        The creative message aired for these groups is the same, focusing
    on prevention, delivered through strategic messaging platforms such as
    Negative Consequences and Resistance Skills.
        Question. News reports claim that teen drug use is going up and
    that the drug of choice is getting more dangerous and experimental.
    Your evidence shows the trend decreasing, but you usually compare it
    with 1970's data. Where is your data that compares it to a similar
    generation (early vs. late 90's)?
        Answer. Drug use in the U.S. reached peak levels in 1979 and then
    declined significantly through 1991, from 14.1 percent to 6.6 percent.
    Since 1991, the percentage of the household population twelve and older
    who are current users of any illicit drug has remained relatively
    steady, with no statistically significant changes. However, it is clear
    that our nation still faces a serious problem with illicit drug use,
    especially among our youth and among chronic, hardcore drug users.
    There are currently more than 3.3 million chronic cocaine users and
    almost 1 million chronic heroin users in the United States. These users
    consume the bulk of the cocaine and heroin; and are responsible for a
    disproportionate amount of the crime, health, and social consequences
    attributed to drug use.
        The 1999 NHSDA (the most recent available), provides some good news
    about youth drug use. After a five-year period of rising drug use, the
    rate of current use of any illicit drug among 12-17 year olds declined
    for the second straight year, dropping from 11.4 percent in 1997 to 9.0
    percent in 1999 (returning to the 1996 level). This may indicate that
    the increases that began in 1993 finally have been reversed. However,
    not all of the news is positive. For those aged 18-25 years, the
    current rate of use of any illicit drug has risen--up from 13.1 percent
    in 1992 to 18.8 percent in 1999. Without appropriate treatment, this
    18-25 age cohort, which includes many of those who started using drugs
    in the early 1990s, is expected to continue to relatively higher rates
    of drug use as they age.
        A second key source of data on youth drug use comes from the
    Monitoring the Future Study (MTF), a yearly survey of 8th, 10th, and
    12th graders. The latest MTF data, for 2000, provides additional
    support for the good news in youth drug use--2000 is the fourth year in
    a row that drug use rates have leveled or declined since their rapid
    rise in the early 1990s. Use of most illicit drugs in all three grades
    remained unchanged from 1998 and 1999. As reported by the NHSDA,
    marijuana use dominates youth drug use and the situation is serious,
    with more than one in twenty high school seniors reporting daily use of
    marijuana.
        The data from the Monitoring the Future Survey (MTF), as with the
    NHSDA, clearly shows that not all the news is good. All three grades
    showed notable increases in MDMA/Ectasy use. Specifically, MTF data
    shows past year use for 8th graders increased from 1.7 percent in 1999
    to 3.1 percent in 2000; past month use for 10th graders increased from
    1.8 percent in 1999 to 2.6 percent in 2000; and past year use for 12th
    graders increased from 5.6 percent in 1999 to 8.2 percent in 2000.
    Furthermore, among 12th graders, the perceived availability of MDMA
    rose from 40.1 percent in 1999 to 51.4 percent in 2000 (not measured
    for 8th or 10th graders). The movement of MDMA from the club or rave
    scene into schools, neighborhoods, and other venues is especially
    troublesome. Special emphasis on prevention and enforcement efforts
    must be developed and implemented immediately to reverse this trend.
        While we remain optimistic that the recent trends are moving in the
    right direction, we clearly must continue our efforts to ensure the
    trends remain positive, especially with regard to new and emerging drug
    threats.
        Question. Do you have any evidence that your branding campaign is
    having an effect on ``drug users?''
        Answer. The central objective of the Campaign is to prevent youth
    9-18 from ever using illicit drugs, not to convince users to stop using
    highly addictive drugs. The drug prevention and communication experts
    who helped to shape the strategy for the Campaign believe our focus has
    to be on prevention, which discourages or delays early experimentation.
    Once drug users have progressed beyond abstinence to initial
    experimentation to regular substance abuse, treatment and finally
    criminal penalties (combined with treatment) much better address the
    users' ingrained behavior.
        Rather than hoping to cure an addict's recurring disease with media
    messages, ONDCP hopes to use persuasive social marketing communication
    to intervene with sensation seekers and others before they have a drug
    problem--not after.
        The brand awareness is quite high overall for the campaign. Based
    on Partnership for A Drug Free America's PATS Study, ONDCP's
    Advertising Tracking Study, and Copy Testing Analyses, we believe our
    advertising is also related to changes in beliefs and decreases in
    intentions to use drugs. PATS data show awareness of ads has increased
    for non-users and users of Marijuana, and some positive directional
    movement in risk awareness. As with our other findings, we find the
    trends moving in the right direction.
        The following PATs data support this contention:

                                                      [In Percent]
    ----------------------------------------------------------------------------------------------------------------
                                                                                         Past Year      Past Month
                                                                       Non-Marijuana     Marijuana       Marijuana
                                                                          Triers           Users           Users
    ----------------------------------------------------------------------------------------------------------------
    1998:
        See or hear commercials telling you about the risks of drugs            33.3            29.7            29.2
         everyday or more...........................................
        Agree a lot that commercials made you more aware of the                 38.8            19.1            17.1
         risks of using drugs.......................................
        Agree a lot that commercials made you less likely to try or             40.8            13.3              10
         use drugs..................................................
        Agree a lot that commercials gave you new information about             36.6              21              19
         drugs......................................................
    1999:
        See or hear commercials telling you about the risks of drugs            46.9            40.4            37.4
         everyday or more...........................................
        Agree a lot that commercials made you more aware of the                 43.7            21.3            19.2
         risks of using drugs.......................................
        Agree a lot that commercials made you less likely to try or             45.8            14.7            12.5
         use drugs..................................................
        Agree a lot that commercials gave you new information about             40.6            19.9            18.7
         drugs......................................................
    2000:
        See or hear commercials telling you about the risks of drugs            51.3            46.8            46.6
         everyday or more...........................................
        Agree a lot that commercials made you more aware of the                 47.1            23.4            20.2
         risks of using drugs.......................................
        Agree a lot that commercials made you less likely to try or             50.3            14.6            10.3
         use drugs..................................................
        Agree a lot that commercials gave you new information about             45.2            21.4            18.2
         drugs......................................................
                                                                     ===============================================
    Base sizes 1998.................................................           3,872           2,384           1,572
    Base sizes 1999.................................................           3,939           2,001           1,251
    Base sizes 2000.................................................           4,428           2,209           1,397
    ----------------------------------------------------------------------------------------------------------------

               PARENTS FOR A DRUG-FREE FUTURE (PARENT DRUG CORPS)
         Question. This is President Bush's new initiative to provide
    grants to parent organizations for training programs to reduce drug use
    in our children. It is proposed to be a 5 year program totaling $25
    million with $5 million annual allocations. There are very few
    additional details available on this program. What age group of
    children are you planning on targeting with this program?
        Answer. The Parent Drug Corps program will target parents and not
    their children. This effort will focus on making parents more cognizant
    of their critical role in educating their children about the dangers of
    drug use. The program will seek to ensure better and more effective
    involvement of parents with their children, as well as empowering
    parents as members of the community to take on a more visible
    leadership role in drug-control and other important issues facing their
    community.
        The Administration is confident that this is an effective approach
    because parents have a special stake in the health and safety of their
    neighborhoods and communities. In the past, parents have played key
    leadership roles in organizations like the PTSA, in faith-based
    organizations, and in social and service clubs. They can and should
    expand these roles into other organizations and coalitions. Parents are
    a critical source for informing state and local governments about
    problem areas, issues, and needs, as well as for assistance in forming
    effective responses to these identified problems and measuring their
    success or impact. The Parent Drug Corps will enable parents to assume
    stronger roles in the lives of their children and the communities where
    they live.
         Question. What research indicates that this is the right approach
    to take in reaching parents?
        Answer. The Prevention Research Branch at NIDA has greatly changed
    the nature of its research portfolio in the last several years,
    resulting in an increased emphasis on the family with regards to drug
    abuse prevention. This emphasis on the family includes:
         Primary Prevention Programs.--This involves working with families
    through an entire population, such as a school system. These types of
    programs involve prevention activities with the school, family, and the
    community.
         Selective Prevention Programs.--These are prevention programs that
    include a family focus conducted with children who are considered at
    larger risk for drug abuse. Examples include young children who are:
    highly aggressive, experiencing academic and behavior problems in
    school, or born to substance abusing parents or are living in homes
    where substance abuse occurs.
        Indicated Prevention Programs.--These family-focused prevention
    programs consist of children who are already beginning to experience
    problems with substance use, but not yet at a clinically significant
    level. Examples include adolescents who are experiencing difficulties
    in a number of areas, including school, behavior, and drug use.
        Developmentally Appropriate Prevention Programs.--The portfolio
    contains prevention programs that are targeted towards different
    developmental levels (e.g., preschool, elementary, middle and high
    school) and target transitional periods that are difficult for children
    (e.g., transition from elementary to middle school and from middle
    school to high school).
        Culturally Appropriate Prevention Programs.--The portfolio contains
    prevention programs with a family focus that focus on children and
    families from different cultures (e.g., American Indian, African
    American, Hispanic, and Asian).
        Urban/Rural Populations.--Because of the different needs of these
    populations, some of the family-focused programs in the portfolio focus
    on urban populations and others focus on rural populations.
         Gender.--There is an increasing emphasis in the portfolio for
    examining developing programs that are gender and culturally
    appropriate.
        HIV Prevention.--More recently there has been an emphasis in the
    portfolio for research grants that focus on HIV prevention in the
    context of drug abuse prevention.
         Question. What will be the breakdown of grants? How much for
    administrative/overhead costs?
        Answer. ONDCP intends to minimize administrative costs but
    recognizes that an empirically sound evaluation is of paramount
    importance to ensure the integrity of the program. This evaluation will
    guide ONDCP's management of the program as it will be focused on
    outcome measures of effectiveness. Based on our experience with other
    programs, including the Drug-Free Communities Program, we believe that
    non-grant costs are unlikely to exceed eight percent of the amount
    appropriated for the program.
         Question. What programs will parent organizations fund through
    this program? What groups will be targeted with this program?
        Answer. This program will provide matching funds to national
    parents' organizations for the following purposes:
      --Assist training thousands of parents in communities nationwide in
            skills, methods, and information that help prevent drug abuse
            by young people;
      --Promote cooperation among national parent efforts and increase
            their impact through fostering partnership with the network of
            parent organization affiliates and chapters, regional and
            state-level entities that involve parents, and local community
            anti-drug coalitions; and
      --Provide science-based prevention strategies, information, and
            materials to parents and parent-serving organizations, thereby
            strengthening their ability to protect their children from the
            risks of drug use.
        The program will target parent groups with experience in drug
    prevention efforts.
         Question. Will groups submit grant requests to ONDCP? Who will
    administer the program? Who will decide on the awards?
        Answer. Although ONDCP is a unique Executive Office of the
    President agency with both policy and programmatic responsibilities, it
    does not have the personnel to staff the specialized grants
    administration apparatus necessary to administer the Parent Drug Corps
    Program on its own. Therefore, ONDCP will maximize efficiency and
    ensure accountability through entering into an agreement with another
    Federal agency with the capacity to provide efficient grant
    administration.
        ONDCP maintaining an oversight function over this drug prevention
    program creates numerous benefits to the parent groups applying for
    grants and those who are eventually awarded funds. For example, ONDCP
    will be responsible for overseeing the work of the grant management
    agency throughout the entire grant process, including competition,
    award, disbursement, and monitoring through normal Federal grant-making
    mechanisms.
        ONDCP recognizes that local coalitions require immediate access to
    leadership development, strategic planning assistance, field-tested
    initiatives, distance-learning opportunities for staff and community
    volunteers, media and public affairs guidance, and other services which
    may not be readily available at the local level. The ONDCP-grant
    management agency partnership will serve those needs as ONDCP is able
    to utilize its role in shaping national drug control policy to better
    serve the grantees through increased outreach and responsiveness
    without sacrificing the traditional grant management functions to
    ensure accountability of these drug prevention funds.
         Question. At what age does research indicate parents will have an
    effect of initiating a dialogue on drugs with their children?
        Answer. The educational responsibilities of a parent are not so
    specific as to allow for dialogue on any specific issue to wait for
    ``the right time.'' Parents who form close and responsive relationships
    with their children from the beginning and who use the parental
    dialogue to properly socialize and educate their children on all those
    issues important to the family will know when the time has come to talk
    about drugs. An open and effective parental dialogue is two-way and
    informs both the child and the parent. This is not done in isolation,
    but rather as part of a long-term dialogue initiated and intended to
    move the child along a continuum of learning, decision-making, and
    empowerment that will, in the end, prepare another generation of
    parents to do the same with their children.

                                     HIDTA
         Question. Since it was created in 1988, the High Intensity Drug
    Trafficking Area program has been very successful in providing Federal
    assistance to better coordinate and enhance counterdrug law enforcement
    efforts of local, state, and Federal law enforcement agencies in areas
    where major drug production, importation and distribution flourish.
        A good example is the Midwest HIDTA, which includes my state of
    North Dakota. In fact, I believe the Midwest HIDTA serves as a model
    for its work to coordinate area law enforcement in the fight against
    methamphetamine.
        Today, there are 33 HIDTAs across the nation--each trying to deal
    with their own special needs to reduce the supply and demand of the
    illegal drug of choice in their areas.
        Last year, Congress approved a $14 million increase for existing
    HIDTAs and to create two more. For fiscal year 2002--with two
    additional HIDTAS to fund, the Administration has requested level
    funding from fiscal year 2001.
        What is your office's vision for these HIDTAs and the Federal
    government's role in providing the resources they need to continue
    providing this critically needed assistance to our states?
        Answer. ONDCP greatly appreciates the bipartisan support the HIDTA
    program has enjoyed since the program's inception in 1988. There
    currently are 28 HIDTAs across the nation. This number includes the
    Southwest Border HIDTA (which encompasses five regional partnerships)
    and the two newly designated Nevada and North Florida HIDTAs. HIDTA-
    designated counties comprise approximately 10 percent of U.S. counties
    and are present in 41 states, Puerto Rico, the U.S. Virgin Islands, and
    the District of Columbia.
        The Anti-Drug Abuse Act of 1988 authorized the Director of The
    Office of National Drug Control Policy (ONDCP) to designate areas
    within the United States which exhibit serious drug trafficking
    problems and harmfully impact other areas of the country as High
    Intensity Drug Trafficking Areas (HIDTA). The HIDTA Program provides
    additional Federal resources to those areas to help eliminate or reduce
    drug trafficking and its harmful consequences. Law enforcement
    organizations within HIDTAs assess drug trafficking problems and design
    specific initiatives to reduce or eliminate the production,
    manufacture, transportation, distribution and chronic use of illegal
    drugs and money laundering.
        The HIDTA Program helps improve the effectiveness and efficiency of
    drug control efforts by facilitating cooperation between drug control
    organizations through resource and information sharing, collocating and
    pooling resources, coordinating and focusing efforts, and implementing
    joint initiatives. HIDTA funds help Federal, state and local law
    enforcement organizations invest in infrastructure and joint
    initiatives to confront drug-trafficking organizations. HIDTA's also
    help facilitate treatment and prevention in the communities they serve.
        ONDCP will continue to utilize the funds Congress appropriates for
    the key priorities of the HIDTA Program:
      --Assess regional drug threats;
      --Design strategies to focus efforts that combat drug trafficking
            threats;
      --Develop and fund initiatives to implement strategies;
      --Facilitate coordination between Federal, State and local efforts;
            and
      --Improve the effectiveness and efficiency of drug control efforts to
            reduce or eliminate the harmful impact of drug trafficking.
        The ability to maintain regional flexibility while demanding
    accountability is essential to the HIDTA Program's success. ONDCP
    formalized its HIDTA Program Review Process during 2000 to ensure that
    the overall HIDTA Program addresses the goals and objectives of the
    National Drug Control Strategy in an effective, efficient, and fiscally
    responsible manner. ONDCP must be continuously aware of the management,
    operation, and performance of the individual HIDTAs so that it can
    fulfill its oversight and support responsibilities in managing the
    HIDTA Program and provide recommendations to the Director of ONDCP
    regarding the Program.
        The individual HIDTAs are required to assess the drug-related
    threats in their areas and establish effective strategies and
    appropriate initiatives to address the threats. Performance must be
    measurable and in accordance with the Performance Measures of
    Effectiveness and the Government Performance and Results Act. HIDTA
    resources must be used efficiently with a high degree of fiscal
    accountability. Compliance with ONDCP/HIDTA policies and procedures is
    required.
        In order to monitor the HIDTAs and to provide the oversight
    required by ONDCP, a HIDTA Program Review Process for review of the
    individual HIDTAs has been established. The HIDTA Program Review
    Process addresses the following areas with regard to the individual
    HIDTAs:
      --Support of the National Drug Control Strategy by the strategies and
            initiatives of the individual HIDTAs;
      --Effectiveness of the HIDTAs' efforts in accomplishing their
            missions;
      --Efficiency in the use of HIDTA resources;
      --Accountability in the use of HIDTA resources; and
      --Compliance with ONDCP policies, program guidance, and directives.
        Furthermore, ONDCP contracted with Klynveld, Peat, Marwick,
    Goerdeler (KPMG) to perform external financial audits. In order to
    maximize the impact of these limited audit resources, KPMG is currently
    conducting audits based on a risk-assessment model. While we are
    pleased that these reviews/audits have not discovered any major
    problems, the program/budget reviews have provided the impetus for
    ONDCP to provide some HIDTAs with conditional grant language to bring
    minor issues into compliance.
        ONDCP is preparing to obligate the $14.5 million in discretionary
    funding Congress provided in fiscal year 2001. Supplemental budget
    requests for the discretionary funds from 23 of the 26 HIDTAs (now 28)
    totaled in excess of $48 million. The requests were thoroughly reviewed
    and ONDCP will soon begin obligating these funds in the following
    manner:
      --Provide basic funding to establish the recently designated Nevada
            and Northern Florida HIDTAs. This funding will enable the
            HIDTAs to begin focusing on HIDTA Program priorities related to
            combating their regional threat, including intelligence/
            information sharing, training, and communications
            interoperability. These funds are incorporated as base funding
            in ONDCP's fiscal year 2002 Budget Request.
      --Provide funding to bring the HIDTAs designated in 1999 (Central
            Valley California, Hawaii, New England, Ohio and Oregon) up to
            the minimum $2.5 million level necessary to provide effective
            support. In order to become fully operational and fund a new
            fugitive apprehension initiative, the six-state New England
            HIDTA will receive a total of $2.85 million.
      --Provide connectivity via the Regional Information sharing System
            network (RISS.net) to all HIDTAs. This will bring the HIDTA
            Program into compliance with a requirement of the
            Presidentially directed General Counterdrug Intelligence Plan
            (GCIP).
      --Enhance Several HIDTA intelligence centers.
      --Enhance existing and create new HIDTA law enforcement initiatives.

                              Subcommittee Recess

        Senator Campbell. Thank you very much for appearing. This
    hearing is recessed.
        [Whereupon, at 10:18 a.m., Thursday May 3, the subcommittee
    was recessed, to reconvene subject to the call of the Chair.]

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2002

                                  ----------

                             THURSDAY, MAY 10, 2001

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:38 a.m., in room SD-124, Dirksen
    Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)
    presiding.
        Present: Senators Campbell, DeWine, and Dorgan.

                           DEPARTMENT OF THE TREASURY

    STATEMENT OF JAMES SLOAN, ACTING UNDER SECRETARY, LAW
                ENFORCEMENT DIVISION

                                Opening Remarks

        Senator Campbell. Good morning. The committee will be in
    order. I apologize for being a little late. It is one of those
    morning.
        We are here today to talk about the fiscal year 2002 budget
    request for the Treasury law enforcement agencies. The mission
    of the Bureau of Alcohol, Tobacco and Firearms can be summed up
    in three major strategic goals: To reduce violent crime, to
    collect the revenue, and to protect the public. In order to
    accomplish these goals, the ATF is requesting a total of
    $803.521 million for the fiscal year 2002. We will be talking
    about some of their responsibilities this morning.
        Similarly, the Secret Service goals speak of their wide-
    ranging duties to protect our Nation's leaders and visiting
    world leaders, to reduce threats posed by global terrorists, to
    reduce crimes against our Nation's currency and financial
    system. The Secret Service is requesting a total of $860.469
    million in fiscal year 2002. We will be getting some
    information on that as well.
        The Treasury law enforcement agency with probably the most
    diverse jurisdiction is the United States Customs Service.
    Their responsibilities include stimulating and protecting trade
    and economic growth, border security, reducing narcotics
    trafficking, to disrupt criminal finance and public protection.
    The Customs Service believes they need a total of
    $2,385,226,000 next year to carry out their mission. That
    sounds like a lot of money but it should be noted that over
    $250 million of that is for their automation modernization
    project.
        The fourth agency before us this morning is the Federal Law
    Enforcement Center known as FLETC. They provide comprehensive
    training to Federal law enforcement officers, establish
    partnerships with client agencies, they work with agencies to
    evaluate and adjust training schedules and availability. It is
    estimated that the consolidated training provided by FLETC
    saves the Federal Government about $175 million per year. The
    FLETC funding request is $122.602 million.
        Probably the least visible Treasury law enforcement agency
    is the Financial Crimes Enforcement Network. FinCEN, as it is
    called, supports a major Treasury goal by working with Federal,
    State and local law enforcement agencies to dismantle domestic
    and international money laundering networks. Included in this
    responsibility is the management of the program to register
    check cashing and similar businesses, as well as the
    administration of the Bank Secrecy Act. To accomplish this
    goal, FinCEN is requesting $45.155 million.
        For the first time this morning, we will also hear from the
    Director of the Office of Foreign Assets Control. Although this
    is a small office, it has a very significant impact. It is
    responsible for enforcing economic and trade sanctions against
    some foreign countries based upon policy decisions made by the
    President of the United States. The Department estimates that
    the funding necessary for this effort is at least $19.732
    million.
        So we have a full plate of requests of money this morning.
    I might mention to the witnesses that we are going to have a
    vote at 11:30, so I would appreciate it if you would make your
    comments relatively brief. We will go over them, and as in the
    past, we will do the very best we can for you.
        I am going to chair part of the hearing and I have one of
    those murderous mornings, as Senator Dorgan does, and he will
    also be chairing part of the hearing.

                      Statement of Senator Byron L. Dorgan

        Senator Dorgan, if I could ask for comments.
        Senator Dorgan. Mr. Chairman, thank you very much. I have a
    Commerce and Energy Committee hearing occurring at the moment,
    as well, so I think what we will do is switch off, and I
    appreciate that. We appreciate the witnesses and appreciate the
    work they do for the law enforcement agencies in the Federal
    service.
        Let me just say that your remarks, I think, pretty much
    cover my feelings about what we are doing. I have great
    admiration for the service of the men and women who work in
    these agencies. They do a lot of important work, some of it not
    well recognized at times, but we need to be very supportive of
    their efforts. We spend a great deal of money in these areas.
    We also need to be attentive to that, to make sure it is spent
    in a wise and appropriate way.
        But I have read the testimony that will be presented this
    morning by the agencies and by Mr. Sloan and we appreciate your
    being here. I will not cover the same ground that the chairman
    did, only to say that we appreciate the service of the men and
    women who work in your agencies.
        [The statement follows:]

                 Prepared Statement of Senator Byron L. Dorgan

        Mr. Chairman, I join you in welcoming these gentlemen here today.
    Other than the IRS, the agencies these men represent have the most
    direct impact on the lives of our constituents than any other agencies
    which we fund in this Subcommittee. They protect our borders and our
    currency. They facilitate trade and save lives. They do their duty to
    uphold and enforce our laws. We appreciate the hard work they do for us
    and we need to ensure that we provide them with the resources to do
    their jobs.
        The budget that has been presented to us--in my view--fails the men
    and women who serve on the frontlines. While ostensibly providing
    nominal increases for each agency, this budget will force each agency
    to absorb cuts in programs which support their missions.
        I am deeply troubled by this budget and the difficult choices all
    of your agencies will have to make in the coming year if we are
    constrained by this budget. While the budget may be sufficient to avoid
    letting people go, it does so just barely. Instead of just limping
    along, we should be formulating a multi-year hiring plan to bring
    skilled and motivated men and women into the Customs Service, Secret
    Service, ATF and the other law enforcement agencies.
        The Department of Justice has requested funds to hire an additional
    1,100 new Border Patrol agents. Why is not the Department of the
    Treasury seeking a similar level of new staff for its agencies? The
    burdens we are placing on these agencies is increasing and the
    resources they need to do their jobs deserves to increase as well.
    Otherwise we will continue to face recruiting and retention problems.
        I look forward to your testimony and to working with you in the
    coming months. Thank you.

        Senator Campbell. Senator DeWine, do you have a statement?
        Senator DeWine. Mr. Chairman, I am glad to be a member of
    the committee. Thank you very much. I am looking forward to the
    testimony today. I have a written statement which I would like
    to make a part of the record.
        Senator Campbell. Without objection, it will be included in
    the record.
        Senator DeWine. Thank you.
        [The statement follows:]

                   Prepared Statement of Senator Mike DeWine

        Thank you Chairman Campbell and Ranking Member Dorgan for holding
    this important hearing today. As one of the newest members of the
    subcommittee, I am glad to be here and ready to get down to business.
        Today's hearing is a great opportunity to discuss and examine many
    of the varied issues facing our nation's law enforcement agencies.
    Given the vastness of the issues we could talk about, I intend to focus
    my attention on three areas of particular interest to me and to my home
    state of Ohio. These areas include drug interdiction; the
    implementation of the Continued Dumping and Subsidy Offset Act, which
    is the law that Senator Byrd and I wrote to fight unfair trading
    practices; and the Bureau of Alcohol, Tobacco and Firearms' (ATF)
    efforts to keep guns out of the wrong hands.
        I am pleased that the Acting Commissioner of our U.S. Customs
    Service, Charles Winwood, is here today and am interested in getting
    his input on the state of our current international counter-narcotics
    operations. I hope to receive an update on the delivery status of the
    P-3 aircrafts provided in the Western Hemisphere Drug Elimination Act,
    as well as information regarding the need for additional resources to
    stop drugs from entering our borders.
        The Custom's Service is also playing a direct role in the
    implementation of the Continued Dumping and Subsidy Offset Act. We need
    this law because there are many foreign producers, who--in hopes of
    securing a greater share of the U.S. market or eliminating their U.S.
    competitors, altogether--are selling their products in the United
    States at or below production costs. Currently, Customs is writing
    implementation regulations for our Continued Dumping law. It is my hope
    that Customs and Treasury--and I have already raised this issue with
    Secretary O'Neill--will take the necessary action to ensure that the
    proposed implementation regulations are published very soon.
        Finally, I am pleased that Director Bradley is here today to
    discuss ATF priorities. As my colleagues are well aware, ATF is an
    integral federal law enforcement agency. Clearly, Treasury's role in
    the investigation and enforcement of our nation's gun laws is critical.
        Again, I thank all of our panelists for being here today. I look
    forward to discussing these issues and others during the question
    period.

        Senator Campbell. We will start with our first panel, which
    is James Sloan, the Acting Under Secretary of the Treasury for
    Enforcement; Brad Buckles, the Director of the BATF; Charles
    Winwood, the Acting Commissioner of the United States Customs
    Service; and Brian Stafford, the Director of the United States
    Secret Service.
        We will start in that order. Why do you not go ahead, Mr.
    Sloan.
        Mr. Sloan. Thank you, Mr. Chairman, Mr. Dorgan, Mr. DeWine.
    It is truly a privilege and an honor for me to be able to
    introduce to you today the Treasury law enforcement community.
    Rather than take away any of their time, because I think that
    they will need and require ample opportunity to present their
    statements and respond to your concerns, I would ask that my
    full testimony be included in the record of the proceedings.
        Senator Campbell. It will be included in the record. In
    fact, all of your full statements will be in the record.

                               Prepared Statement

        Mr. Sloan. Having said that, sir, and acknowledging the
    privilege and the honor it is to introduce them, I would like
    to present Director Buckles, Commissioner Winwood, and Director
    Stafford, and later today, Directors Newcomb and Basham and
    Deputy Director Baity.
        With that, I will move on to Director Buckles. Thank you,
    sir.
        [The statement follows:]

                      Prepared Statement of James F. Sloan

        Chairman Campbell, Senator Dorgan, and Members of the Subcommittee,
    I am pleased to be here today on behalf of Secretary O'Neill to
    introduce the fiscal year 2002 budget request for the Department of the
    Treasury's law enforcement bureaus and offices.
        Testifying with me today are the heads of each Treasury law
    enforcement bureau: Charles W. Winwood, Acting Commissioner of the
    United States Customs Service (Customs), Bradley A. Buckles, Director
    of the Bureau of Alcohol, Tobacco and Firearms (ATF), Brian L.
    Stafford, Director of the United States Secret Service (USSS), W. Ralph
    Basham, Director of the Federal Law Enforcement Training Center
    (FLETC), William F. Baity, Deputy Director of the Financial Crimes
    Enforcement Network FinCEN) and R. Richard Newcomb, Director of the
    Office of Foreign Asset Control (OFAC).
        In addition to presenting the fiscal year 2002 budget request, I am
    also here today to discuss the most significant challenges we face in
    Treasury law enforcement. However, at the outset of my testimony, I
    want to thank the Members of this Subcommittee for their strong and
    continuing support for Treasury law enforcement. Because of your
    support in fiscal year 2001, we experienced the largest increase in
    Treasury law enforcement staffing in over a decade.
        This Subcommittee is aware of the fiscal challenges we continue to
    face. The fiscal year 2002 budget request for $4.3 billion and roughly
    30,000 FTE provides our Treasury law enforcement bureaus and offices
    the support needed to carry forward our challenging missions. Overall,
    the President's fiscal year 2002 budget proposal would add roughly 900
    full-time equivalent positions to Treasury enforcement above the fiscal
    year 2001 total enacted level. For example, this budget will provide
    the ATF with an overall increase of 340 full-time equivalent agents,
    inspectors and other staff, and will be used to enhance our explosives,
    arson, and firearms enforcement efforts. For Customs, the fiscal year
    2002 budget request includes necessary funds to annualize the costs of
    370 full-time equivalent positions associated with the fiscal year 2001
    enactment. These positions will further aid Customs in carrying out its
    very important drug and law enforcement missions.
        All of our bureau heads will address their programs in greater
    detail today. I would now like to touch on a few of the highlights
    involving Treasury Enforcement.
      treasury strategic goal: support the achievement of business results
    Departmental Oversight
        In addition to funding, it is important that our law enforcement
    bureaus have clear policies and priorities. The Office of Enforcement
    continues to focus on providing support, oversight, and policy guidance
    to enhance the performance of our enforcement bureaus and provide
    strong leadership in the enforcement community.
                Performance Results
        As the Acting Under Secretary for Enforcement, along with my staff,
    I am working to ensure that the Treasury law enforcement bureaus'
    performance goals and measures conform to policy and that the bureaus
    strive to reach their identified targets. To that end, Treasury law
    enforcement bureaus are working hard to achieve the strategic goals and
    objectives identified in the Department's fiscal year 2000 through
    fiscal year 2005 strategic plan. Our law enforcement bureaus have
    improved in their overall performance as indicated by a comparison of
    our fiscal year 1999 and fiscal year 2000 results of the percentage of
    performance targets met by Treasury law enforcement bureaus and major
    offices.

            Fiscal year                                              Percent

    1999 actual.......................................................    64
    2000 actual.......................................................    77
    2001 Plan.........................................................    82
    2002 Plan.........................................................    85

        We will continue to strive to improve as we work toward the
    achievement of our fiscal year 2001 and fiscal year 2002 performance
    measure targets. It is important, however, that we not set goals that
    we are sure to reach. Instead, even though we may not achieve all of
    our goals, we must set targets that challenge us. If the performance
    measure targets do not ``stretch'' our bureaus, we will not improve.
        It is my view that the performance measures contained in our fiscal
    year 2002 bureau performance plans will appropriately challenge us.
    However, I also recognize that we still have a long way to go in
    developing the best set of performance measures for our law enforcement
    bureaus. While this is true for all of our mission areas, such as
    protection, trade facilitation, and passenger processing, it is
    especially true for our traditional law enforcement mission. We will
    work within Treasury, with other Federal law enforcement agencies, and
    with the Office of Management and Budget (OMB) to develop the law
    enforcement measures to accomplish our operational priorities and
    achieve our agency goals more effectively.
    Infrastructure
        For our bureaus to accomplish their missions successfully, they
    need facilities that are safe and secure. They also need equipment that
    is up-to-date and reliable. We are working to meet these needs and
    thereby better serve the American people.
        An example of this is the updated Customs Air and Marine
    Modernization Plan. This Plan is being cleared through the Department
    and will be forwarded to OMB and this Committee very soon. This Plan
    was prepared in response to a request by this Committee which, in
    noting the successes of the Customs Air and Marine Interdiction
    program, expressed its serious concerns surrounding the growing
    operational commitments associated with that success. Among other
    things, the Plan specifically addresses the Committee's concerns
    regarding the high cost of maintaining the fleet due to aircraft age
    and operational usage. The Air and Marine Modernization Plan includes a
    current description and status of air and marine assets and a strategic
    plan for replacing assets that have exceeded their useful life. To
    support this effort, the fiscal year 2002 budget request includes a $35
    million initiative for air and marine enhancements consistent with the
    Western Hemisphere Drug Elimination Act.
    National Laboratory Center
        The ATF National Laboratory Center (NLC) currently is located in a
    less than satisfactory commercial building in Rockville, Maryland, and
    a new government owned facility is being built as a replacement. In
    addition to the existing Forensic Science and Alcohol and Tobacco
    Laboratories, a new Fire Research Laboratory (FRL) will be part of the
    facility. In December 1999, ATF broke ground for its new NLC in
    Beltsville, Maryland. Once constructed, the new NLC will give ATF the
    kind of forensic and analytical science facility it needs to support
    firearms, explosives, and fire investigations, as well as to conduct
    testing that insures the integrity of regulated alcohol and tobacco
    products.
        The FRL is a new addition to ATF's technical expertise that will
    directly support fire/arson investigations and complement ATF's on-
    going fire/arson investigation initiatives such as the InterFIRE Fire
    Investigation Training, the Certified Fire Investigator Program, and
    the Accelerant Detection Canine Program. It will be the only laboratory
    in the world solely dedicated to supporting fire/arson investigations
    and the resolution of arson related crimes and advancing the science of
    fire evidence analysis. For the first time, investigators will have a
    resource that can help them unravel the difficult problems associated
    with fire ignition and spread. ATF has established a memorandum of
    understanding with the National Institute of Standards and Technology
    to join forces on research into the measurement and prediction of fire
    and its effects, to share training and technology, and to conduct joint
    research and technical assistance tasks on matters of fire science.
    ATF Headquarters
        ATF Headquarters currently is located in a portion of a privately
    owned office building. In response to increasing safety concerns and
    capacity limitations, construction funds were provided for a new ATF
    Headquarters Building. The new building also will be the cornerstone of
    the redevelopment of the New York and Florida Avenue corridors in
    Northeast Washington, DC. We anticipate project completion in the
    spring of 2005. Due to the importance of this project, including the
    need to ensure the safety of our employees, senior policy officials are
    monitoring this project closely to ensure appropriate funding, and that
    it adheres to the original completion schedule.
    FLETC Master Plan
        The expansion in recent years in the number of employees hired by
    the 73 law enforcement agencies that participate in FLETC has stressed
    FLETC's ability to meet all the requests for training. Although FLETC
    continues to be able to provide all the basic training needed, by using
    a temporary facility in Charleston, South Carolina, increases in bureau
    hiring require coordinated increases in funding for FLETC.
        Consistent with past practice, FLETC has submitted its five-year
    construction plan and updates to Congress. This so-called Master Plan
    captures how FLETC proposes to expand its Glynco, Georgia and Artesia,
    New Mexico facilities to ensure that long range demands for training
    can be met. Currently, FLETC is being challenged to expand facility
    capacities at its Glynco and Artesia centers to meet expressed U.S.
    Border Patrol training requirements. A temporary site is now being used
    in Charleston to provide a portion of basic training due to predicted
    Glynco capacity limitation. As you know, the Congress has requested
    that FLETC's expansion be completed in fiscal year 2004, to eliminate
    the need for Charleston's use. FLETC's current Master Plan, identifies
    $83.2 million in construction requirements ($54.9 million over five
    years for Artesia and $28.3 million over five years for Glynco). To
    date, FLETC has received $39 million in appropriations and most of
    which has been, or will be, obligated by the end of fiscal year 2001.
    Initially, the Border Patrol's training facility in Charleston was
    scheduled to close in fiscal year 2004, with subsequent consolidation
    of all Border Patrol basic training at FLETC. Such a consolidation
    would generate $55 million in cost avoidance for new construction, and
    another $8 to $12 million annually would be saved by the Border Patrol
    in per diem cost, above original projected costs. FLETC and Border
    Patrol have forged a partnership to continue to make prudent decisions
    to achieve the consolidation as close to the original target date as
    possible.
    FLETC's Cheltenham Facility
        As part of its efforts to support Treasury's law enforcement
    bureaus, the Office of Enforcement identified a need for a firearms
    requalification range facility in the greater Washington, D.C. area for
    Treasury and other law enforcement personnel. To address this need, in
    March 2000, an interagency working group was formed to conduct a
    feasibility study to determine the possibility of establishing a
    consolidated training facility in the Washington metropolitan area. The
    study attempted to find an available location that would meet the
    following criteria: (1) government owned property, (2) sufficient acres
    to allow growth, (3) within the D.C. metropolitan area, and (4)
    suitable buffer areas between neighboring residential or commercial
    property. We have identified a site in Cheltenham, Maryland, that meets
    these criteria, and thanks to the support of this Committee and
    Congress, we have $30 million to build the facility. Although there is
    ongoing litigation about the site, we hope to be able to move forward
    soon.
        The availability of a FLETC operated dedicated firearms and a
    vehicle operations requalification facility will promote optimum
    quality, quantity, and cost effectiveness for all law enforcement
    agencies in the greater Washington, D.C. area. While the original
    working group consisted of six Treasury law enforcement agencies--ATF,
    USSS, Internal Revenue Service-Criminal Investigations (IRS-CI),
    FinCEN, Customs, and FLETC--we now have over 29 agencies interested in
    using Cheltenham, including the U.S. Capitol Police.

                                HUMAN RESOURCES
        We recognize, however, that the most modern facilities using the
    latest technology are useless if we are not able to recruit and retain
    high caliber personnel. We have taken a number of important steps to
    strengthen our workforce.
    Treasury Law Enforcement Study
        The fiscal year 2000 and fiscal year 2001 House Appropriations
    Committee Reports expressed concern about available Treasury law
    enforcement resources and infrastructure issues. In response, the
    Department of the Treasury, in coordination with the Office of
    Personnel Management, engaged a human resources management/consulting
    firm to prepare a series of issue papers. The issue papers involve
    senior executive service staffing; economy of scale/technology; human
    resource planning and workforce productivity; quality of work life;
    external funding; and training. In addition, I am pleased to inform the
    Committee that, as identified below, Treasury also conducted a series
    of complementary studies. Together, these efforts outlined the issues
    and challenges facing Treasury's law enforcement bureaus. More
    importantly, the contractor has proposed strategies and next steps to
    help ensure that they will have the human and technical resources
    necessary to meet mission demands now and in the future. For certain,
    additional work will be needed to address the overall aspects of this
    endeavor.
        There are many challenges that compel us to focus on these issues
    including an increasingly more demanding and complex operating
    environment, highly sophisticated and complex criminal activities,
    growing use of the internet, globalization, and the requirements to do
    more and having to do it with less.
        The contractor's report contains recommendations for next steps in
    a number of areas, some of which are listed here. However, it is
    important to note that this report does note connote Administration
    policy.

    ------------------------------------------------------------------------
                 Topics                     Issues            Next Steps
    ------------------------------------------------------------------------
    Senior Executive Service          SES slot            Develop proposal
     Staffing Levels.                  allocation;         for achieving
                                       actual number of    additional SES
                                       SES slots needed    slots.
                                       to carry out the
                                       law enforcement
                                       mission.
    Technology and Economy of Scale.  Importance of       Review technology
                                       technology in       needs in the
                                       Treasury Law        context of the
                                       Enforcement         new
                                       Bureau's work;      administration's
                                       use of complex      goals and bureau
                                       technology by       strategic plans.
                                       criminals.          Develop plans for
                                                           dealing with the
                                                           insertion of new
                                                           technologies.
    Optimizing Staffing in Field      Staffing of core     Develop pilot
     Offices.                          occupations;        offices;
                                       reviewed each       determine needed
                                       bureau's            workforce
                                       organization,       profiles; and
                                       workforce,          assess the costs.
                                       workload, and
                                       work processes.
    Workforce Competencies and        Focus on workforce  Determine
     Compensation.                     competencies and    competitive
                                       compensation.       levels of
                                                           compensation and
                                                           benefits.
    Quality of Work-Life............  Issues that         Invest further
                                       positively and      study and
                                       negatively affect   attention into
                                       employment (e.g.    critical quality
                                       assignment to       of work-life
                                       hardship posts).    issues.
    External Funding and              How the Bureaus     To further develop
     Partnerships.                     can partner with    the best ideas
                                       external            through a multi
                                       organizations,      level review
                                       such as             process.
                                       commercial
                                       industry or trade
                                       associations, to
                                       help meet
                                       anticipated
                                       resource
                                       requirements.
    Training........................  Identification of   Enhance current
                                       training needs      efforts to
                                       that cut across     facilitate inter-
                                       bureaus; process    bureau training
                                       for development     and the use of
                                       of joint            technology.
                                       training;
                                       strategies for
                                       integration of
                                       programs into
                                       bureau specific
                                       curricula.
    ------------------------------------------------------------------------

        Further investments may be warranted to capitalize on many of the
    ideas and strategies proposed from both the external and internal
    efforts from this project.
    Hiring and Agent Staffing
        Retention of employees who have years of experience and in whom we
    have invested long hours of training is critical. In that regard, the
    Department has made progress toward meeting the challenges of improving
    our capacity to develop and retain high-caliber employees.
    Specifically, we have worked to address workforce retention and
    workload balancing issues with the aforementioned comprehensive
    studies. The analysis confirmed that agents and other core occupations
    are experiencing increased travel, longer working hours, and shortages
    in technologically current equipment. However, I am pleased to note
    that several fiscal year 2001 initiatives are being continued in fiscal
    year 2002, and with the Committee's support this will enable us to
    respond to these challenges effectively.
    Senior Executive Service (SES) Allocations
        Allocation of SES positions within Treasury law enforcement bureaus
    is of vital concern to our present and future leadership planning. This
    represents one of our highest cross-cutting human resource priorities.
    This is one of the topics addressed in the contractor's report, as
    noted above.
    Demonstration Pay Project
        The Demonstration Project was established to enhance the Department
    of the Treasury's ability to recruit, develop, and retain highly
    qualified non-agent scientific and technical law enforcement personnel.
    It seeks to do so by implementing changes in personnel management
    practices for designated occupations. ATF recently launched its pay
    demonstration project for scientific and technical positions. The
    Demonstration Project emphasizes flexibility in approaches to
    recruitment, and establishes a pay-for-performance system designed to
    provide incentives to compete with state and local government and the
    private sector. ATF's Demonstration Project consists of more than 250
    employees within 13 divisions and includes occupations such as computer
    science, fingerprint analysis, firearms enforcement, document analysis,
    engineering, integrated ballistic information system specialist,
    firearms and tool making. Paybands, a performance appraisal system,
    performance-based bonuses and pay increases, and certification and
    licensure bonuses are some of the interventions being used to develop a
    higher performing workforce. By all counts, I am confident that this
    effort is a good barometer of the future for all of the Federal
    government.
        As required by law, we recently provided the Congress with the
    Demonstration Project Interim Evaluation Report. It provides an
    assessment of the effectiveness of the project. The interim findings
    and conclusions state that participating employees are paid more and
    that they want to continue with the Project. They recognize the link
    between pay and individual performance. The Report also notes that
    management needs to make improvements to the performance appraisal
    system and improve communication to achieve Treasury objectives.
    Because the interim recommendations were made after just one year's
    experience with the human resources interventions, this project needs
    to be extended to fully assess its effectiveness. Our extension request
    is included in the President's April 9, 2001 budget. We thank the
    Subcommittee for its support on this project, as we look forward to
    completing the research and making this capacity permanent.
    Improving the Office of Enforcement
        We also are working to improve the Office of Enforcement. In March,
    the General Accounting Office completed its report on the Office of
    Enforcement, entitled Department of the Treasury: Information on the
    Office of Enforcement. In addition to making a number of constructive
    observations, the report recommended that the Under Secretary for
    Enforcement ``strengthen internal control by developing a policies and
    procedures manual to ensure that the policies and procedures on the
    circumstances under which the bureaus interact with Enforcement are
    clearly defined, documented and readily available for examination by
    bureau officials and others.'' I want to assure you that we have begun
    to review our policies and procedures and develop a plan to comply with
    this recommendation.

                                   TECHNOLOGY
        It is especially important for Treasury law enforcement to define
    and pursue strategies that ensure adequate technological resources are
    available to support our law enforcement missions and bureaus.
    Computers and the Internet are an integral part of an ever-increasing
    number of criminal activities investigated by Treasury bureaus. We have
    seen computer-generated and computer-assisted fraud dramatically
    increase. Criminals, in the furtherance of their illegal schemes,
    frequently utilize hardware and software tools developed for the
    benefit of businesses and consumers.
        Because of the competitive nature of Internet-based financial
    services, the focus is on speed, ``24/7'' access, and ease of use; all
    of which make the job of the ``cyber criminal'' a little easier. The
    Internet also provides the anonymity that criminals desire. Alarmingly,
    the Internet contains thousands of sites dedicated to all types of
    criminal activity. ``Hacking'' sites describe the methods for making
    intrusions into financial, telecommunications, and government systems,
    and allow the necessary ``tools'' to be downloaded directly to the
    perpetrator.
        For just about every new technology that is found to be useful in
    the conduct of criminal endeavors Treasury law enforcement will have to
    make a decision on countering these technology related thrusts and find
    ways to master the relevant technologies. Without continuous technical
    upgrading and training, the criminal element may acquire an advantage
    over law enforcement in the fast growing areas of cyber-crime and
    communications countermeasures. We must meet this threat with
    technology, knowledge, and law enforcement personnel who have true
    mastery of these offensive or defensive tools to thwart, control, or
    reduce crime. Technology infusion and managing technology obsolescence,
    though at times resource draining, are essential tools for maintaining
    the decisive edge for the enforcement and protection mission. As noted
    earlier, we are planning to conduct a follow-on review of law
    enforcement technology needs and technology strategies to support the
    new administration's goals.

                          MEETING OUR STRATEGIC GOALS
        Of course, the purpose of focusing on our infrastructure, human
    resource and technology needs is to enhance our abilities to meet our
    law enforcement missions. Treasury's law enforcement bureaus have a
    distinguished record of service. We are committed to building on this
    record and achieving even greater performance.

     TREASURY STRATEGIC GOAL: COMBAT MONEY LAUNDERING AND OTHER FINANCIAL
                                     CRIMES
    Money Laundering and Financial Crimes
        The Office of Enforcement and the Treasury enforcement bureaus
    continue to lead the U.S. government's efforts in the domestic and
    global fight against money laundering and related financial crimes.
    Treasury continues to author the National Money Laundering Strategy in
    conjunction with the Department of Justice. This strategy aims to
    attack not only the proceeds of narcotics trafficking, laundered, for
    example, through the Black Market Peso Exchange system, but also the
    illicit proceeds generated by child pornographers, trade fraud,
    terrorists, arms traffickers, and those who defraud the elderly.
        FinCEN and the Treasury enforcement bureaus continue to work to
    improve feedback to the industry regarding the utility of the
    Suspicious Activity Reports (SARs) filed by financial institutions.
    SARs are a critical component of law enforcement's ability to detect
    and combat money laundering. Many investigations are made or enhanced
    through the use of a SAR, and we are working with industry to help them
    understand better how law enforcement uses SARs through ``The SAR
    Activity Review,'' published under the auspices of the Bank Secrecy Act
    Advisory Group. SAR review committee groups are being established in
    the major metropolitan areas to prevent duplication of investigative
    efforts.
        Treasury Enforcement leads the U.S. delegation to the Financial
    Action Task Force (FATF) and its project to identify Non-Cooperative
    Countries and Territories (NCCTs). In addition to contributing actively
    to the FATF NCCT effort, Treasury has informed our domestic financial
    institutions about the risks posed by the 15 NCCT jurisdictions
    identified by FATF last June. FinCEN has issued formal advisories to
    alert U.S. financial institutions to specific deficiencies in the
    counter money laundering regimes in these 15 jurisdictions and to
    encourage our institutions to apply enhanced scrutiny to transactions
    involving them. Treasury has worked both with our allies and with
    officials from the NCCTs themselves to correct the shortcomings in law,
    regulation, and practice that elevate the risk of money laundering
    activity in these locales. We are pleased with the progress being made
    in many of these named jurisdictions and feel that it is directly
    attributable to this FATF exercise. We believe that the second round of
    NCCT reviews, scheduled to be completed by June, will have a similarly
    beneficial result.
    Money Service Business (MSB) Regulatory Program
        In the United States we are continuing to move forward on several
    fronts to strengthen the nation's anti-money laundering program. A
    little more than a year ago, FinCEN issued a final rule requiring
    registration of money services businesses--money transmitters, check
    cashers, money order and traveler's check businesses, and currency
    exchangers. The new rules will allow law enforcement authorities for
    the first time to have a firm idea of the size and location of the
    200,000 or so entry points into the financial system that those
    businesses can represent. FinCEN has also issued a final rule requiring
    suspicious transaction reporting by money transmitters and money order
    and traveler's check businesses; that rule is also currently scheduled
    to take effect at the beginning of next year.
        Our priority is ensuring a smooth and effective implementation of
    both the registration and suspicious activity reporting rules, taking
    into account what we learn during this critical implementation period.
    A delay in the effective date of suspicious transaction reporting might
    be helpful to assure smooth sequencing of the new obligations, but no
    final decision has been made on this point.
        During this implementation period, FinCEN is conducting an
    extensive outreach program to educate the MSB community about their
    registration and reporting obligations. On-going consultations are
    taking place with MSB industry representatives and a series of focus
    group meetings have been held in Chicago, Los Angeles, and New York. In
    addition, FinCEN is working closely with the Internal Revenue Service,
    a key partner with respect to oversight compliance by the MSB industry,
    to ensure that an enforcement and compliance infrastructure is in place
    by the time the SAR regulation takes effect.
    White Collar/High Tech Crime
        Treasury's enforcement bureaus also protect our children from on-
    line pornographers, enhance the safety of worldwide e-commerce, and
    enforce the intellectual property rights of U.S. industry from
    unscrupulous pirates. Treasury's law enforcement agents are recognized
    leaders internationally in the fight against high-tech crime in all of
    its manifestations; routinely provide important investigative and
    forensic assistance to their state and local law enforcement
    colleagues; and have earned the respect of the private sector industry
    through their effective handling of cases. Treasury agents have, for
    example, prevented a computer hacker from shutting down an on-line
    stock trading service and tracked and captured a hacker who caused the
    catastrophic shutdown of a medical diagnostic facility's computer
    network and communication system. Treasury maintains a Department-wide
    initiative to ensure that all of its law enforcement bureaus have a
    technically skilled and highly equipped set of agents to investigate
    these type of cases, and has deployed nearly 200 Computer Investigative
    Specialists (CISs) throughout the nation. The CIS program ensures that
    Treasury agents can handle evidence in whatever media it is stored.
    Treasury's enforcement jurisdiction in an increasingly high-tech and
    wired world.
    Black Market Peso Exchange (BMPE)
        Treasury's counter-narcotic efforts have both a domestic and
    international dimension. Our initiatives to combat the BMPE, the
    largest money laundering system in the Western Hemisphere and the
    primary conduit for Colombian drug cartels, are a good example of this
    approach. Anecdotal law enforcement evidence, informant statements, and
    other evidence suggests that between $3-$6 billion is laundered
    annually using the BMPE system.
        Three years ago we established a multi-agency BMPE Working Group
    which has developed and implemented an aggressive strategic plan to
    combat this form of money laundering. The Money Laundering Coordination
    Center ([MLCC] created and operated by the Customs Service has proven
    instrumental in fighting the BMPE), is designed to synthesize
    intelligence from investigations targeting the BMPE. Housed at FinCEN,
    the MLCC has proven instrumental in fighting the BMPE. Combating the
    BMPE is a law enforcement priority.
        In addition to these law enforcement efforts, the Department of the
    Treasury and the Department of Justice have developed and implemented
    an aggressive outreach program to make the U.S. business community
    knowledgeable of the operations of, and their vulnerability to, the
    BMPE system. Treasury and Justice are working with business leaders in
    their efforts to develop, adopt, and implement money laundering
    compliance programs and best practices guidelines that will aid their
    companies in avoiding BMPE transactions.
        To promote awareness of the BMPE process and its detrimental
    effects on the global economy, Treasury has created the International
    BMPE Exchange Task Force. This Task Force is comprised of experts from
    Aruba, Colombia, Panama, United States, and Venezuela who will examine
    the operations of the BMPE as a money laundering system and will
    recommend policy options and actions that can be taken to effectively
    detect, deter, and prosecute BMPE money laundering.

        TREASURY STRATEGIC GOAL: PROTECT OUR NATION'S BORDERS AND MAJOR
     INTERNATIONAL TRANSPORTATION TERMINALS FROM TRAFFICKERS AND SMUGGLERS
                                OF ILLICIT DRUGS
    Counter-Narcotics
        The Southwest Border (SWB) between the U.S. and Mexico continues to
    provide a significant challenge to Treasury's law enforcement
    operational mission. In fiscal year 2000, 293 million people, 89
    million cars and 4.5 million trucks entered the United States from
    Mexico. This immense and growing volume of traffic represents an
    opportunity for those who would violate U.S. law, making control of our
    borders and ports of entry essential. Government estimates continue to
    indicate that nearly two-thirds of the cocaine entering the U.S. comes
    across the SWB.
        Multiple government agencies are tasked with maintaining the flow
    of legal migration and trade while protecting the United States from
    the smuggling of drugs, illegal aliens, and other contraband. Customs
    has primary responsibility for ensuring that all movements of cargo and
    passengers that enter the United States comply with Federal law.
    Customs is also the lead agency for investigating and preventing drug
    smuggling into the U.S.
        The challenges we face are significant and complex, but not
    insurmountable. Working through the Border Coordination Initiative, we
    have improved our law enforcement capabilities along the SWB. Under
    Treasury and Justice enforcement guidance, and with significant
    emphasis on interagency cooperation and locally developed innovation,
    we have improved port coordination, intelligence gathering and
    enforcement. We have also enhanced communication, coordination, and
    operational effectiveness of Federal law enforcement while still
    facilitating the movement of legitimate commerce across the SWB.
    Plan Colombia
        Since mid-1999, Treasury Enforcement has participated in efforts to
    assist the Government of Colombia in efforts to stop narcotics
    production and trafficking in that country. The $1.3 billion ``Plan
    Colombia'' was passed by Congress to assist that. The Office of
    Enforcement has played a major role in the development of the
    components of that Plan and the contributions in support of its
    implementation. The Plan Colombia legislation included funding for
    Treasury programs, including $68 million for upgrading the radar in the
    Customs P-3 fleet, $2 million for OFAC sanctions activities, $1 million
    for banking supervision assistance, and $500 thousand for tax revenue
    enhancement. Funds provided to the State Department for assistance and
    training programs are also being used by Treasury bureaus to train the
    newly-formed Colombian Customs police force, to support Customs
    Americas Counter Smuggling Initiative and to provide maritime
    enforcement and port security assistance. In addition Treasury's
    enforcement bureaus--ATF, Customs, IRS-CID, USSS, and FinCEN--under the
    Office of Enforcement's lead, have developed plans to participate in a
    variety of law enforcement efforts such as enhancing the Colombian
    financial intelligence unit and thwarting the BMPE and other money
    laundering, smuggling, and counterfeiting activities.

        TREASURY STRATEGIC GOAL: REDUCE VIOLENT CRIME AND THE THREAT OF
                                   TERRORISM
    Firearms Violence
        We remain dedicated to reducing firearms violence through ATF's
    enforcement of the firearms laws. The President's budget permits ATF to
    maintain this enhanced level of effort and move forward with its
    comprehensive strategy to reduce violent crime.
        As Director Buckles' will discuss in more detail during his
    testimony, the IVRS sets forth an aggressive three-part plan to reduce
    gun violence by coordinating ATF's firearms enforcement efforts to: (1)
    identify, investigate, and recommend prosecution of violent criminals
    and others who illegally use, possess, or attempt to acquire firearms;
    (2) deny access to firearms for criminals and others who cannot legally
    possess them through fair and careful regulation of the firearms
    industry and proactive investigation of illegal traffickers of
    firearms; and (3) break the cycle of violence and prevent firearms
    crimes through community outreach. ATF has enjoyed significant success
    in implementing this strategy. For example, in fiscal year 2000, ATF's
    efforts led to the conviction of 1,595 armed career criminals, armed
    drug traffickers, and other violent or prohibited persons who used,
    possessed, or attempted to acquire firearms. The President's budget
    request for ATF will enable us to build on this success.
    Counter-Terrorism
        The President's fiscal year 2002 budget seeks resources that will
    enable Treasury to continue to apply its unique expertise and assets to
    the Federal government's efforts to combat terrorism. Treasury's wide-
    ranging counter-terrorism responsibilities include preventing the
    unlawful traffic in firearms and explosives, protecting the President
    and other officials, enforcing the laws controlling the movement of
    assets, and enforcing the laws relating to exports from or imports into
    the United States of goods and services. In short, Treasury enforcement
    bureaus have the legal authority and the essential expertise to perform
    missions that are critical to the security of the United States,
    including:
      --ATF has primary jurisdiction for the prevention of unlawful
            trafficking in firearms and explosives. ATF conducts over 90
            percent of all Federal bombing investigations and maintains the
            Federal National Repository on Bombing Incidents.
      --Customs is the guardian of our nation's borders. It's counter-
            terrorism mission is twofold: protect our nation from the
            introduction of Weapons of Mass Destruction (WMD) and prevent
            international terrorists from obtaining WMD materials,
            technologies, arms, funds to support their activities. Customs
            enforces the laws and regulations that directly relate to the
            responsibilities entrusted to the Department of the Treasury
            under Presidential Decision Directive 39. These violations
            include the smuggling of contraband into the United States; the
            illegal export of licensable technologies and arms; violations
            of international sanctions, embargoes and related money
            laundering statutes. Customs places special emphasis on
            violations that involve international terrorists, rogue regimes
            pursuing WMD development programs, and countries which support
            international terrorism.
      --The FLETC offers a variety of programs aimed at assisting Federal,
            State and local authorities in their efforts to combat
            terrorism.
      --FinCEN unique ability to ``follow the money'' strikes at the very
            heart of terrorist organizations. Through the use of a wide
            array of databases, FinCEN is able to reveal complex financial
            networks supporting terrorist activities.
      --IRS-CI provides the expertise to deter one of the primary means of
            funding for terrorist organizations--tax fraud. The financial
            expertise of IRS-CI is best utilized in the investigation of
            various tax schemes, money laundering and the creation/use of
            illegal tax-exempt organizations.
      --OFAC administers United States economic sanctions against foreign
            governments and organizations that support terrorism. OFAC's
            sanctions prohibit any financial transactions or dealings with
            terrorist sponsoring countries and foreign terrorist
            organizations and provide the blocking of assets of terrorist
            countries and entities by Treasury.
      --The United States Secret Service (USSS) protects our nation's
            leaders, the White House complex and certain foreign
            dignitaries. In addition, the USSS is now the lead agency for
            the design, planning and implementation of security for events
            that have a high potential for attracting terrorist activity.
            The National Security Council proposes to the Attorney General
            and Secretary of the Treasury events to be designated National
            Special Security Events. Additionally, the USSS protects our
            financial infrastructure through its investigations of
            counterfeiting, forgery, bank fraud, access device fraud
            computer intrusion, telecommunications fraud, false identities
            and fictitious instruments.
    National Threat Assessment Center (NTAC)
        The Secret Service NTAC develops and provides threat assessment
    training and conducts operational research relevant to public official,
    workplace, stalking/domestic, and school-based violence. The NTAC
    provides assistance to other Federal agencies, as well as other state,
    local agencies and organizations interested in developing threat
    assessment programs.
    Foreign Terrorist Asset Tracking
        Congress provided funding in fiscal year 2001 for OFAC to develop a
    Foreign Terrorist Asset Tracking (FTAT) Center. The FTAT Center will be
    responsible for developing government-wide strategies to counter
    terrorist fundraising and to incapacitate their financial holdings
    within the United States, and to assist other countries to employ
    similar strategies. Such strategies will bring to bear the full weight,
    influence, and authority of the Federal government--regulatory,
    diplomatic, defense, intelligence, and enforcement communities. Several
    agencies with counter-terrorism responsibilities have committed to
    participate in the FTAT Center--by providing the FTAT Center with all
    relevant information, by detailing specialists to analyze the data, and
    by appointing special liaisons to cement the constant interaction of
    the member organizations. OFAC is now hiring the FTAT Center's
    permanent staff and is working with participating agencies to identify
    detailees and liaisons.

      TREASURY STRATEGIC GOAL: PROTECT OUR NATION'S LEADERS AND VISITING
                                  DIGNITARIES
    Winter Olympics
        The President's fiscal year 2002 budget identified a $51.6 million
    resource need to support the fiscal year 2002 Olympic requirements for
    Treasury law enforcement bureaus. This assumes 1,681 law enforcement
    officers will be needed to carry out the security plan. An additional,
    300 support personnel will be provided. Most of the costs incurred
    during fiscal year 2002 will be for travel and overtime directly
    related to the games. However, costs will also be incurred to continue
    the operation of several coordinating centers, to conduct additional
    contracted training, for miscellaneous contractual service, to purchase
    cold weather clothing and to move employees out of Salt Lake City at
    the conclusion of the Olympics. The number of law enforcement officers
    from Treasury bureaus is projected at 1,075, with the remainder of 606
    to come from outside of Treasury.
        The Secret Service is the lead Federal agency for designing,
    planning, and implementing security for designated National Special
    Security Events (NSSE). The 2002 Winter Olympics has been designated an
    NSSE and will occur February 8-24, 2002, in 15 major sporting event
    venues in and around Salt Lake City. In addition to providing a secure
    environment for the Olympic athletes and for spectators from all over
    the world, the Secret Service will also be responsible for providing
    security for numerous foreign heads-of-state/government, who attend
    Olympic events. The Secret Service will also provide security for the
    President and Vice President of the United States while they
    participate in the opening and closing ceremonies, as well as, any
    Olympic competitions they may decide to attend.
        In addition to NSSE requirements, Treasury enforcement is a member
    of the Public Safety Utah Command. ATF has the responsibility to assist
    in the following activities: (1) prevent, detect and respond to arson
    and explosives activities; (2) provide bomb ``render safe''
    technicians, explosives detecting canines, tactical special response
    teams, and tactical emergency medical technicians; and (3) provide
    intelligence analysis of threat data, as well as firearms and
    explosives tracing.
        The Customs core mission responsibilities focus on the entry of
    equipment, cargo, and individuals participating or attending the games.
    The primary emphasis will be on the enforcement of intellectual
    property right violations of Olympic merchandise and antiterrorism
    efforts on the Northern Border.

        TREASURY STRATEGIC GOAL: PROVIDE HIGH QUALITY TRAINING FOR LAW
                             ENFORCEMENT PERSONNEL
        To address some of the strain from increased demand for training,
    we have been exploring ways to use the latest technology to provide
    alternative means of delivering training courses. Recognizing that the
    FLETC facilities cannot accommodate all of the requests for training
    that are likely to arise in the future, we are searching for ways to
    use the Internet and video conferencing to provide needed training.
        Likewise, the need for advanced training to keep law enforcement
    officers abreast of the latest trends in fighting crime is critical. We
    have been working closely with FLETC to explore ways to enhance
    training to address high-tech crime. One example of this approach is
    Computer Investigative Specialist (CIS) 2000 training. This course,
    which includes agents from the Secret Service, Customs, the IRS-CI, and
    ATF, uses state-of-the-art training and equipment to teach agents how
    to deal with the latest computer and encryption technology that they
    may encounter in conducting an investigation. The CIS 2000 agents have
    achieved many notable successes in their investigations of
    counterfeiting, money laundering and various types of fraud as a result
    of this course.

     TREASURY STRATEGIC GOAL: MAINTAIN U.S. LEADERSHIP ON GLOBAL ECONOMIC
                                     ISSUES
    Trade Enforcement and Facilitation
        In the area of Regulatory and Trade Enforcement our goals have been
    to ensure that laws affecting trade and regulated industries are
    effectively enforced without unnecessarily burdening legitimate
    commerce. An effective means of realizing both goals is through
    targeting enforcement actions and extending the capabilities of our
    finite manpower with automated information management systems. We have
    also pursued international standardization of trade regulation as a
    means of enhancing enforcement cooperation while reducing the burden on
    business. The fiscal year 2002 budget request includes $130 million for
    continued work on the Customs Automated Commercial Environment (ACE)
    and $123 million for life support for the antiquated Automated
    Commercial System (ACS). Developing the ACE system is vital to Customs
    ability to effectively carry out its trade and other enforcement
    missions.

                                   CONCLUSION
        In this statement I have been able to touch on only some of the
    important programs of Treasury's enforcement bureaus. Each bureau head
    will address our programs in greater detail. And, of course, I shall be
    pleased to respond in writing to any questions you want to direct to me
    about any of our programs.
        In conclusion, Mr. Chairman, again I would like to thank you,
    Senator Dorgan, and the other Members of this Subcommittee for your
    support of Treasury's law enforcement programs. Our law enforcement
    bureaus have grown, they are better equipped, and they have become more
    professional as a result of your oversight and support.
        I also would like to thank the staff of this Subcommittee for its
    professionalism and patience not only this year, but also in past
    years. We have wrestled with the problems that inevitably accompany
    growth and a rapidly changing set of challenges. I do not want to miss
    this opportunity to express my appreciation and gratitude.
                    Bureau of Alcohol, Tobacco and Firearms

    STATEMENT OF BRADLEY A. BUCKLES, DIRECTOR
        Mr. Buckles. Mr. Chairman, Senator Dorgan, Senator DeWine,
    thank you for this opportunity to appear here this morning to
    testify in support of ATF's fiscal year 2002 budget request and
    to report on results from your past investments.
        As you noted, our budget request this year is for $803.5
    million and almost 5,000 full-time equivalent positions. This
    represents essentially a maintain current services budget with
    no new initiatives.
        Over the past several years, this committee has secured
    additional resources for ATF related in large part to our
    firearms mission, and I am happy to report that your
    investments are paying off. Numbers of investigations,
    referrals for prosecutions, and convictions are all up
    dramatically. Since our cases focus on armed, violent, and
    often repeat offenders and those who knowingly supply firearms
    to them, removing these individuals from our streets produces a
    very direct and tangible benefit to the communities they
    threaten. At the same time, we remain committed to the
    prevention efforts, like the Gang Resistance Education and
    Training (GREAT) program, which is designed to prevent the next
    generation from starting down the road to gangs and violence.
        Recent reports show that violent crime is at its lowest
    level in decades, and these statistics are encouraging, but
    they are still not acceptable. There is much work to be done
    and it is clear that this is no time to let up. Around the
    country, ATF is working with State, local, and other Federal
    enforcement authorities to develop coordinated strategies to
    address gun violence, and these united efforts are making a
    difference. This budget is essential if ATF is to meet its part
    of the bargain in these joint efforts. Our collective goal is
    to turn the tables and make the criminal with the gun the one
    who feels unsafe on our streets.
        Another important investment of this committee, however, is
    proving to be somewhat problematic. The construction costs for
    our new laboratory and fire science facilities have escalated
    beyond original estimates. I am currently working closely with
    the Department to arrive at a solution that both funds the
    necessary construction and meets the approval of this
    committee. When this process is completed, I will be prepared
    to give you a full briefing and offer our solution to the
    problem.
        Our important work in the alcohol, tobacco, explosives, and
    arson arenas will also be funded by this budget, and our work
    in each of these areas is vital, as well. ATF's annual revenue
    collections are now over $14 billion. We protect millions of
    dollars in State revenues by preventing interstate smuggling of
    alcohol and tobacco products, and ATF is the source of leading-
    edge technology and unique capabilities in addressing bombings
    and arson crime.

                               Prepared Statement

        With your support, the men and women of ATF are determined
    to make this bureau a great value to the American public as we
    pursue our goal for a sound and safer America. Thank you for
    this opportunity to appear before the committee, and I will be
    happy to answer questions.
        Senator Campbell. Thank you. In my view, the ATF is already
    a great value to the American public, by the way, Mr. Sloan.
        [The statement follows:]

                    Prepared Statement of Bradley A. Buckles

        Thank you Mr. Chairman, Senator Dorgan, and members of the
    subcommittee. I welcome this opportunity to appear before the
    subcommittee and present to you ATF's goals for fiscal year 2002 and to
    report on the results of your previous investments in ATF.
        I look forward to working with this subcommittee toward
    strengthening ATF's infrastructure, which is essential for ATF to
    continue to function as a highly professional and effective law
    enforcement organization. In my 27 years of service to the Bureau, I
    have had the opportunity to participate in the formulation of our
    strategic vision, and I am eager to assist in moving the Bureau forward
    in the new century.
        The foresight of this subcommittee to provide fiscally sound
    investments has allowed the Bureau to strengthen its infrastructure to
    adequately support all program activities. Through calculated
    investments in investigative equipment, training, information
    technology, and personnel, ATF is in a balanced and stable position. I
    am pleased to report to you that your investments have been prudently
    spent. For the sixth consecutive year, the Office of the Inspector
    General's independent contractor (PricewaterhouseCoopers LLP) has
    issued ATF its highest audit opinion of ``unqualified,'' with no
    material weaknesses. A copy of our Accountability Report will be
    delivered to each of your offices in the next few weeks.
        As ATF's Director, I present to you a requested level of resources
    that maintains the strong foundation you have established. This level
    of resources focuses on the personnel and technology needed to address
    the varied and critically important responsibilities that have
    increased over the past decade. Challenges such as the investigation of
    cases resulting from the background check required by the Brady Act,
    expansion of focused enforcement programs, such as Project Exile and
    the Youth Crime Gun Interdiction Initiative (YCGII), and a continued
    leadership role on the Federal level in arson and bombing incidents
    require these resources.

                        FISCAL YEAR 2002 BUDGET REQUEST
        ATF's fiscal year 2002 Salary and Expense (S&E) request is
    $803,521,000 in direct budget authority and 4,982 full-time equivalent
    (FTE). Our request represents an increase of $32,378,000, or 4.2
    percent over the total fiscal year 2001 enacted level of $771,143,000.
        This increase will maintain the current services program level of
    mandatory payroll costs and growth through inflation for existing
    programs. No new initiatives are included; however, this request will
    allow us to continue to build the foundation of critical initiatives
    funded in fiscal year 2001.
        ATF has a unique combination of law enforcement and regulatory
    responsibilities. As Director, I will continue to focus on our core
    mission and vision of ``Working for a Sound and Safer America . . .
    Through Innovation and Partnership,'' through our three principal
    strategic goals: (1) reducing violent crime; (2) collecting all revenue
    due to the United States; and (3) protecting the public. ATF has
    developed sound programmatic initiatives, based on existing laws and
    regulations, targeting resources to respond to crime and violent acts
    that threaten public safety and instill fear in all Americans. Our
    vision helps us chart the course to best serve the public and achieve
    new levels of effectiveness and teamwork.

                      FISCAL YEAR 2000 ATF ACCOMPLISHMENTS
    Reduce Violent Crime
        As the Director of ATF, I am proud to appear before the
    subcommittee today to highlight some of ATF's accomplishments during
    the previous fiscal year. We have been able to perform at a high level
    because of dedicated ATF personnel and this subcommittee's support and
    guidance. Violent crime continues to plague America despite the recent
    declines documented in Uniform Crime Report and Centers for Disease
    Control data. As a result, much of our efforts and resources have been
    devoted to reducing violent crime. We are reducing violent crime
    through multiple programs that use both our criminal and regulatory
    authorities.
        Your investments are having an impact. In fiscal year 2000, ATF
    initiated 16,604 criminal investigations, an increase of 26 percent
    over the previous year. During this same period, 6,938 cases were
    referred for prosecution involving 8,737 defendants. This represents an
    increase over the previous fiscal year of 35 and 28 percent
    respectively. Indictments for criminal offenses more than doubled.
        Effective enforcement of existing firearms laws has and continues
    to be a top priority of ATF. With the support and resources provided
    under the guidance of this Committee, in fiscal year 2000, 6,330
    firearms cases were referred for prosecution involving 7,822
    defendants. Again this represents a dramatic increase over the previous
    year of 36 and 29 percent respectively.
        I would now like to present the primary programs in our efforts to
    combat violent crime.
                Integrated Violence Reduction Strategy (IVRS)
        In fiscal years 2000 and 2001, ATF received a combined increase in
    funding of $62.2 million and 305 FTE to augment its Integrated Violence
    Reduction Strategy. We will be providing the subcommittee with a
    separate report on the accomplishments of the strategy. Today, I will
    provide you with a brief summary of how the various facets of the
    strategy interrelate.
        Violent crime, specifically firearms violence, continues to be a
    grave public concern in America. ATF addresses this concern through
    IVRS with a multi-pronged approach: (1) investigating and arresting
    armed career and violent criminals and other prohibited firearms
    possessors, (2) denying criminals access to firearms through effective
    regulatory and enforcement efforts, and (3) providing outreach to
    youths to teach about the dangers of gangs and violence.
        It is essential that ATF combine these elements to attack the
    violent crime problem. Thorough and consistent enforcement of the law
    is a crucial step in reducing violent crime, and will result in the
    prosecution and incarceration of armed offenders, removing certain
    criminals from society. Law enforcement must also address the continued
    flow of crime guns from illegal sources. Frequently, crime guns
    recovered in high-crime areas, where drug distribution fuels the need
    for firearms, are unlawfully obtained in other jurisdictions. The
    jurisdictions where the crime guns are being used may be unable to
    prosecute or even prevent the systemic diversion of guns to their city.
    Because of jurisdictional boundaries and limited resources, police
    departments often face barriers that prevent them from identifying the
    source of their crime guns. ATF has the unique ability to trace crime
    guns and provide analyses of tracing trends to assist these State and
    local agencies. Furthermore, the Bureau uses intelligence gathered from
    defendant debriefings to detect, investigate, and recommend prosecution
    of traffickers who illegally divert firearms into the hands of career
    criminals, gang offenders, and juveniles.
        ATF's regulatory efforts augment its enforcement strategies by
    working to ensure that firearms dealers are in compliance with Federal
    law and that illegal diversions are not occurring. The Bureau strives
    to educate licensed dealers so that they do not sell firearms to
    individuals known as ``straw purchasers,'' who then illegally traffic
    them to those persons prohibited from owning them. Seminars are
    conducted to not only clarify ATF regulatory requirements, but to
    promote best business practices for both compliance and security of
    merchandise. For example, ATF entered into a partnership with the
    National Shooting Sports Foundation to promote the ``Don't Lie for the
    Other Guy'' campaign that points out the penalties associated with
    purchasing a firearm for a prohibited person.
        ATF administers the Gang Resistance Education and Training (GREAT)
    program, a community-based curriculum designed to instill basic life
    skills in children aged 8-14 (grades 3-8). GREAT addresses real-life
    issues, such as positive decision making, goal setting, conflict
    resolution and responsibility, and anger management, to name a few. The
    vision of the GREAT program is to prevent youth crime, violence, and
    gang involvement while developing positive relationships among law
    enforcement, families, and youth. The program offers children of all
    backgrounds the building blocks for personal empowerment to create
    safer communities.
                National Integrated Ballistics Identification Network
                        (NIBIN)
        In addition to the firearms tracing process, which helps law
    enforcement officials identify the perpetrators of violent crime, ATF
    provides investigative support through its leadership role in the
    National Integrated Ballistic Identification Network (NIBIN), a
    contributing program of the IVRS initiative. NIBIN provides for the
    nationwide installation and networking of automated ballistic imaging
    equipment in partnership with State and local law enforcement agencies.
    Because thousands more pieces of recovered ballistic evidence can be
    compared using automation than would be possible using only manual
    comparisons, links between otherwise seemingly unrelated crimes are
    discovered, and investigative leads are generated for police follow-up.
    In addition, the system makes it possible to share intelligence across
    jurisdictional boundaries, enabling State and local law enforcement
    agencies to work together to stop violent criminals. To date, a
    cumulative total of 684,344 images have been entered into the NIBIN
    network, consisting of the IBIS and DRUGFIRE technologies. These
    entries have resulted in 8,826 ballistic matches, and numerous shooting
    crimes have been solved as a result, many of which could not have been
    completed without the use of the system.
                Youth Crime Gun Interdiction Initiative (YCGII)
        YCGII is an integral part of ATF's Integrated Violence Reduction
    Strategy that focuses agent and inspector resources on interdicting the
    supply of firearms to two key age groups, juveniles (ages 0-17) and
    youths (ages 18-24), using the unique assets of crime gun tracing.
    During the 1990's, ATF developed new information systems to reinforce
    our firearms enforcement efforts. We can now use the crime gun itself
    as a vital investigative and evidentiary tool by tracing it back to its
    criminal user or its illegal supplier. In doing so, we are able to
    identify, arrest, and refer for prosecution both armed violent felons
    and those who are illegally supplying criminals and juveniles with
    guns. YCGII has been the platform for systematically developing,
    managing and analyzing crime gun tracing information.
        ATF began the establishment of Regional Crime Gun Centers (RCGC)
    located in YCGII cities during fiscal year 1999. The RCGCs are an
    expansion of the National Tracing Center's Crime Gun Analysis Branch
    efforts. The RCGCs are located in major cities and supported by local
    special agents, police officers and civilians. Local law enforcement
    agencies can contact personnel at these centers for investigative
    assistance, queries, mapping of crime gun recoveries, full
    identification of possible suspects, and various other technological
    tools available from personnel who know the local jurisdiction and
    suspects.
        During fiscal year 2000, ATF provided Youth Crime Gun Interdiction
    Initiative (YCGII) training to 1,678 ATF, Federal, State, and local law
    enforcement officers. ATF's 23 Field Divisions initiated YCGII
    investigations that resulted in 535 defendants, of which 345 have been
    convicted, 36 were found guilty on other charges and the remainder are
    awaiting further judicial action.
                Comprehensive Crime Gun Tracing
        The Comprehensive Crime Gun Tracing Initiative begun in fiscal year
    2001 will expand comprehensive tracing capability as well as provide
    faster trace results. As a result, there has been an increase of
    approximately five percent of trace requests thus far in fiscal year
    2001. The National Tracing Center (NTC) provides State and local
    agencies with information on crime guns to support their law
    enforcement efforts. The NTC provides valuable investigative leads to
    assist in solving crimes committed with firearms, and identifies those
    persons responsible for supplying crime guns to criminals. The NTC
    maintains the record of all crime guns traced by ATF, firearms stolen
    from firearms dealers and multiple sales of handguns. The Firearms
    Tracing System (FTS) provides data on firearms that is used by ATF
    special agents and inspectors to identify illegal firearms trafficking.
    The funds available in the fiscal year 2001 budget are assisting 250
    State and local agencies in building tracing capability, and will allow
    ATF to complete traces and respond to requests more rapidly, making
    information available in real time for criminal investigations.
        Currently 10 percent of traces are completed through Out of
    Business Records and in fiscal year 2001 over 50 percent of all traces
    have utilized these records in at least some part of the overall
    process. Consistent with Congressional restrictions relating to the
    centralization and computerization of firearms records, the NTC is also
    currently in the process of indexing Out of Business Records by a
    firearms serial number. This effort will dramatically reduce the
    average time to trace a firearm.
                Firearms Training
        ATF conducted 11 Serial Number Restoration courses in police
    laboratories across the United States. One hundred and forty-five law
    enforcement personnel were trained in the latest techniques for
    recovering obliterated or damaged serial numbers from crime guns.
        Aimed at combating the firearms trafficking problem, a joint ATF
    and Department of Justice Firearms Trafficking Seminar was provided to
    approximately 150 U.S. attorneys and State and local law enforcement
    officers.
        Through the National Firearms Examiner Academy (NFEA), ATF has
    developed a unique and innovative training program that has received
    much acclaim and recognition. This successful program represents a firm
    partnership between ATF, State and local police departments, and the
    firearms and ammunition industry. Designed to provide comprehensive
    training to entry level firearms examiners from State and local crime
    labs, the NFEA has developed a yearlong training curriculum that has
    become an all-inclusive benchmark for education in this field. The
    selection process is highly competitive and the course work demanding;
    to date, ATF has graduated 18 examiners. These examiners are trained in
    NIBIN technology, thus expediting State and local ballistics evidence
    examination on current and cold shooting cases.
                Arson and Explosives Enforcement
        ATF has had equally significant success addressing violent crime in
    the area of arson and explosives through enforcement and training.
    ATF's focus on violent crime involving acts of arson and with
    explosives continues to be a major initiative in the Bureau.
        In fiscal year 2000, ATF certified fire investigators (CFIs)
    responded to an estimated 2,250 fires across the country. These highly
    trained special agents respond to incidents at all times of the day and
    night to make the initial determination wherever there is evidence of
    potential criminal acts warranting further investigation.
        The Arson and Explosives National Repository Branch supports
    investigators from all levels of Government with the analysis of
    detailed incident information and the status of explosives thefts. It
    has over 95,000 incidents maintained in its state-of-the-art database.
    The Repository's tracing of recovered explosive material and military
    ordnances provides a vital investigative service to law enforcement
    personnel nationwide.
        To prevent the criminal misuse of explosives, ATF is strengthening
    its cadre of explosives enforcement officers (bomb technicians), who
    possess unique capabilities in explosives and bomb disposal. Currently
    there are 23 explosives enforcement officers on board.
        ATF's Explosives Study Group (ESG) is examining the tagging of
    explosive materials for purposes of detection and identification; the
    rendering of common chemicals used to manufacture explosive materials
    inert; the imposing of controls on certain precursor chemicals used to
    manufacture explosives; State licensing requirements for the purchase
    and use of commercial high explosives; and the possible use of
    prevention (explosives detection) technologies, as directed by Section
    732 of the Antiterrorism and Effective Death Penalty Act of 1996, as
    amended by the Omnibus Consolidated Appropriations Act for fiscal year
    1997.
        In early 2000, the ESG completed its analysis of an ATF
    commissioned study by the International Fertilizer Development Center
    (IFDC) on whether different ammonium nitrate (AN) products manufactured
    and imported into the United States can be identified by their
    existing, unique crystallographic or other properties. We have endorsed
    IFDC's findings, which are encouraging about the possibility of using
    the unique signature of each product as a forensic tool in the event of
    a criminal incident involving AN fertilizer.
        The ESG has also compiled a comprehensive list of State Licensing
    Requirements for the purchase and use of commercial high explosives,
    and is currently consulting with State regulators and industry members
    to develop recommendations for consideration by Congress that would
    advance public safety.
        The ESG is working with The Fertilizer Institute (TFI) to expand
    the ``Be Aware for America Program'' to address areas of vulnerability
    for distributors of ammonium nitrate fertilizer and agricultural
    chemicals.
        Additionally, the ESG is funding promising research at the Oak
    Ridge National Laboratory, including prototype development,
    engineering, and training on advanced sensing technologies for
    explosives detection. The ultimate objective is the development of a
    portable explosives detector that will function with a short, real-time
    response rate for trace amounts of explosives.
        The ESG has continued to communicate and work with other Federal
    agencies such as the Federal Aviation Administration, the U.S. Customs
    Service, the Department of Justice, and the Department of Energy. The
    goal is to achieve a coordinated effort to identify and direct
    resources toward the most promising technologies, for both the
    detection of additives and the detection of explosives and explosive
    materials themselves.
        It is our intention to provide briefings to interested Members of
    Congress on our findings and ongoing research.
                National Response Teams
        Our National Response Teams (NRTs) are comprised of highly trained
    and well-equipped individuals and related support functions that can be
    deployed within 24 hours to major bombing and fire scenes anywhere in
    the United States. The NRTs were activated 27 times in fiscal year 2000
    to investigate major fire and explosives incidents. Of these 27
    activations, 13 were determined to be arsons, 3 were accidental fires,
    10 were undetermined fires, and 1 was an accidental explosion. Our NRTs
    had a fire cause/determination ratio of 61 percent within the fiscal
    year, a rate approximately three times higher than the national
    average. To date, of the incidents that occurred in fiscal year 2000,
    half have been resolved by arrest, and we expect this percentage to
    increase as ongoing investigations continue. Because of the complexity
    of arson investigations, it often takes several years to complete an
    investigation from the time of incident to determining the cause of the
    fire, and, if an arson, to arresting the arsonist. In fiscal year 2000
    customer surveys completed by State and local users of the ATF NRT gave
    it a satisfaction rating of 97 percent.
        In addition to investigating fire and explosives incidents, the
    NRTs provide assistance to other Federal, State, and local law
    enforcement agencies during special events. In fiscal year 2000, the
    NRT provided support at the World Trade Organization Meeting in
    Seattle, Washington; the U.S. Olympic Trials in Sacramento, California;
    the Republican National Convention in Philadelphia, Pennsylvania; and
    the Democratic National Convention in Los Angeles, California.
                Arson Training
        ATF and the U.S. Fire Administration (USFA) are teaming up to
    redesign and deploy a web-based system managed by the USFA, entitled
    ``Fire and Explosion Investigation Management System.'' This system
    will include information on fires and fire-related explosives incidents
    that occur nationwide for use by the fire/explosion investigation
    community. In partnership with the insurance industry, we have
    finalized the development and begun the distribution of InterFIRE, a
    virtual reality, CD-ROM-based training tool that is intended to
    establish ``best practices'' in fire investigation and bring fire
    investigators to a base level of knowledge.
        To strengthen cooperation between investigators and prosecutors,
    and to encourage prosecution of cases, ATF provided four Advanced Arson
    for Prosecutors classes in fiscal year 2000, training 211 prosecutors
    from across the country.
        Two classes were delivered in Advanced Cause and Origin/Courtroom
    Techniques. This highly advanced and technical program was attended by
    32 students. These individuals are full-time public service employees
    whose workloads are focused primarily upon the investigation or
    management of arson-related crimes.
                Explosives Training
        ATF has produced and distributed numerous sets of explosive
    training materials, including Power Point presentations, videotapes,
    and lesson plans, to ATF field offices and State and local officers.
    These materials have included ``A Deadly Mix,'' ``When Danger Calls,''
    ``Tools of Terror,'' and ``A Mother's Tears.'' These materials, along
    with numerous additional Bomb Threat Management programs, have been
    used extensively to train State and local law enforcement officers and
    to provide explosive awareness training to public and private agencies.
        To protect the nation's largest airports, the Federal Aviation
    Administration (FAA) and ATF have teamed together to conduct national
    seminars on terrorism and explosives (SEMTEX) and field training
    exercises that better prepare and train aviation, security, and law
    enforcement personnel in explosive countermeasure techniques. In fiscal
    year 2000, ATF trained 500 personnel.
        During fiscal year 2000, we delivered the Advanced Explosives
    Destruction Techniques (AEDT) course. The audience for this training is
    State and local bomb technicians. ATF explosives experts developed this
    course because more bomb technicians are injured during disposal
    operations than while performing any other activity, including render
    safe operations. It is the only training of its kind in the country. As
    one would expect, the demand to attend this unique and important
    training has been considerable. To meet the large demand we have
    doubled the number of courses to be offered this fiscal year.
        Through its explosives and accelerant detection canine training
    program, ATF provides an investigative tool for use in explosives,
    firearms, and fire investigations, National Response Team
    investigations, public security, and the investigative needs of outside
    agencies. The canine training facility in Front Royal, Virginia, is now
    open and the kennels have been completed. Under a training arrangement
    with the U.S. Department of State, ATF also trains explosives detection
    canines for foreign countries to be used overseas in the war against
    terrorism, and to protect American travelers abroad against terrorism.
    Through fiscal year 2000, ATF has trained and certified 80 accelerant-
    detecting canines for State and local agencies, and has trained and
    certified 183 explosives detection canine teams for deployment in 10
    countries worldwide. Additionally, since 1998, ATF has trained 35
    explosives detection canine teams for other Federal, State, and local
    agencies including the FBI, the Central Intelligence Agency, and the
    Internal Revenue Service.
                Counter-Terrorism
        ATF Special Agents, Inspectors and professional support personnel
    stand in the front ranks of the nation's battle against terrorism. ATF
    is charged with the responsibility of preventing terrorists from
    acquiring firearms and explosives, the principal instruments by which
    they carry out their terrorist acts. In part, to fulfill that
    responsibility, ATF staffs each Joint Terrorism Task Force with its
    most experienced criminal investigators to deter and prevent terrorist
    activity. The criminal enforcement and regulatory nature of ATF's
    unique areas of firearms, explosives, arson, alcohol, and tobacco have
    contributed to our working relationship with other State, local and
    Federal agencies in combating terrorism. Recent ATF investigations have
    prevented weapons and money from reaching the international terrorist
    groups for which they were intended. ATF's enhanced communication with
    the Intelligence Community has opened access to training, information,
    and analytic judgements on general and specific national security
    threats from domestic and international terrorists. To complement its
    investigative and regulatory efforts, ATF deploys the National Response
    Teams to every National Security Special Event, providing unparalleled
    expertise in the areas of post-blast and arson investigation.
                National Laboratory Center
        In December 1999, ATF broke ground for its new National Laboratory
    Center in Beltsville, Maryland. The building is now under construction
    with a projected completion date of December 2002. The new National
    Laboratory Center will give ATF the kind of forensic and analytical
    science facility it needs to support firearms, explosives, and fire
    investigations, as well as to conduct testing that insures the
    integrity of regulated alcohol and tobacco products.
        Also at the new facility is a one-of-a-kind fire research center
    located alongside the Forensic Science Laboratory and the Alcohol &
    Tobacco Laboratory. The Fire Research Laboratory is a new addition to
    ATF's technical expertise that will directly support fire/arson
    investigations and complement ATF's on-going fire/arson investigation
    initiatives such as the InterFIRE Fire Investigation Training CD-ROM,
    the Certified Fire Investigator Program and the Accelerant Detection
    Canine Program. It is the first laboratory in the world solely
    dedicated to supporting fire/arson investigations and the resolution of
    arson related crimes and advancing the science of fire evidence
    analysis. For the first time, investigators will have a resource that
    can help them unravel the difficult problems associated with fire
    ignition and spread. ATF has established a memorandum of understanding
    with the National Institute of Standards and Technology (NIST) to join
    forces on research into the measurement and prediction of fire and its
    effects, to share training and technology, and to conduct joint
    research and technical assistance tasks on matters of fire science.
    Information Technology
        We are placing the best available technology into the hands of
    every ATF employee, enabling us to work better and smarter. In the
    summer of 2001 we will begin the refresh cycle to replace all desktop
    and laptop computers throughout ATF under our enterprise-wide seat
    management contract. We were the first Federal agency to implement a
    seat management contract, which outsources end-user-computing support
    to private industry. This approach frees up our people for other
    important agency functions and guarantees a refresh of technology at
    specified intervals with a flat budget.
        The National Field Office Case Information System (N-FOCIS) is
    comprised of a suite of custom-built case management applications: N-
    Force, N-Spect and N-Quire. N-FOCIS, built specifically for ATF Special
    Agents and Inspectors, assists in the collection, dissemination,
    management and analysis of investigative and inspection information.
    The secure centralized information repository fed by the N-FOCIS
    applications streamlines antiquated business processes and provides an
    analytical component for managing complex case and inspection
    information. Through the automation of many of the reporting
    requirements, ATF has increased the efficiency and effectiveness of its
    field work force by eliminating redundancy and providing a powerful
    analytical tool to sift through large amounts of information.
        N-FOCIS technology continues to be refined and expanded. The multi-
    phased development plan is flexible and allows for changes in
    information needs and advances in new technology. As we continue our
    operational missions into fiscal year 2002, ATF's N-FOCIS programs will
    be the ``information'' heart and collection point for all information
    that supports all of our outlined enforcement and regulatory programs.
                Management and Administrative Efforts
        During fiscal year 2000 ATF continued to focus on improving our
    administrative systems and addressing quality of worklife issues so
    that the Bureau as a whole can continue to function as a streamlined
    and efficient tool for government service. Our systems goal continues
    to address an integrated, strategic approach to all administrative
    systems to streamline operations, realize cost efficiencies, and create
    a paperless environment. To this end, ATF implemented its integrated
    financial management information system and acquisitions system in
    fiscal year 2000. This new system automated and linked the budgeting,
    requisitioning, acquisition, receiving and payment processes. We are
    pleased to report another unqualified audit opinion using the system in
    its first year of implementation.
        We are also proud to report that we successfully deployed the
    second phase of the Treasury-wide Human Resources information system,
    now designated as HR Connect. With this deployment, the Bureau is
    electronically processing virtually all of its personnel actions
    through HR Connect.
        ATF completed the first year of a pilot Treasury Demonstration
    Project for Designated Critical Positions that addressed a major
    quality of worklife issue. The pilot program, authorized by Congress in
    1998, allowed ATF to test new management practices designed to improve
    our capacity to recruit, develop and retain a workforce of the highest
    caliber. Unlike other demonstration projects, ATF employees were given
    the option of participating. Approximately 90 percent of the eligible
    employees (primarily in our scientific and technical occupations)
    elected to participate in the Project. Authority for this project is
    slated to end on October 19, 2001; it has only been implemented for one
    year. Since Congress intended the authority to be based on three years,
    ATF is requesting an extension to continue the project. This will allow
    us the opportunity to better gauge its impact and effectiveness in
    meeting the project's goals and its potential for other Treasury
    Bureaus' participation. Congress will be briefed on its progress in the
    near future.
        During this past fiscal year, we also established a pilot flexi-
    place program for inspectors as directed by a congressional mandate on
    telecommuting. Moreover, we hired 519 employees in fiscal year 2000. In
    the hiring period from October 1, 2000, through April 2, 2001, we have
    hired 109 special agents and 99 inspectors. This demonstrates our
    commitment to the congressional mandate to hire more special agents and
    inspectors. Of the 96 special agents hired from October 1, 2000,
    through March 14, 2001, 21 percent are minorities, an increase over
    fiscal year 2000, when 8.4 percent of 202 new agents hired were
    minorities. These numbers reflect a vast improvement in our goal to
    diversify our workforce. Our current level of hiring puts the Bureau in
    a good position to continue hiring additional personnel approved in our
    fiscal year 2001 budget. By the end of fiscal year 2001 we anticipate
    having 2,288 special agents and 953 inspectors on board. We believe
    this staffing level will provide ATF with the necessary resources to
    better accomplish our various anti-violent crime, public safety, and
    revenue protection missions.
        At the heart of these initiatives are integrity and internal
    controls considerations. With this in mind, we have issued new policy
    guidance to our managers and simplified the reporting process for
    management control reviews to ensure proper and effective use of Bureau
    assets. We are also in compliance with the Civil Asset Forfeiture
    Reform Act of 2000 which took effect in August 2000. Training was
    provided to all field divisions, special agents and attorneys prior to
    the effective date of the law change. We believe that we have created a
    solid foundation to support the Bureau's mission requirements.
                Internal Training Activities
        Excellence in performance and programs requires continuous training
    and development, and the Bureau is committed to fully developing the
    individual and collective skills of its employees. ATF provides high
    quality, innovative training programs, thus improving individual and
    organization performance in support of ATF's Strategic Plan.
        In fiscal year 2000, ATF provided nearly 10,000 instances of
    training for ATF personnel. ATF provided basic training to 155 agents,
    63 inspectors, and 18 specialists through the New Professional Training
    program (NPT). The New Professional Training Program is designed to
    provide a uniform approach to the training and development of new ATF
    employees. Training initiatives enhance employee development and
    performance in a variety of technical training programs, which seek to
    expand the base of employee knowledge and improve skills regarding
    ATF's roles, missions, and capabilities. In much of the technical
    training provided, there are either pre-tests for admission or academic
    requirements for graduation. In addition, lessons on ethics and
    integrity, customer service, teamwork, and accountability to the
    American public are woven into many of the training programs.
        In fiscal year 2000, ATF focused on leadership development programs
    for all ATF supervisors and managers with an emphasis on core
    competencies, ethics, integrity, and teamwork, to include: 23 new
    Directors of Industry Operations (DIOs) attended a training conference
    this fiscal year; the goal of the training was to assist the DIOs in
    adapting to their new roles; training of 60 managers through the
    Institute for Management Studies; formulation of University
    partnerships to provide standardized leadership training; design of a
    formal, comprehensive, Bureau-wide succession plan program and
    sponsorship of the Women in Federal Law Enforcement annual conference.
    And, in conjunction with the conference, produced the video, ``Women in
    Federal Law Enforcement: Pioneers in Valor and Vision.'' The video will
    be used for future ATF and other agency law enforcement recruitment
    efforts.
        ATF also is a leader in Federal law enforcement in training
    thousands of other Federal, State, local, and international law
    enforcement officers. Training areas include arson investigation,
    explosive identification and regulation, firearms trafficking, and
    post-blast investigations.
    Collect the Revenue Due
        For fiscal year 2000, ATF continued to honor its obligation to
    fairly and efficiently collect approximately $14.1 billion in revenue
    in accordance with current laws. In fiscal year 2000, ATF collected the
    following revenue: $13,500,000,000 in alcohol and tobacco excise taxes;
    $197,800,000 in firearms and ammunition excise taxes; $103,000,000 in
    special occupational taxes; $262,000,000 in tobacco floor stocks taxes;
    and $6,300,000 in licensing and transfer fees, for a total of
    approximately $14,100,000,000.
        The Balanced Budget Act of 1997 contained excise tax increases on
    tobacco products as of January 1, 2000 and January 1, 2002. Also, a
    floor stocks tax was to be paid by industry members with inventory on
    hand on each of these days. In fiscal year 2000, ATF collected $262
    million in tobacco floor stocks taxes. Tobacco importers were required
    to obtain ATF permits for the first time when this legislation became
    effective. We also issued regulations relating to the tobacco tax
    increase and to the restrictions on previously exported tobacco
    products and cigarette paper and tubes.
        ATF works with Federal, State, local and Foreign Governments in an
    effort to effectively collect revenue and to regulate the industries
    subject to the Bureau's authority.
        ATF pursues tax assessments against domestic producers and
    individuals for several reasons, one being when ATF determines that
    documentation supporting the tax-free exportation of these products is
    counterfeit, inaccurate, or non-existent. For example, during fiscal
    year 2000, ATF discovered a United States distiller smuggling distilled
    spirits disguised as windshield washer fluid and other solvents into
    the Ukrainian Republic and the Russian Federation. This distiller made
    restitution of $1 million to the Ukrainian Republic, had its U.S.
    operating permit suspended for 7 days and submitted a $1 million offer-
    in-compromise for record keeping violations.
        In fiscal year 2000, ATF continued to redirect its approach to
    revenue collection through a program that uses a factoring system to
    identify taxpayers who pose high risk to the revenue due. In addition,
    a statistical sampling process was established to identify taxpayers
    for inspection in order to validate the criteria of the program and
    determine whether other industry activities pose jeopardy to the
    revenue. For these programs, new internal control documents were
    developed to pinpoint high-risk activities and weaknesses for
    inspection. These programs were developed for the distilled spirits,
    wine, malt beverage, tobacco, and firearms manufacturing industries.
    ATF collected an additional $4 million due to excise tax examinations.
        In fiscal year 2001, we have entered a partnership with the
    Financial Management Service to pilot an electronic filing system
    (Pay.gov) for the industries ATF regulates. To date, we have 6 tobacco
    companies using this system which represents approximately 21 percent
    of the taxes ATF collects.
        In fiscal year 2000, ATF opened 125 alcohol and tobacco diversion
    investigations. Seizures of alcohol and tobacco monies and real
    property totaled over $2 million. Diversion investigations in fiscal
    year 2000 also resulted in 70 defendants being recommended for
    prosecution and several members of organized crime groups being
    successfully prosecuted for alcohol and tobacco related criminal
    activity. Diversion of alcohol and tobacco products is a growing
    international problem and ATF is taking the lead in investigating these
    crimes.
    Protect the Public
                Firearms Regulation
        As of March 30, 2001, there are 103,934 Federal firearms licensees
    in this Nation authorized to conduct commerce in firearms. In an effort
    to ensure firearms industry members fully understand the regulatory
    requirements of maintaining their license, we conducted 77 seminars for
    licensees in fiscal year 2000. Our National Licensing Center screens
    all firearms license applicants for proper qualification to engage in
    business.
        ATF's National Firearms Act Branch maintains the National Firearms
    Registration and Transfer Record (NFRTR), which is the central registry
    of NFA firearms, such as machineguns, short-barreled rifles, short-
    barreled shotguns, silencers, and destructive devices. In fiscal year
    2000, the NFA Branch processed 309,006 registrations and transfers of
    NFA firearms. ATF searches the NFRTR in support of criminal
    investigations and regulatory enforcement inspections. The NFA Branch
    is in the process of imaging and indexing all NFA records back to 1934
    to afford ATF the highest possible accuracy of the NFRTR.
        Our Firearms and Explosives Imports Branch (FEIB) is responsible
    for processing all applications for permits to import firearms,
    ammunition, and other defense articles into the United States, and for
    maintaining the registry of commercial importers of such articles. In
    fiscal year 2000, FEIB processed 12,135 import permit applications, and
    300 registration applications.
        With the firearms licensee population over 100,000, it is not
    practical to perform a regular cycle of inspections of the entire
    licensee population. Fortunately, the majority of dealers rarely have
    guns they sold end up at a crime scene, and only a small percentage of
    the population is involved in criminal activity. In fiscal year 2000,
    ATF conducted full compliance inspections of 3,620 licensees, resulting
    in the detection of 5,934 violations and 1,214 referrals to law
    enforcement. ATF also inspected 3,938 FFL applicants, resulting in the
    detection of 181 violations and 97 referrals to law enforcement.
        ATF implemented a ``focused'' inspection policy in October 1998,
    that directs field division personnel to select Federal firearms
    licensees (FFLs) for inspection based on information developed by the
    Crime Gun Analysis Branch of the NTC. This valuable information
    provides indicators of possible illegal firearms trafficking. These
    include such things as the number of crime guns traced to an FFL in a
    1-year timeframe, time to crime, number of firearms reported stolen,
    and number of unsuccessful traces associated with a particular FFL. ATF
    then selects for inspection the FFLs that have a high rate of the
    indicators associated with their businesses. The focused inspections
    help direct ATF inspectors to the most potentially problematic FFLs.
        In fiscal year 2000, ATF conducted 1,012 focused, more intensive,
    compliance inspections. These included inspections of over 900 dealers
    who had 10 or more crime guns traced to their businesses in 1999 and 30
    dealers who were uncooperative in responding to trace requests. As a
    result of these focused inspections, 45 percent of the licensed dealers
    inspected were recommended for follow-up actions ranging from a re-
    inspection to license revocation proceedings. Inspectors also
    recommended 20 revocations and 33 denials of licenses.
        Based on what we have learned from this project, we have further
    refined our focused inspection program to inspect those licensees whose
    traces establish a short time to crime (within 3 years of the retail
    purchase) and those who have been uncooperative in responding to
    traces.
                Alcohol Regulation
        ATF receives approximately 70,000 alcohol beverage label
    applications each year, of which 20 percent were denied approval due to
    non-compliance with regulatory requirements. For 80 percent of these
    applications, the turnaround time to approve the applications was 9
    days, which is the customer service standard.
        ATF remains committed to improving customer service for label and
    formula approvals. In fiscal year 2000, ATF implemented the methods
    identified by the Beverage Alcohol Streamlining Team (BAST) with the
    goal of improving ATF business processes, thereby improving customer
    service. In fiscal year 2001, ATF initiated a customer service survey,
    and these results will be available for the first time this fiscal
    year. ATF created the Alcohol Labeling and Formulation Division as a
    ``customer service center'' in response to concerns of regulated
    industry members. It is now on a par with the National Revenue Center,
    Cincinnati, Ohio; the National Tracing Center, Falling Water, West
    Virginia; and the National Licensing Center, Atlanta, Georgia.
        During fiscal year 2000, the National Revenue Center, Cincinnati
    processed approximately 3,500 applications and issued approximately
    2,400 permits for the industries that ATF regulates.
        We have a very strong dialogue with members of the regulated
    industries, State authorities, advocacy groups, and public health
    organizations. ATF processed petitions and issued notices of proposed
    rulemaking resulting in the establishment of three new viticultural
    area and changes to a fourth area.
                Explosives Regulation
        ATF inspectors carried a considerable workload in helping to ensure
    the lawful use and storage of explosives materials. In fiscal year
    2000, inspectors completed 4,983 inspections of the 9,436 explosives
    licensees and permittees. They identified and corrected 1,119
    violations that jeopardized the safety of the general public and
    required immediate attention. Although the number of inspections
    declined because of the loss of experienced inspectors and the
    challenge of meeting additional demands for firearms inspections, we
    have seen an increase in the identification of public safety violations
    because of ATF's emphasis on advanced explosives training for
    inspectors. We recognized that our inspector staffing would not allow
    for 100 percent coverage and prioritized our resources. Prioritization
    allowed us to inspect those licensees and permittees who had a history
    of storage problems, and others where the threat to public safety, in
    the event of an accidental explosion, would be the greatest.

                                   CONCLUSION
        As you can see, ATF continues to contribute to making America
    sounder and safer though its efforts in reducing violent crime,
    collecting revenue, and protecting the public. Along with the men and
    women at ATF, I am prepared to rise to the challenge of meeting all of
    our responsibilities under the laws that we enforce. I would be pleased
    to answer any questions you may have and I would like to express my
    sincere appreciation for 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.
                              U.S. Customs Service

    STATEMENT OF CHARLES W. WINWOOD, ACTING COMMISSIONER
        Senator Campbell. Mr. Winwood.
        Mr. Winwood. Chairman Campbell, Senator Dorgan, Senator
    DeWine, thank you very much for allowing me to be here today to
    talk about the Customs 2002 budget request. I have also
    submitted a comprehensive statement for the record that I will
    just try to briefly summarize this morning.

                        Fiscal Year 2000 Accomplishments

        Last year, the Customs Service processed a record 22.5
    million trade entries. This represents a 150 percent increase
    from ten years ago. We have also processed 489 million
    pedestrians and passengers in 2000 and 140 million conveyances
    at our ports of entry, also record levels.
        While the increase in border flow is a bellwether of a
    strong America, it also demands that we maintain a heightened
    vigilance against new opportunities for crime and drug
    smuggling. The men and women in the Customs Service continue to
    demonstrate their resolve in this fight by seizing 1.5 million
    pounds of illegal narcotics in fiscal year 2000. They also
    seized an unprecedented 9.4 million tablets of Ecstasy.
        Yet narcotics were not their only priority. The successes
    of the past year speak not only to Customs' mission to
    facilitate trade and defend America from contraband, but to our
    increasing role in fighting the spread of Internet crime,
    combatting global money laundering, defending U.S. businesses
    from copyright infringement and fraud, stopping the smuggling
    of weapons of mass destruction, and preventing the importation
    of goods made with child and prison labor. Mr. Chairman, the
    list could go on.

                                 Staffing Needs

        At Customs, we are busy addressing these future challenges
    in a very systematic way, beginning with our people. Staffing
    in general will continue to be a critical issue for our agency.
    With the help of a leading consultant, we built a resource
    allocation model to help us project future staffing needs at
    all our Customs locations. The model was designed as a planning
    tool for management. It can be programmed to take into account
    changing scenarios that impact our mission, such as expanded
    volume in trade or a shift in threat.

                                 NII Technology

        Thanks in large part to the resources provided by the
    Congress, we are also requiring the technology needed to
    supplement the skills of our people. We are currently working
    towards completion of a five-year drug technology plan. Under
    that plan, we have obtained the range of non-intrusive
    inspection technology for our busy Southern Tier. The use of
    these tools have cut down our processing times and enabled us
    to seize more illegal drugs.
        Last month, Mr. Chairman, Customs inspectors at Otay Mesa,
    California, found 15,000 pounds of marijuana concealed in a
    tractor trailer with the help of one of our new truck x-ray
    systems. It was believed to be the single largest shipment of
    narcotics ever seized at a land border crossing.

                               Counter-Terrorism

        With funding in our 2001 budget, we were also able to
    implement a counter-terrorism plan that includes upgrades to
    Northern border infrastructure, such as improved security and
    lighting, the acquisition of non-intrusive inspection systems,
    and the posting of additional Customs agents to the national
    anti-terrorism task force.

                       Border Infrastructure Requirements

        The rapid increase in border traffic has major implications
    for ports of entry all along our Northern and Southern tiers.
    At the request of Congress, we just completed a port
    infrastructure assessment study to identify our most important
    challenges. That study, conducted with the GSA and our partner
    Federal inspection service agencies, includes a look at health
    and safety and occupational initiatives to increase the traffic
    and processing capacity of our ports. Modernization of our air
    and marine assets is also essential to keeping up with an ever
    flexible smuggling threat.

                          Air and Marine Interdiction

        Again, at the request of Congress, we completed an air and
    marine interdiction modernization plan in fiscal year 2000. We
    are very pleased that the President's 2002 budget includes $35
    million for the Customs air and marine interdiction division in
    support of the Western Hemisphere Drug Elimination Act. We have
    identified the priority areas to be addressed with this funding
    consistent with our modernization plan.

                        Customs Automation Modernization

        Of all the modernization efforts being undertaken at
    Customs, Mr. Chairman, perhaps none will benefit the American
    public in more ways than our new automated system for trade.
    Customs' ability to contend with a spiraling workload hinges
    largely on the development of the Automated Commercial
    Environment, or ACE. ACE will not only help Customs to move
    imports across our borders more efficiently, it will enable us
    to do a better job of protecting America from contraband and
    other threats.
        Last year, we received the first downpayment on ACE with
    the $130 million for new automation this subcommittee provided
    in our 2001 budget. Part of that funding was designated for the
    hiring of a prime contractor to help build our new system. On
    April 27, I was extremely privileged to announce the team of
    companies to whom that contract was awarded, the e-business
    partnership led by IBM. Mr. Chairman, this was indeed a very
    proud day for the Customs Service, a milestone event in our
    efforts to prepare the agency for the challenging new era of
    global trade and enforcement ahead.

                               Prepared Statement

        I want to thank the subcommittee once again for this
    steadfast support of Customs modernization. We ask for your
    continued support in our fiscal year 2002 budget request. At
    the appropriate time, Mr. Chairman, I will be able to answer
    any questions.
        Senator Campbell. Thank you.
        [The statement follows:]

                    Prepared Statement of Charles W. Winwood

                                  INTRODUCTION
        Good morning, Mr. Chairman and Members of the Subcommittee. It is a
    privilege to appear before you today to present U.S. Customs' fiscal
    year 2002 budget request, and to share with you some of our recent
    accomplishments and ongoing activities. Before I begin, I would like to
    thank you, Mr. Chairman, Senator Dorgan, and the Subcommittee members
    for your constant support of Customs and our vital mission.
        The Customs Service is an agency with a long and rich history, and
    a proud record of success. Our mission as America's front line is not
    an easy one, yet we continue to find ways to rise to the challenges we
    face.
        As you know, the United States faces a continuing threat of
    terrorism and increasingly sophisticated tactics by narcotics smugglers
    to move contraband across our borders. A spiraling volume of trade and
    new avenues for criminal activity will continue to test our abilities
    as never before. Our successes in intercepting terrorists, seizing
    narcotics, dismantling smuggling organizations, exposing Internet crime
    cases and targeting violators of intellectual property rights indicate
    how intelligence and technology, together with alert and well-trained
    inspectors and agents can have a major impact in deterring the threats
    we face. Customs will increasingly rely on automation to take advantage
    of increased efficiencies. Our future success depends directly on the
    continued, skilled deployment of training and technology to meet the
    challenges we face.
        In order to meet its core mission requirements, Customs has focused
    significant attention on the following key challenges:

                                   TECHNOLOGY
    The Automated Commercial Environment (ACE)
        The fiscal year 2002 President's budget requests $130 million to
    continue work on modernizing Customs antiquated automated systems. The
    Automated Commercial Environment, otherwise known as ACE, will enable
    the Customs Service to utilize technological advances to meet the
    challenges of a rapidly growing international economy. Customs is the
    Federal government's second largest source of revenue, collecting $24
    billion in fiscal year 2000. Every year since 1993, Customs import
    workload has been at least double that of ten years earlier, and this
    trend is expected to continue through 2007. By 2004, Customs will be
    processing over 30 million commercial entries a year compared to over
    23 million in fiscal year 2000. It is essential that we modernize our
    automated systems to improve response to the explosion in international
    trade and travel.
        Customs current automated trade system is the 17-year-old Automated
    Commercial System (ACS). Until a new system is deployed, Customs will
    continue to rely on ACS. As trade volumes continue to grow dramatically
    each year, the ability of ACS to manage increased demand will decline.
    Using the $123 million in ACS ``life support'' funding provided in the
    fiscal year 2001 appropriation, we have taken steps to improve
    processing time and storage capacity for the trade, and have improved
    the commercial interface with ACS. There is, however, more work to be
    done. Customs internal needs must also be addressed. With the
    additional $123 million requested for fiscal year 2002, Customs will
    continue to improve the system's and infrastructure's capacity and
    accessibility.
        The Modernization Act requires new account based import transaction
    processing that cannot be accommodated through ACS. On the other hand,
    ACE will address trade compliance and Mod Act requirements. ACE is
    being developed in four increments-each increment delivers benefits to
    both the trade community and to Customs operations. The consolidated
    appropriations of $130 million provided for ACE in fiscal year 2001
    enables us to begin our first phase work on ACE. We are pleased that
    funding was provided last month to allow us to award our Prime contract
    to the e-Customs Partnership, led by IBM. The ``e-Customs Partnership''
    is a team of top-notch companies and highly qualified professionals who
    have successfully executed large information systems projects similar
    to this one in the past. In addition to the IBM Corporation, key team
    members include Lockheed Martin Corporation, KPMG Consulting, Computer
    Sciences Corporation, and Sandler & Travis Trade Advisory Services. The
    team also includes BoozAllen & Hamilton, ITS Services, and over 40
    small businesses.
        The President's fiscal year 2002 budget builds on this effort by
    requesting an additional $130 million to expand the capabilities of the
    ACE software and to deliver ACE capability to more service ports and
    sites. Specifically, with the additional fiscal year 2002 funding, we
    will extend the capability developed with the fiscal year 2001 funding
    to air, sea, and rail imports; build an interface to the Automated
    Manifest System; and provide the trade with a common interface to ACE.
    We will also refine ACE requirements once our prime integration
    contractor is brought on board.
    Non-Intrusive Inspection Technology
        The use of non-intrusive inspection (NII) technology (e.g. truck,
    rail, sea container, vehicle, and mobile x-ray/gamma-ray systems) is
    crucial to maintaining the success of our interdiction efforts. Customs
    has in place a 5-year technology plan that calls for the deployment of
    NII technology to blanket the Southern Tier and other high-risk
    locations. At the end of fiscal year 1999, there were a total of 14 NII
    systems in place. During fiscal year 2000, 23 additional NII systems
    were deployed throughout the Nation. Currently, 50 systems are in
    operation, with an additional 45 systems funded and scheduled for
    delivery by the end of fiscal year 2002. NII systems, in many cases,
    give Customs the capability to perform thorough examinations of cargo
    without having to resort to the costly, time-consuming process of
    unloading cargo for manual searches, or intrusive examinations of
    conveyances by methods such as drilling and dismantling.
        In fiscal year 1999, a total of 100,000 NII examinations were
    performed. For fiscal year 2001, we have already performed over 260,000
    NII examinations. These figures will continue to increase as Customs
    deploys additional systems.
        Since the deployment of the first truck x-ray at Otay Mesa,
    California, in 1996, these systems have contributed to over 400
    seizures totaling over 300,000 pounds of illegal drugs in commercial
    and passenger vehicles. Recently, in a single week, our NII systems
    contributed to the seizure of almost 9,000 pounds of illegal drugs.
        In addition, on April 4, 2001, a Customs canine at the Otay Mesa
    port of entry alerted to a tractor-trailer alleged to be carrying
    televisions from Mexico. The vehicle was subsequently scanned by a
    gamma-ray imaging system that led to the discovery of more than 15,000
    pounds of marijuana. We believe that this is the largest single-seizure
    ever made at a border station.
        NII technology has also benefited the passenger environment. We
    have deployed 15 body imagers at major land and airports to offer
    travelers selected for personal searches an option to a physical
    inspection. These systems are capable of detecting smuggled objects
    concealed under clothing.
        Customs has also contracted for a service at nine international
    airports that enables us to determine in approximately 30 minutes if a
    passenger is carrying drugs internally. This process used to require
    several hours and the participation of at least two Customs officers.
    The contracted service provides a mobile x-ray van and a licensed x-ray
    technician at the international arrival terminal for the screening of
    passengers suspected of concealing drugs or currency in or on their
    bodies. The x-ray technician performs the x-ray that is then digitally
    transmitted to a licensed radiologist for interpretation. Based on that
    determination, Customs may either release the passenger, or hold him or
    her for further investigation. Of course both the Body Imagers and the
    Mobile x-ray service examination are only used once all the
    requirements of Customs personal search policies are met.
    Laboratories and Scientific Services
        I am proud to announce that all eight laboratories of the United
    States Customs Laboratory System have received their International
    Standards Organization (ISO) Guide 25 Accreditation. The Customs Labs
    are the first Federal laboratory system to receive this professional
    accreditation, and have set a benchmark which other Federal
    laboratories, including the FBI and FDA, are striving to attain.
        I am also pleased to announce that twelve of our scientists have
    received board certification in criminology from the American Board of
    Criminologists. No other crime laboratory can boast this number of
    board certified criminologists. With this certification our scientists
    can now be considered true expert witnesses for Customs and the
    American criminal justice system.
        Customs has embarked upon a laboratory construction plan that is
    scheduled to improve and update our aging laboratory facilities. The
    construction of the Los Angeles Laboratory and Research Laboratory in
    Virginia have been completed. The New York Laboratory is currently
    under construction, with plans underway to improve the facilities in
    New Orleans and San Francisco.

                            TRAINING AND DEVELOPMENT
        The Office of Training and Development (OTD) was established to
    ensure that Customs employees receive quality and effective training.
    During its first year, OTD has built centralized training programs and
    systems, created a direct link between training and operational
    success, enhanced career development, expanded course offerings, and
    strengthened leadership development and professionalism.
        One of the fundamental elements in Customs future training success
    is the development of The National Training Plan (NTP) which
    establishes core occupational instruction designed to keep our
    employees on the cutting edge of new skills and technologies. The NTP
    was developed to identify the core, standardized, and recurring
    training requirements for employees at the entry, mid and advanced
    career levels. The NTP targets training areas with the greatest need to
    reach the maximum number of employees in the most cost-effective
    manner. Some of the key areas of training cover passenger and cargo
    drug interdiction, strategies targeting money laundering, stolen
    vehicle exporting, and anti-terrorism tailored to the Customs
    environment. Customs has developed training profiles for its mission-
    critical occupations, as well as rigorous training and tracking
    procedures. These procedures were designed to maximize the use of
    scarce training resources and deliver useful, real-time training to all
    of our employees.
        In addition to the NTP, Customs has created the Customs Tuition
    Program, which last year provided over 600 employees nationwide with
    tuition assistance for job-related courses. This program supports the
    national strategy of raising the level of professionalism and education
    in the Customs workforce.
        OTD has also played an integral role in addressing personal search
    policies and procedures, introducing change in national policy
    regarding the 24-hour carrying of firearms by Customs law enforcement
    personnel, and expanding the national strategy of risk management
    throughout all levels of Customs.
        Through centralized planning and tracking, Customs delivered a
    record 100,731 instances of training in fiscal year 2000. Since its
    inception, OTD has developed over 20 new training courses to address
    mission-critical priority needs. The measurement of OTD's success is
    seen throughout the Customs workforce. Customs dedicated training
    efforts increased morale and commitment to the Customs mission. Our
    training is continuously measured through an evaluation of training by
    students and supervisors to determine if students are applying newly
    learned skills on the job. It is imperative that we maintain a well
    educated, customer-oriented workforce, which protects our officers and
    the traveling public we serve.

                           RISK MANAGEMENT STRATEGIES
        As global trade has expanded, Customs' commercial workload has
    escalated dramatically. In fiscal year 2000 the agency processed over
    23 million trade entries--an increase of almost 10 percent from fiscal
    year 1999.
        Customs strategy to ensure greater compliance among importers with
    our trade requirements is focused around risk management. At its core,
    risk management involves the constant analysis of information to
    determine what areas merit our attention and our resources the most.
        For the first time, that analysis is being built uniformly into the
    way Customs ports are managed. The Trade Compliance Enforcement Plan,
    which makes each Customs Management Center accountable for implementing
    Risk Management in all port operations, ensures that the relationship
    of resources to risk can be monitored on a Service-wide basis.
        In addition, we have initiated monthly Management Accountability
    Reports from the field that provide immediate feedback on the
    effectiveness of our enforcement activities.
        One of the goals of risk management is to ease the movement of
    goods for law-abiding members of the trade community. By implementing a
    data-driven focus on the most serious compliance problems, Customs will
    lessen its oversight of compliant companies. In fact, participants in
    the innovative Low Risk Importer Initiative can expect fewer cargo
    exams, document reviews and requests by Customs for more information.
    To qualify for this program, importers must undergo compliance
    assessments and pass a thorough evaluation process involving compliance
    measurement, account manager evaluations, and other reviews.
        Customs is using a systematic process to identify those importers
    whose transactions represent the highest risk of non-compliance. Again,
    Customs will use this data to make informed judgements about the best
    use of its limited resources.
        Another element in the Risk Management approach has been Customs
    increased use of account managers to focus on major importers. Since a
    relatively small number of large importers account for the lion's share
    of total imports, account managers provide even more leverage in
    elevating overall compliance with Customs commercial requirements.
        In fiscal year 2000, only 392 consignees were responsible for half
    of the total value of all the imports into the United States. The top
    1,000 consignees imported 61 percent, by value, of all imports. Customs
    has responded to this trend by increasing the number of managed
    accounts in fiscal year 2001 to more than 1,100.

                           HUMAN RESOURCES MANAGEMENT
        As we continue to build a Customs workforce worthy of the highest
    public trust, our Human Resources Management programs have continued to
    emphasize recruitment of the most qualified candidates for employment.
        Our Quality Recruitment program has proven to be a success in
    filling our core occupations. Through this program we have hired 565
    new inspectors and canine enforcement officers, and we have
    approximately 750 candidates in our hiring pool. We believe that we
    have attracted some of our Nation's best and brightest. This has been
    evidenced by the test scores from the basic training our new recruits
    go through as well as reports of their successes on the job.
        We were pleased to obtain a new hiring authority, Schedule B, for
    special agents. Quality Recruitment has been expanded for filling
    special agent positions with monthly tests and structured interviews to
    build our pool of candidates. Through this program, our objective is to
    have a supply of candidates ready to hire for our front-line
    occupations when they are needed.
        Our marketing and recruitment efforts have been a success as we
    continue to attract quality candidates. Our recent announcement for
    inspectors and canine enforcement officers was open for 5 days and
    resulted in more than 5,500 applications. More than 1,500 of those
    applicants passed the test and structured interview. In the past 3
    months 1,184 applicants have been tested for special agent positions.
        Through our National Recruitment Program we are able to emphasize
    the importance of attracting a diverse pool of highly qualified
    applicants for our frontline positions. A recruitment plan is issued
    each year to ensure a national direction, professional advertising, and
    recruitment of a diverse applicant pool. We have installed 6 kiosks in
    selected universities to provide information about Customs occupations
    and job opportunities. Local recruiters represent Customs in
    conferences, job fairs, colleges, and general applicant inquiries. Our
    Office of Investigations recruiters recently held 9 open houses for
    universities in their geographic areas. In addition, we established a
    National Intern Program last year and hired 21 interns. Other student
    programs are also used throughout Customs to provide additional
    opportunities.
        While we are actively filling our entry-level positions, we are
    also very aware of our aging workforce. Within the next 5 years 34
    percent of our current employees will be eligible for retirement. The
    retirement bubble is particularly significant for our law enforcement
    employees as they face mandatory retirement. In addition, we anticipate
    losses in our supervisory and management positions. We have
    sophisticated data systems that allow us to predict our attrition by
    occupation, grade, and geographic area. Human Resources Management and
    the Office of Training and Development are building a succession
    planning model to prepare for our future losses.
        Defending our borders presents many challenges to Customs
    employees. Through our Employee Support and Assistance Unit we have an
    immediate response for employees and their families who experience
    serious injuries, illnesses or other crises. More than 120 collateral
    duty Family Liaison Officers were recently selected. After completing
    comprehensive training they will serve as the first line of counseling
    and advisory support for employees in need.
        In addition, we have placed a heavy emphasis on our safety
    programs. We recently hired 5 additional safety and occupational health
    specialists and are actively recruiting several others. We can not
    protect our employees and do our jobs effectively for the American
    public without first ensuring that we follow the highest safety
    standards in the workplace. We have expanded our radiation safety
    program. As a result of our radiation safety committee's efforts,
    Customs has the most stringent radiation exposure standard of any
    Federal agency. We are also expanding our environmental management and
    hazardous material safety programs. In addition, we have placed greater
    emphasis on our tuberculosis, hepatitis B, and hearing conservation
    programs for our employees.

                                   INTEGRITY
        Customs core law enforcement responsibilities demand an unyielding
    commitment to the highest standards of ethical and professional conduct
    by our employees. For the past several years, the agency has been
    instituting a comprehensive series of reforms aimed at bolstering
    integrity within the agency. These include a renewed emphasis on our
    Office of Internal Affairs (IA), the lead office for integrity at
    Customs.
        Internal Affairs has focused more on the Southwest Border.
    Additionally, Internal Affairs has reinvigorated its ranks by
    transferring 131 criminal investigators between Internal Affairs and
    the Office of Investigations since 1999.
        The office is presently in the process of reassigning additional
    investigators; closing smaller, dispersed offices; establishing a
    larger office in San Antonio; and expanding other offices to
    concentrate investigative resources. It has also activated a fully
    operational Special Investigations Unit comprised of senior
    investigators who conduct investigations into critical and sensitive
    incidents. In its first six months since activation, the unit completed
    21 investigations, seven of which were presented for criminal
    prosecution.
        IA recently revised and published its investigative guidebook to
    provide special agents with clear, applicable policy regarding nearly
    every aspect of investigations. Investigative policy is now
    disseminated using electronic publishing so as to provide instant
    access to updates.
        IA Regional Operations Managers and specialized experts with legal
    and law enforcement experience now provide on-call guidance to special
    agents. These personnel provide constant oversight of all aspects of
    investigations to ensure the resulting investigative reports are
    accurate, timely, and comprehensive.
        A new automated Case Management System is being developed that will
    more efficiently integrate with other Customs human resource and
    investigative systems. This system will capitalize upon Web-based
    technology to provide Internal Affairs with accurate data capture and
    retrieval, improved accessibility, overall systems durability, and
    less-costly maintenance. All allegations are tracked from initial
    receipt to final disposition through the Customs Service's allegation
    and intake process. This process is continually refined to ensure
    allegations are handled efficiently and correctly. The process features
    a combined effort among the IA, the Office of Human Resources
    Management, and the respective Assistant Commissioners.
        In addition, Customs recently published the first annual ``Report
    on Conduct and Discipline.'' The report provides a summary and overview
    of discipline cases resolved within Customs for fiscal year 1999. The
    report emphasizes our primary goal to bring greater fairness,
    objectivity and consistency to the discipline process. It is another
    tool to keep employees informed about conduct and discipline matters.
    It also provides them with an opportunity to learn from others and to
    gain a clearer sense of what types of behavior can result in
    disciplinary action.

              CUSTOMS CORE MISSION ACTIVITIES AND ACCOMPLISHMENTS
        Customs core mission has evolved significantly over its two
    hundred-year history to meet the nation's changing needs. Once
    concerned primarily with the collection of tariff duties, Customs now
    serves as one of the Federal government's leading drug interdiction
    agencies. In addition, it is involved in a wide range of trade and
    enforcement activities related to the flow of people and goods across
    borders. Balancing the needs for efficiency in trade facilitation with
    effective enforcement of U.S. laws is the agency's most fundamental
    challenge.
        Over the last ten years, trade entries (the number of individual
    shipments of goods processed) have more than doubled, jumping from 9.2
    million to over 23 million. By the year 2004, Customs will be
    processing over 30 million entries.
        On a typical day, Customs officers process 1.3 million passengers
    and nearly 350,000 vehicles at ports and border crossings around the
    country. They seize over 4,000 pounds of narcotics and upwards of $1
    million in monetary instruments and goods generated from criminal
    activities. Yet drug smuggling organizations continually to demonstrate
    flexibility in response to our interdiction efforts. We must constantly
    adapt to their changing methods.
        Customs is responsible for enforcing hundreds of Federal statutes
    on behalf of dozens of Federal agencies. In addition to seizing
    narcotics and dismantling smuggling organizations, Customs enforcement
    actions protect domestic manufacturing industries from unfair foreign
    competition, and help ensure the health and safety of the American
    public. Through our Strategic Investigations and Antiterrorism
    initiatives, Customs continuously fights the battle to prevent
    sanctioned countries, terrorist groups, and criminal organizations from
    obtaining sensitive and controlled commodities, such as weapons of mass
    destruction. Customs is also a recognized leader in the investigation
    of cyberspace-related violations, including child pornography, stolen
    art and artifacts, and intellectual property rights violations.
    Narcotics Smuggling
        In fiscal year 2000, Customs seized approximately 1.5 million
    pounds of illegal narcotics, conducted 39,000 investigations, effected
    more than 24,765 arrests, and seized over $587 million in currency and
    ill-gotten assets.
        Customs approach to fighting narcotics smuggling is multifaceted.
    It includes traditional searches by our Inspectors and Canine
    Enforcement teams; partnerships with industry to prevent drugs from
    being imported in their merchandise or conveyances; air and marine
    interdiction; and the work of our Special Agents in dismantling and
    disrupting drug trafficking and money laundering organizations.
        The Southwest Border (SWB) continues to be a major crossing area
    for illegal drugs of all types, including cocaine, marijuana, heroin,
    and methamphetamine. Customs enforcement records indicate that 79
    percent of all Customs narcotics seized in fiscal year 2000 occurred at
    the SWB. From October 2000 to February 2001, Customs made 323 seizures
    totaling $6.8 million in undeclared currency bound for Mexico. In
    fiscal year 2000, approximately 293 million travelers, 89 million
    vehicles and 4.5 million trucks entered the United States through the
    SWB. In fiscal year 2000, Customs seized nearly 1.1 million pounds of
    narcotics, including heroin, cocaine, marijuana, and methamphetamine,
    along the SWB.
        In addition to the drug threats coming from our Southern
    Hemisphere, Customs has proactively redirected resources to address the
    growing threat of Ecstasy. Western Europe now serves as the main source
    for Ecstasy smuggling. In February 2000, Customs created the Ecstasy
    Task Force. The mission of the Task Force is to act as a command and
    control center to maximize the level of interdiction and case
    exploitation relative to Ecstasy investigations. Customs currently has
    94 Canine Enforcement teams trained to detect Ecstasy and is in the
    process of deploying additional teams. In fiscal year 2000, Customs
    seized approximately 9.3 million Ecstasy tablets. That is more than a
    2,300 percent increase from the 400,000 tablets seized in fiscal year
    1997.
        Customs actively participated in the recent Presidential Commission
    on Seaport Security. Customs has always recognized the ever-increasing
    threat that internal conspiracies pose at our land, sea, and air ports
    of entry. To combat this risk, Customs has successfully deployed
    several investigative initiatives that have had a positive impact on
    this challenge. Operation River Blue and Riversweep are among the
    successful initiatives that have targeted drug smuggling organizations
    operating in port environments in the South Florida area.
        In addition, Customs is one of the key agencies in a joint
    operation made up of Federal, State, and local agencies to stop
    narcotics smuggling on the Miami River, a key drug trafficking route.
    Florida Governor Jeb Bush announced a 2-year initiative known as
    Operation River Walk on February 7, 2001, in Miami. Operation River
    Walk began on February 15, 2001. Customs plays the chief coordinating
    role for boardings and searches of vessels arriving and departing by
    the Miami River.
        At a national level, a total of 82 additional Special Agents are
    being strategically deployed at both border and inland command and
    control cities to conduct long-term, complex investigations that focus
    on the most significant drug smuggling organizations. These
    investigations are designed to increase the risk borne by drug
    traffickers and impede their trafficking operations.
        Customs Air and Marine Interdiction Division (AMID) plays an
    instrumental role in implementing the National Drug Control Strategy.
    AMID's mission is to protect the Nation's borders and the American
    people from the smuggling of narcotics and other contraband with an
    integrated and coordinated air and marine interdiction force. This
    strategy impacts drug smuggling organizations because it denies drug
    traffickers the use of aircraft and vessels to smuggle drugs into the
    United States, thus forcing them to choose other modes of
    transportation or geographic locations that are less profitable or
    riskier.
        In the arrival zone, Air and Marine assets are strategically
    located along the Southern Border of the United States and in Puerto
    Rico and the Virgin Islands. The primary focus of these Branches is to
    detect, sort, and intercept suspect air and marine targets. The AMID
    also provides assistance to the enforcement efforts of Customs and
    other Federal, State, and local law enforcement agencies to stop the
    flow of money and equipment back to those drug smuggling organizations.
        In the transit and source zones, AMID crews work in conjunction
    with the law enforcement agencies and military forces of our partner
    nations in support of counterdrug programs. AMID supports other Western
    Hemisphere nations with airborne detection and monitoring, interceptor
    support, and coordinated training with military and law enforcement
    agencies. Customs P-3 airborne early warning (AEW) aircraft provide
    radar coverage over the jungles and mountainous regions of Central and
    South America. They also patrol the international waters of the transit
    zone to monitor shipping lanes and air routes in search of smuggling
    activities.
        AMID aviation assets include jet interceptors and long-range
    trackers equipped with radar and infrared detection sensors, high
    performance helicopters, single and multiengine support aircraft, and
    sensor-equipped marine search and detection platforms. AMID maritime
    assets include interceptor go-fast boats with a complement of utility
    and blue-water support vessels that are equipped with marine radar
    systems, radios, and other sensors.
        Coordinated air and marine interdiction operations have been highly
    successful, particularly in Southeast Florida and the Caribbean.
    Customs air and marine interdiction efforts during fiscal year 2000
    resulted in the seizure of more than 187,000 pounds of marijuana and
    close to 44,000 pounds of cocaine. Air and marine personnel also
    supported law enforcement efforts that resulted in the seizure of over
    $17 million and 760 arrests.
        As smugglers change their patterns of behavior, AMID must be
    flexible to meet new threats. A fleet modernization program
    incorporating innovative technology and multi-mission equipment has
    been developed by the AMID to combat the current threat and meet future
    needs. Modernization reduces crew requirements and increases mission
    effectiveness, which saves money for operations and maintenance.
        Since signing the Memorandum of Understanding with the Drug
    Enforcement Administration (DEA) in August 1999, Customs has been
    working with DEA to coordinate the process to place permanent
    intelligence teams in selected drug source and transit countries.
    Customs sent teams on two 30-day trips to Mexico, and one team each to
    Ecuador, the Netherlands, and Thailand. These trips were designed as
    surveys to determine whether a permanent team should be placed in each
    of these countries, and were found to be very successful. The teams
    gathered valuable information and made helpful contacts. In
    coordination with DEA, Customs has held discussions with the Ambassador
    to Mexico and obtained his approval of the concept. Currently, we are
    proceeding with the official request to get the proper Department of
    State approvals for the placement of a permanent team in Mexico. Other
    countries being considered for placement are Colombia, Venezuela,
    Panama, Hong Kong, and Brazil.
    Personal Search
        As the Committee is aware, the Customs Service has been faced in
    recent years with allegations that the agency was engaged in racial
    bias in the selection of certain members of the travelling public for
    personal searches at our nation's airports. Under no circumstance does
    Customs tolerate race-based and gender bias discriminatory treatment of
    individuals. Nonetheless, we have taken these allegations very
    seriously and implemented a series of reforms to ensure that the rights
    of the travelling public are protected.
        We appointed a Personal Search Review Commission (PSRC) in April
    1999 which reviewed the policies and procedures used by Customs to
    process passengers at our major international airports, including our
    personal search procedures. The PSRC made several recommendations. In
    order to address these recommendations, Customs convened the Assessment
    Implementation and Monitoring (AIM) Committee in July 2000. Significant
    progress has been made towards implementing actions based on the PSRC
    recommendations.
        Customs also established the Passenger Data Analysis Team (PDAT) to
    review and analyze personal search data. In addition, Customs has
    improved the personal search data collection process by making specific
    input of data mandatory. Additional data is now collected from
    travelers subjected to a personal search. This data is reviewed daily
    by management to ensure its integrity.
        In November 1999, the new Personal Search Handbook was issued and
    training was provided to over 8,000 Customs Officers. In an effort to
    provide continued training, a Personal Search Computer Based Training
    course was developed. All Customs officers who perform personal
    searches are required to take this course annually.
        Additional training is being provided to all Customs Inspectors, to
    be completed by December 31, 2001. This Inspection and Interaction
    Skills Workshop provides 16 hours of refresher training in the areas of
    interpersonal communications, cultural sensitivity, verbal judo,
    passenger enforcement selectivity and personal search.
        I am pleased to report that these combined reforms have helped
    Customs to reduce its searches of law-abiding passengers dramatically,
    while maintaining our overall levels of narcotics seizures. To provide
    you an example, Customs reduced searches from 23,108 passengers in
    fiscal year 1999 to 9,008 in fiscal year 2000. Yet our seizures of
    illegal narcotics from passengers in the air environment was relatively
    the same. That trend continues for 2001.
    Combating Terrorism
        Customs' mission in combating international terrorism is two-fold:
    protect the American public from Weapons of Mass Destruction (WMD) and
    other instruments of terror and prevent international terrorists from
    obtaining WMD materials and technologies, arms, funds, and other
    material support from United States and foreign sources.
        Customs plays a central role in preventing the smuggling of
    nuclear, radiological, chemical, and biological weapons, arms, and
    other instruments of terror into the United States for use in terrorist
    attacks against our citizens. The increasing terrorist threat has led
    to the development and implementation of an alert plan that outlines
    four alert levels, each with a very specific set of actions designed to
    ensure an appropriate response to the threat at hand, while ensuring
    minimal disruption to normal border traffic flows. Trained volunteers
    and specialized equipment are at the ready to respond to a heightened
    alert, when initiated by the Commissioner of Customs. Customs has also
    established an external and internal antiterrorism intelligence
    communications infrastructure that enables the agency to obtain threat
    information on foreign terrorism and disseminate it to field positions.
        Customs conducts investigations into violations of United States
    laws by terrorist groups, and participates in interagency intelligence
    groups, and shares in joint international investigations with foreign
    customs and law enforcement counterparts through our Customs Attache
    offices abroad. Additionally, Customs is an active participant in FBI-
    sponsored Joint Terrorism Task Forces located throughout the United
    States that are designated to conduct investigations involving outbound
    counter-terrorism.
        Public Law 106-346 and Public Law 106-554 provided additional
    resources to increase Customs Counter-Terrorism activities. Funding was
    provided for 48 additional Special Agents to increase Customs ability
    to counter the threat along the Northern Border and 17 additional
    Special Agents to participate in Joint Terrorism Task Forces. Resources
    were also obtained to fix and replace aging Northern Border security
    infrastructure, including NII technology, gates, signage, and video
    security systems. A plan for deployment of these resources has been
    submitted to the Subcommittee for comment.
    CyberSmuggling Center Activities
        Customs has assumed a leading role in the fight against various
    forms of Internet crime, thanks to the funding provided for the
    agency's Cybersmuggling Center. One of the Cybersmuggling Center's most
    critical areas of activity is the investigation of the transmission of
    child pornography via the Internet. We have had numerous successes in
    this area and continue to monitor this growing enforcement concern. In
    addition, Customs has tackled other forms of Internet crime, including
    the illegal on-line sale of pharmaceuticals, controlled substances,
    pirated software, music and movies, counterfeit watches, clothing, and
    other goods. In addition, we are actively pursuing cases involving the
    use of the Internet for financial crime and fraud. The number of ``on-
    line'' criminal cases has risen dramatically, from approximately 40
    investigations in 1999 to 190 in 2000. Over the first 6 months of
    fiscal year 2001, Customs has initiated 160 Internet investigations
    unrelated to child pornography.
    Stolen Vehicles
        Customs has expanded its partnership with the National Insurance
    Crime Bureau (NICB) in its efforts to identify possible stolen
    automobiles presented for export. NICB VIN examiners and Customs
    Inspectors review vehicle identification numbers (VINs) and associated
    ownership documentation for authenticity at the 28 busiest vehicle
    export locations across the country. Vehicle identification data is
    transmitted, via FBI's ``VINNY'' system, for query against FBI and NICB
    databases. ``VINNY'' is an electronic reporting system targeting
    possible stolen or altered VIN vehicles. Vehicles identified as being
    stolen, salvaged, or plated with fictitious VIN numbers are flagged for
    intensive examination and possible seizure by field personnel. Further
    investigation is conducted by Customs Special Agents working
    cooperatively with State and local law enforcement stolen vehicle task
    forces.
    Forced Child Labor
        The investigation of imports alleged to have been manufactured with
    convict or indentured child labor is among the most difficult aspects
    of our mission. These investigations demand a unique balance of
    investigative and diplomatic skill due to their highly sensitive
    nature.
        As a result of funding provided by Congress in fiscal years 1999,
    2000, and 2001, Customs has begun to formulate a better understanding
    of the extent to which products manufactured or produced with some form
    of proscribed labor are imported into the United States Additionally,
    Customs has sought to create bilateral relationships with foreign
    governments' labor and law enforcement officials, who recognize the
    importance of working together to dismantle the organizations that
    recruit and utilize these labor tactics.
        Customs has issued 32 detention orders against foreign
    manufacturers that utilize prison/forced labor to assemble or cultivate
    their goods for export to the United States. U.S. Customs, at the
    request of the Mongolian Government, conducted an investigation and
    substantiated forced labor allegations against a Chinese-owned textile
    manufacturer in that country. The Mongolian Government requested
    Customs assistance because their labor system would not take action
    against the manufacturers unless the violators came under scrutiny by
    the importing countries.
        Customs is also in the process of opening two Foreign Attache
    Offices in the Philippines and Brazil to assist in these types of
    investigations. We anticipate opening an office in India, pending the
    authorization of the Government of India.
    Tobacco Smuggling
        Customs has experienced a dramatic increase in international
    tobacco smuggling investigations in the past year. This includes
    smuggling both into and out of the United States. In addition, Customs
    is conducting joint investigations with foreign law enforcement
    agencies, primarily in Europe, to combat international tobacco
    smuggling. International organized crime groups continue to expand
    their tobacco smuggling ventures.
        Importations of paper wrapped cigarettes reached an all time high
    in calendar year 2000, with a total value of $265 million. This figure
    surpassed the previous high of $153.7 million in 1993, which was
    predominantly comprised of Canadian brand name cigarettes imported into
    the United States to be smuggled back into Canada. As a result of a
    recent amendment to the Tariff Act of 1930 that became effective in
    December 2000, importations of cigarettes with brand names registered
    by the U.S. Patent and Trademark Office will require the permission of
    the trademark holder to be imported into the U.S. Enforcement of this
    new statute is likely to become a considerable challenge, as smugglers
    may seek to skirt the new requirement. In an effort to cope with the
    increase in international cigarette smuggling, Customs has formed a
    multi-disciplined task force to coordinate all tobacco-related
    investigations. The coordination includes intelligence collection and
    analysis, liaison with domestic and foreign law enforcement agencies,
    and liaison with tobacco manufacturers and importers.
    Intellectual Property Rights
        The enforcement of Intellectual Property Rights (IPR) continues to
    be a top priority mission for Customs. In order to accomplish this
    mission, Customs concentrates its efforts in three principal areas:
    trademarks, copyrights, and patents. Customs routinely pursues
    criminal, civil, and administrative investigations of individuals,
    companies, and organizations that utilize illicit trade practices to
    circumvent and unlawfully exploit Intellectual Property. The goal of
    Customs in its IPR enforcement effort is to allow for the successful
    prosecution of violators and to diminish their economic base through
    the seizure of all prohibited items and merchandise, the assessment of
    penalties and sanctions, and the collection of lost revenue.
        Customs unique border enforcement authority places it at the
    forefront of IPR investigations. In fiscal year 2000, Customs effected
    approximately 3,357 IPR seizures valued at an estimated $60.3 million.
    These enforcement efforts resulted in a dramatic increase in IPR and
    Internet-related investigations.
        Customs latest IPR initiative is the formulation of the National
    Intellectual Property Rights Coordination Center (IPR Center). Located
    at Customs Headquarters in Washington, D.C., the IPR Center is a joint
    Customs/FBI center responsible for the coordination of a unified
    Federal response to IPR enforcement issues. Particular emphasis is
    given to investigating major criminal organizations and those utilizing
    the Internet to facilitate IPR crime. The IPR Center's positive
    influence on IPR enforcement worldwide has already been realized. The
    IPR Center is currently coordinating a transnational IPR investigation
    involving specific strains of counterfeit computer software. This
    coordination involves the direct oversight and analysis of intelligence
    and information from over 80 related investigations currently being
    pursued by Customs and the FBI.
    Textile Smuggling
        Customs continues to increase its efforts in combating the
    smuggling and illegal transshipment of falsely declared textiles and
    wearing apparel. Violators utilize illegal schemes to circumvent United
    States quota and visa restrictions to gain unfair trade advantages over
    United States manufacturers. It is anticipated that, with the
    elimination of the current quota system in 2005 and the implementation
    of a new system/rules, illegal textile transshipments to the United
    States will increase. Customs has developed a strategic plan to address
    the issue of illegal textile transshipments and smuggling utilizing the
    coordinated efforts of Textile Production Verification Teams and
    domestic investigations.
        In fiscal year 2000, Textile Production Verification Teams were
    deployed to 7 foreign countries and conducted visits to over 450
    foreign textile factories to verify production capabilities and
    identify illegal transshipment schemes. The Office of Investigations,
    through the use of undercover and special operations, successfully
    identified transnational criminal organizations responsible for
    smuggling millions of dollars worth of textiles and merchandise into
    the United States. In one such investigation, Customs identified an
    organization responsible for smuggling in excess of $2.3 million of
    trademarked and quota/visa restricted merchandise into the commerce of
    the U.S. The head of the organization was convicted of smuggling and
    faces 20 years incarceration in addition to payment of criminal fines
    and restitution to Customs of approximately $700,000.
    Financial Investigations
        Customs and the Department of the Treasury are the leaders in the
    Federal Government's efforts to combat money laundering. Customs
    provides key support to the National Money Laundering Strategy. Customs
    has been given a broad grant of authority to conduct international
    financial crime and money laundering investigations. This authority is
    primarily derived from the Bank Secrecy Act and Money Laundering
    Control Acts of 1986 and 1988. Customs has implemented an aggressive
    strategy to combat money laundering and now dedicates in excess of 400
    full time equivalent (FTE) positions worldwide to money laundering
    investigations. These efforts against money laundering are not limited
    to drug related money laundering, but to proceeds of all crime
    laundered in a variety of ways. During fiscal years 1998, 1999, and
    2000, money laundering investigations conducted by Customs resulted in
    the arrest of over 3,100 violators and the seizure of more than $625
    million.
        Funding was provided in fiscal year 2001 for the creation of
    multidisciplinary teams which will give Customs the organizational
    capacity to identify important patterns of noncompliance with the Bank
    Secrecy Act, identify and establish an expertise in money laundering
    systems that impact Customs jurisdiction, and equip Customs with the
    ability to address patterns and trends effectively.
    Bulk Cash Smuggling
        We have seen a growing problem in the bulk smuggling of cash.
    Because U.S. banks have become more vigilant about reporting large cash
    deposits, many traffickers opt to avoid U.S. banks altogether. They
    smuggle their drug cash out of the country and deposit it into foreign
    locations where few questions are asked. U.S. Customs has permanent
    full-time inspectors assigned to outbound programs, and in part they
    conduct examinations to search for bulk cash shipments. Additionally,
    Customs is in the process of deploying new technology in an effort to
    conduct less intrusive and more effective outbound searches. Seizures
    of outbound currency rose from $49 million in fiscal year 1996 to $62
    million in fiscal year 2000.
    Intelligence Collection and Analysis Teams
        Customs has begun implementation of a plan for establishing field
    intelligence units for the collection and dissemination of tactical
    intelligence in support of the Customs mission. Two of these units,
    called Intelligence Collection Analysis Teams (ICATs), were established
    in fiscal year 2000: one in Blaine, Washington, and one in Los Angeles,
    California. Customs has begun a programmatic review of the ICATs along
    the southern tier to ensure compliance with the national standard
    operating procedure. Any issues identified through this review are
    being immediately addressed to ensure that the ICATs continue to
    provide intelligence support in the port environs.
    Tactical Communications
        Tactical communications and investigative information support is
    administered to field law enforcement staff on a 24 by 7 basis by the
    Tactical Communications Division, which delivers services through its
    principal field entity, the National Law Enforcement Communications
    Center (NLECC). This activity directly affects officer safety and the
    successful accomplishment of the tactical enforcement operations. There
    are some significant challenges facing this program in the near term.
    User training on network capabilities and operation is an increasing
    requirement due to a dispersed user population, added network
    complexities, and increased functionality. Establishment of a tactical
    communications training element focused on delivering regular user
    training through various methods to field enforcement staff is a high
    priority.
    Trade Outreach
        The Customs Service continues to work collaboratively with the
    trade community to achieve greater streamlining and uniformity of cargo
    entry processes. The highly successful Customs Trade Symposium 2000, an
    all-day conference hosted by Customs for business and industry,
    highlighted agency trade priorities including the Entry Revision
    Project and the Low Risk Importer Initiative.
        The Entry Revision Project is a proposal to develop consensus
    between Customs and the trade community on a legislative framework to
    extend modernization to the import entry process. This is second only
    to the Automated Commercial Environment as a top Customs trade
    priority. We have met frequently with trade consortia to help build a
    new entry system that will better meet government and business needs.
        Along with risk management and improved oversight, our efforts to
    enhance compliance have emphasized the need for uniformity. Customs
    must provide the international trade and travel communities with
    consistent handling of their transactions at all locations. To help
    ensure this, we established a new and ongoing process at Headquarters
    to identify, address and monitor uniformity problem areas. We met with
    the trade at many outreach events around the country, and used risk
    management tools to target major areas of need. We have already
    achieved notable progress with what were once viewed as intractable
    problems, and we are also giving uniformity top priority in our written
    directives. Over 5,000 Customs Management Center and port standard
    operating procedures (SOPs) have been reviewed to ensure alignment with
    national policies, and we will continue to treat uniformity as a
    minimum standard of excellence for our Service.
        In addition to day-to-day interactions, Customs has also engaged
    the trade community in numerous fora, including a series of high-level
    roundtables held around the country where we discussed specific trade
    concerns. We have also increased our network of Customs account
    managers, whose outreach efforts identify and help resolve systemic
    issues. We are fully committed to continuing and expanding our trade
    outreach efforts to further improve all areas of our commercial
    operations.
    International Affairs
        In the international arena we continue to see an expanding role for
    Customs in the trade facilitation and law enforcement areas. As the
    primary border enforcement agency for the world's largest economy, the
    Customs Service sets the global standard for effective and transparent
    customs operations. Our international efforts focus on streamlining the
    flow of global trade, increasing compliance, building effective
    alliances to combat transnational crime, reducing corruption,
    strengthening border controls, promoting the rule of law and enhancing
    economic stability throughout the world. Customs enlists the support of
    foreign governments to further those objectives and to support the
    foreign policy goals of the United States.
        Customs Attaches represent the Customs Service in foreign
    countries. They are responsible for investigations, liaison, training
    coordination, infrastructure building and regulatory and compliance
    functions. They employ an integrated strategy to deliver law
    enforcement expertise, training and technical assistance and effective
    partnerships to combat transnational crime, money laundering and trade
    fraud. This integrated strategy provides Customs with unique access and
    influence abroad, which contributes to better outcomes in foreign
    legislation, trade practices and international law enforcement.
        Customs has played a critical role in a number of important
    international investigations such as operations Blue Orchid (child
    pornography), Multi-core (illegal export of arms), and Journey (drug
    smuggling), as well as counterfeit software and tobacco smuggling
    cases. Collectively, these investigations have resulted in the seizure
    of over 2,600 videotapes containing child pornography; the indictments
    of individuals involved in the illegal export of military aircraft and
    missile parts from the U.S. to Iran; the arrest of a foreign national
    who headed a major distribution network of counterfeit software; the
    seizure of 22,489 kilograms of cocaine, 43 arrests, and multiple
    convictions.
        At the Headquarters level, we support the United States Trade
    Representative and other organizations in bilateral and multilateral
    negotiations concerning deregulation, protection of intellectual
    property rights and harmonized Customs procedures. We also service U.S.
    travelers, the international trade community and the expatriate
    community by responding to numerous inquiries regarding U.S. import and
    export laws and procedures.
        Customs has also established partnerships with the private sector
    in order to promote U.S. business interests in foreign countries. The
    business community frequently cites foreign customs procedures and
    regulations as one of the most significant obstacles to the efficient,
    cost-effective movement of goods across international borders. Through
    our global network of contacts, we provide an important entree for U.S.
    business to negotiate foreign regulations.
        Customs is proud of its work with the private sector through our
    Industry Partnership Programs (IPP). Currently, over 4,800 air, sea,
    trucking, and railroad carriers have signed Carrier Initiative
    Agreements with Customs. In fiscal year 2000, these carriers provided
    information to Customs that resulted in 82 domestic seizures totaling
    27,014 pounds of narcotics. During the same period, these carriers
    helped intercept 44,122 pounds of narcotics from conveyances or freight
    destined for the U.S. from abroad.
        Over the last 6 fiscal years (1995-2000), participants in IPP
    programs have provided information to Customs that has resulted in
    domestic seizures totaling over 91,823 pounds of narcotics. During the
    same 6 fiscal years, IPP participants helped intercept over 195,306
    pounds of narcotics destined for the United States from abroad.
        In addition to our Carrier Initiative programs, Customs is actively
    working with foreign business communities through the Business Anti-
    Smuggling Coalition (BASC). BASC is an industry-led, Customs supported
    program. BASC attempts to enhance security from the point of
    manufacture in foreign countries, through the distribution of goods
    throughout the United States. There are currently 17 BASC chapters
    established by foreign business communities and Customs throughout
    Colombia, Ecuador, Venezuela, Panama, Peru, Costa Rica, and Mexico.

                        FISCAL YEAR 2002 BUDGET REQUEST
        For fiscal year 2002, the Customs Service proposes a total program
    level of $2,385,226,000 and 17,849 Full Time Equivalents (FTEs), all of
    which will be directly appropriated. The fiscal year 2002 budget
    represents an increase of 4.6 percent above the fiscal year 2001
    enacted level.
        The explosive growth in the volume of trade will place an even
    greater demand on Customs to address pressing trade and enforcement
    issues with limited staffing and resources. The fiscal year 2002 budget
    includes $130 million in base funding to continue development of the
    Automated Commercial Environment (ACE). ACE is designed to replace our
    current antiquated commercial processing system, and help Customs
    manage its expanding workload.
        As part of the fiscal year 2002 President's Budget submission, $35
    million is requested in the Air and Marine Program to support the
    Western Hemisphere Drug Elimination Act. These funds will be used
    towards Customs interdiction efforts primarily in the source and
    transit zones. Specifically, the resources will support: acquisition of
    maritime patrol aircraft; implementation of various safety enhancements
    for flight crews; replacement of aging P-3 Forward Looking Infrared
    sensors (FLIR); replacement and modernization of current marine
    vessels; and replacement of deteriorating and obsolete equipment
    associated with the Customs Air and Marine Interdiction Coordination
    Center.
        This concludes my statement for the record. I appreciate the
    opportunity to appear before you today. Again, I want to express my
    thanks to the Subcommittee for its tremendous support of Customs in the
    past. We look forward to your continued support as we strive to meet
    the dramatic challenges faced by the Customs Service in this dynamic
    era of global trade and enforcement.

                              U.S. Secret Service

    STATEMENT OF BRIAN L. STAFFORD, DIRECTOR
        Senator Campbell. Mr. Stafford.
        Mr. Stafford. Mr. Chairman, Ranking Member Dorgan, Senator
    DeWine, it is a pleasure to be here today to testify on behalf
    of the Secret Service fiscal year 2002 budget request. With me
    today are Deputy Director Kevin Foley and the seven Assistant
    Directors and Chief Counsel of the Secret Service.
        Senator Campbell. Seven?
        Mr. Stafford. Seven.
        Senator Campbell. Where are they, all in the audience?
        Mr. Stafford. All in the audience. Would you like them to
    be recognized?
        Senator Campbell. Yes, I would like to at least have them
    raise their hands.
        Mr. Stafford. Please, would you do that.
        Senator Campbell. Welcome.
        Mr. Stafford. Kevin Foley, the Deputy Director of the
    Secret Service, sitting behind me, I would like to recognize
    him today. He is retiring at the end of the month after a 21-
    year career in the Secret Service and 5 years before that in
    the DEA. I would like to publicly acknowledge not only his
    service to the Secret Service, but also to our country, and we
    will miss him.
        Senator Campbell. Which gentleman is that? Congratulations
    on a well-deserved retirement. I know Brian pretty well, and he
    has told me a number of times about the 24-hour-a-day on call
    impromptu things. You put something in place where you want to
    be with your family and you get a phone call and away you go on
    the next plane. I understand the difficulty of that job.
        Go ahead, please.

                 Secret Service Fiscal Year 2002 Budget Request

        Mr. Stafford. Mr. Chairman, the Secret Service's fiscal
    year 2002 funding request will advance our primary goals of
    protecting our leaders and reducing crimes against our nation's
    currency and financial systems. We currently have more
    permanent protectees than at any time in our 136-year history
    and their travel has been unprecedented, putting considerable
    demands on the Secret Service resources.

                               Protective Program

        Furthermore, the threats and risks to our protectees exist
    in an increasingly sophisticated and mobile and violence-prone
    world. The existence of these threats of terrorism prompted
    Congress to enact legislation designating the Secret Service as
    the Federal Government's lead agency for the design, planning,
    and implementation for security for national special security
    events.
        Our preparation for the Salt Lake City 2002 Winter Olympics
    are ongoing. We are developing a comprehensive counter-
    terrorism security plan for all official venues of the
    Olympics. In conjunction with the security for the Olympic
    games, the Secret Service is also responsible for the safety of
    all visiting foreign heads of state. The Winter Olympics
    present a unique challenge for us and we are working very hard
    to ensure that the games are not marred by a terrorist attack
    or other security-related incident.

                             Investigative Program

        Despite the heavy protection workload, the past year was
    also very productive for the Secret Service's investigative
    program. In fiscal year 2000, we closed over 18,000 criminal
    cases and made almost 8,000 arrests. In the past 5 years, the
    Secret Service has made over 50,000 arrests related to our core
    investigative responsibilities.

                    Electronic Crimes Special Agent Program

        The Secret Service is confronting a technological
    transformation in criminal methodology and has adapted
    investigative methods to meet this new challenge. Our first
    line of defense in this effort is the Electronic Crimes Special
    Agent program. These agents are highly trained and are
    qualified as experts in the preservation and analysis of
    electronic evidence. They also provide expertise in the
    investigation of network intrusions and database thefts.
        The Secret Service has forged strong alliances with our
    private industry partners and promotes the task force approach
    in our field offices worldwide. This method allows us to tailor
    our investigative programs to the local community, thus
    maximizing favorable economic impact.
        An example, the New York Electronic Crimes Task Force,
    formed by the Secret Service in 1995, represents an
    unprecedented regional confederation of law enforcement
    agencies, prosecutors, academia, and private industry. This is
    a strategic alliance designed to pool competencies and
    resources to address electronic crimes. With over 250 members,
    this task force is the largest in the world and has had
    positive impact on the local community. Given the extraordinary
    success and effectiveness of this task force, it is not
    surprising that some of its most avid supporters come from
    private industry.

                             Globalization of Crime

        The Secret Service is also responding to the globalization
    of crime. Since the early 1980s, we have seen a sizeable
    increase in the foreign production and distribution of
    counterfeit United States currency. Much of this activity has
    been linked to organized crime syndicates. In the past 5 years,
    the Secret Service, in cooperation with foreign law enforcement
    agencies, has recorded over 2,400 foreign counterfeit arrests
    and suppressed 141 counterfeit plant operations.
        In addition, a number of countries have recently adopted
    the U.S. dollar as their unit of currency. While dollarization
    does offer economic and political benefits, it also makes these
    countries vulnerable to the importation and distribution of
    counterfeit currency. In light of the proliferation of the U.S.
    dollar as the international currency of choice, the Secret
    Service will work to expand its reach throughout the world to
    guarantee the integrity of the currency of the United States.

               National Center for Missing and Exploited Children

        The Secret Service is very proud of its continuing
    commitment to the National Center for Missing and Exploited
    Children and will continue to provide technical and forensic
    support to further improve on the current 93 percent recovery
    rate of our Nation's children.

                       National Threat Assessment Center

        In furtherance of our protective intelligence mission and
    as a direct result of this subcommittee's support, our National
    Threat Assessment Center continues to expand its capabilities
    to provide consultation, training, and research in areas of
    targeted violence. The Center's mission focuses on a broad
    spectrum of threat assessment and targeted violence pertinent
    to the protective mission of the Secret Service as well as the
    public safety interests associated with social problems, such
    as school violence, workplace violence, and threats to public
    figures.
        Mr. Chairman, I am extremely proud to represent an
    organization comprised of some of the most talented and
    dedicated men and women in all of government. In both the
    protection and investigative arenas, the successes we have
    achieved should be credited to the personnel that we are so
    fortunate to attract and retain. Since becoming Director, I
    have made it my priority to improve the quality of life of our
    personnel. To that end, for the past two years, you have
    supported us in reversing a critical personnel shortage within
    the Secret Service resulting from mandatory workload increases.
    I am pleased to report we are in the process of adding about
    two-thirds of the additional staffing identified by the
    interagency working group.

                               Prepared Statement

        Mr. Chairman, on behalf of the men and women of the Secret
    Service, I want to thank you and the subcommittee and staff for
    its ongoing support and I am willing to answer any questions
    you may have.
        Senator Campbell. Thank you.
        [The statement follows:]

                    Prepared Statement of Brian L. Stafford

        Mr. Chairman and members of the Subcommittee, I am pleased to be
    here today, and to be afforded the opportunity to testify on the Secret
    Service's fiscal year 2002 Budget Request.
        With me today, Mr. Chairman, are Kevin T. Foley, Deputy Director;
    Dana A. Brown, Assistant Director for Administration; C. Danny Spriggs,
    Assistant Director for Protective Operations; Barbara S. Riggs,
    Assistant Director for Protective Research; James E. Bauer, Assistant
    Director for Investigations; Larry L. Cockell, Assistant Director for
    Human Resources and Training; George D. Rogers, Assistant Director for
    Inspection; H. Terrence Samway, Assistant Director for Government
    Liaison and Public Affairs; and John J. Kelleher, Chief Counsel.

                     FISCAL YEAR 2002 APPROPRIATION REQUEST
        The Service's fiscal year 2002 funding request totals $860.5
    million and 5,730 FTE, and includes funding from two sources: the
    Salaries and Expenses appropriation, and the Acquisition, Construction,
    Improvements and Related Expenses appropriation. The budget request for
    fiscal year 2002 is $26.7 million above the level of funding that the
    Service has been appropriated this fiscal year.
    Salaries and Expenses (S&E)
        The Service's Salaries and Expenses appropriation request for
    fiscal year 2002 totals $857,117,000 and 5,730 full-time equivalents
    (FTE). This is an increase of $32,232,000 and 173 FTE over the fiscal
    year 2001 appropriated level of $824,885,000 and 5,557 FTE. This
    request includes: $48,026,000 in upward adjustments necessary to
    maintain current program performance levels, $6,553,000 and 173 FTE to
    annualize program changes implemented in fiscal year 2001, and
    $1,649,000 in base funding that was previously funded under the
    Acquisition, Construction, Improvements, and other Related Expenses
    account. These increases are partially offset by $10,372,000 in non-
    recurring costs, and $13,624,000 in savings which the Service expects
    to realize through improved resource management.
        There are no programmatic changes or initiatives proposed for the
    Service's Salaries and Expenses account in the fiscal year 2002 budget.
    However, the funding needed to annualize the costs of program
    initiatives begun or continued in fiscal year 2001 is included.
        In addition, the fiscal year 2002 budget proposes moving funding
    currently contained in the Service's Acquisition, Construction,
    Improvements, and Related Expenses account to the Salaries and Expenses
    account. A total of $1,649,000 has been moved. This amount partially
    covers the Service's shared costs for its use of the Department's
    Digital Telecommunications System, as well as expenses related to
    fixed-site security. These expenses are more properly budgeted under
    the Salaries and Expenses appropriation.
    Acquisition, Construction, Improvements, and Related Expenses (ACIRE)
        The Service's fiscal year 2002 request for its Acquisition,
    Construction, Improvements, and Related Expenses (ACIRE) account totals
    $3,352,000, a decrease of $5,569,000 from the fiscal year 2001
    appropriated level of $8,921,000. This total includes $3,920,000 in
    non-recurring costs, and a reallocation of base funding of $1,649,000
    from this account to the Service's Salaries and Expenses account. There
    are no programmatic changes or initiatives proposed for this account.

                               PROTECTIVE PROGRAM
        The Secret Service's protective operations programs provide
    comprehensive protection for persons and facilities as mandated by law
    and executive order, and strive to reduce threats posed by global
    terrorists and other adversaries. Secret Service protectees include:
    the President, the Vice President, their families, former Presidents,
    visiting foreign heads of state and government, as well as major
    Presidential and Vice Presidential candidates and their spouses. This
    program also provides security for the White House complex, the Vice
    President's residence, and 463 foreign missions within the Washington,
    D.C., area.
        Fiscal year 2000 was an extremely active year for the Secret
    Service protection program due to the 2000 Presidential Campaign, the
    Republican and Democratic conventions, and the Presidential
    Inauguration. Additionally, the Secret Service provided protection at
    the World Economic Conference, the United Nation's General Assembly,
    and other designated ``National Special Security Events''. Travel of
    Secret Service protectees was unprecedented during fiscal year 2000,
    and put considerable demands on Secret Service resources. During fiscal
    year 2000, the Secret service provided physical protection at 7,358
    travel stops, a 29 percent increase over fiscal year 1999, and a 43
    percent increase over fiscal year 1998. The 7,358 travel stops
    represent an all-time high in our protection workload. The 7,358 travel
    stops also represent an exhaustive effort by the entire organization in
    terms of commitment to the achievement of the Secret Service's ultimate
    protection goal of the safety of our protectees.
        During fiscal year 2000, the Secret Service's Office of Protective
    Operations successfully designed, planned, and implemented four
    National Special Security Events, including: the January 2000 State of
    the Union address; the July 2000 OPSAIL and International Naval Review
    in New York City; the Republican National Convention in Philadelphia,
    Pennsylvania; and the Democratic Convention in Los Angeles, California.
    In addition to these events, the Secret Service also provided
    significant resources--including manpower, material and technical--for
    the April 2000 International Monetary Fund and World Bank Meeting in
    Washington, D.C., and the September 2000 United Nations General
    Assembly meeting in New York City.
        Our protective workload was further compounded by the 2000
    Presidential Campaign. During this election cycle, we were charged with
    protecting three Presidential candidates and implementing security
    measures for six debate sites and two political conventions. Due to the
    uncertainty of the ultimate outcome of the election, the post-election
    period was extended, which resulted in the continuation of protective
    details beyond Election Day.
        Preparations for the Salt Lake City 2002 Winter Olympics are
    continuing. Since August, 1998, the Secret Service, as the lead Federal
    agency for operational security, has been developing a comprehensive
    counter-terrorism security plan for all official venues of the 2002
    Winter Olympics. In conjunction with the security for the Olympic
    Games, the Secret Service is also responsible for the safety of all
    visiting foreign heads of state or government who will be in
    attendance. The 2002 Winter Olympics presents a unique challenge for
    the Secret Service, and we will work to ensure that the Olympic Games
    are not marred by a terrorist attack or other security-related
    incident.
        The threats and risks to our protectees exist in an increasingly
    sophisticated, mobile, and violence-prone world. In recent years, the
    individuals the Secret Service protects have become targets of
    ideological and fanatical hatred that often manifests itself in
    attempts to inflict harm through terrorism or by employing the use of
    weapons of mass destruction. The existence of this type of threat
    prompted the enactment of Presidential Decision Directive 62--later
    codified in 18 USC 3056--which designated the U.S. Secret Service as
    the Federal Government's lead agency for the design, planning, and
    implementation of security for National Special Security Events.
        The mandate of our protective mission has historically been defined
    by threat assessment and risk analysis in anticipation of selective
    adverse actions directed at one of our protectees. Our hallmark has
    been the development and implementation of comprehensive security plans
    to mitigate the potential threat.
        Our valuable human resources provide the key to the successes we
    have enjoyed in our protective mission. This is accomplished by
    strategically placing field agents throughout the United States and
    abroad to routinely perform core criminal investigative and protective
    intelligence activities. Our protective function depends on the support
    of permanently assigned field personnel to assist with and, in many
    cases, conduct protective advances, security post-standing and other
    ancillary protective functions. It is because of their outstanding day-
    to-day working relationship with other Federal, State, and local law
    enforcement agencies, the mental health community, and other local
    community organizations, that the Secret Service succeeds in meeting
    its protective mission.

                             INVESTIGATIVE PROGRAM
        Fiscal year 2000 was also a very productive year for the Secret
    Service investigative program, despite the heavy protection workload
    associated with Presidential Campaign 2000, and the unprecedented
    demands of our permanent protectees. During fiscal year 2000, the
    Secret Service closed a total of 18,611 criminal cases, made 7,843
    arrests, and received 7,520 indictments.
        The Secret Service achieved all of its counterfeit-related
    performance goals for fiscal year 2000. During fiscal year 2000, there
    was $76 of counterfeit U.S. currency passed for every $1 million of
    genuine currency in circulation. This represents a $2 decrease
    (improvement) compared to the fiscal year 1999 rate and a $19 decrease
    (improvement) compared to the fiscal year 2000 goal. There were $39.7
    million in counterfeit notes passed domestically in fiscal year 2000,
    12 percent less than originally projected.
    Computer Crime
        Computers and the Internet are an integral part of a rapidly
    growing number of criminal activities investigated by the Secret
    Service. We have seen the proliferation of computer-generated and
    computer-assisted fraud dramatically increase. Criminals frequently
    utilize hardware and software tools developed for the benefit of
    businesses and consumers. Because of the competitive nature of
    Internet-based financial services, the focus is on speed, ``24/7''
    access, and ease of use--all of which make the job of the ``cyber
    criminal'' a little easier. The Internet also provides the anonymity
    that criminals desire. In the past, most fraudulent schemes required at
    least some ``face to face'' exchange of information, and allowed some
    of the information being provided to be verified, and later traced,
    relatively easily.
        The Internet has evolved from an information-sharing network into
    an electronic commerce payment network. Last year there were 3.5
    billion financial transactions completed on-line. It is estimated that
    over 144 million Americans are ``plugged into'' cyberspace. By 2005, it
    is predicted that there will be over one billion Internet users
    worldwide. The rapid migration to E-Commerce is a forerunner to the
    advent of a truly global economy. In the wrong hands, the computers,
    Internet connections, and wireless communication devices, which have
    saturated our global society, can become weapons capable of wreaking
    havoc on our financial infrastructures.
        The Internet contains thousands of sites dedicated to all types of
    criminal activity. ``Hacking'' sites describe the methods for making
    intrusions into financial, telecommunications, and government systems,
    and allow the necessary ``tools'' to be downloaded directly to the
    perpetrator. The demand on the Secret Service to conduct intrusion
    investigations continues to escalate.
        The Secret Service is confronting a technological transformation in
    criminal methodology and must adapt our methods of investigation to
    meet this new challenge. The first line of defense in this effort is
    the Electronic Crimes Special Agent Program (ECSAP). ECSAP agents are
    highly trained and are qualified as experts in the preservation and
    analysis of electronic evidence, including computers,
    telecommunications devices, electronic organizers, scanners, and other
    electronic paraphernalia. They can also provide expertise in the
    investigation of network intrusions and database thefts.
        The Secret Service mission in the arena of criminal investigations
    has been historically characterized by its preventive and proactive
    nature. The focus of this investigative program is the protection of
    our nation's payment systems and financial infrastructure and is not
    redundant with the investigative programs of other Federal law
    enforcement agencies. Our unique core criminal violations concern the
    counterfeiting of United States currency (and other nations), and fraud
    perpetrated against the U.S. Government, the citizens of the United
    States, and American business operations.
        In cases involving the manufacture of fictitious financial
    instruments, false identification documents, identity theft, or the
    counterfeiting of currency or corporate and bank checks, the
    investigation usually reveals that they were most likely produced using
    a computer and desktop publishing software. Experience indicates the
    majority of Secret Service investigations involve a computer, whether
    as the target of the crime, a tool used to commit the crime, or as a
    repository of evidence.
        The highlights of our comprehensive investigative program include
    an aggressive public education and awareness campaign and a proactive
    approach to criminal investigations in general, focusing our resources
    on investigations of significant economic and community impact. The
    Secret Service has forged strong alliances with private industry
    partners and promotes the ``task force'' approach in field offices
    throughout the United States and in offices abroad. This method allows
    us to tailor our investigative programs to the local community, thus
    maximizing favorable public and economic impact, while strengthening
    the financial infrastructures of our nation at every level.
        The Secret Service has also developed working partnerships with
    members of the financial services and telecommunications industries as
    they pertain to our payment systems. These partnerships foster the
    sharing of information and permit the Secret Service necessary access
    to provide risk assessments in the identification of systemic
    weaknesses in financial institution infrastructures. These partnerships
    also assist in preventing future compromise, reduce financial losses to
    the public, respond to our customers' needs, enable the Secret Service
    to provide quality investigations, and overall, make our nation's
    financial systems more secure.
        The New York Electronic Crimes Task Force (NYECTF), formed by the
    Secret Service in 1995, represents an unprecedented, regional
    confederation of law enforcement agencies, public prosecutors,
    academia, and private industry institutions in a strategic alliance
    designed to pool core competencies and resources to address electronic
    crimes. With more than 250 members, this task force has led a
    successful effort to heighten public awareness and have a positive
    impact on the local community. They have trained over 10,000 law
    enforcement personnel, prosecutors, and private industry
    representatives in the criminal abuses of technology. Given the
    extraordinary success and effectiveness of this task force, it is not
    surprising that some of its most avid supporters come from private
    industry.
        The NYECTF serves as a model for increasing public awareness and
    cultivating community partnerships. Led by a state agency, a similar
    version of the NYECTF model was recently implemented in North Carolina,
    and there has also been significant interest from other states and
    countries in adopting this systemic approach.
        Our experience in the investigation of computer crimes has had an
    added benefit for the Secret Service in the area of our protective
    responsibilities. We acknowledge the difficulty in separating the cyber
    dimension from the physical dimension in the area of security today.
    Consequently, we are developing a plan that addresses the integration
    of a secure infrastructure and cyber environment with a secure (in the
    traditional sense) physical environment for our protectees.
        In order to meet the challenges of the 21st century, the Secret
    Service has initiated a new case prioritization policy to focus our
    resources on emerging technological schemes and crimes that are
    transnational in scope. Secret Service field offices allocate their
    resources to the most significant cases based on whether one or more of
    the following case prioritization criteria is met: involves
    transnational or multi-district investigations; schemes involving
    multiple defendants participating in organized groups; schemes
    involving computers or exploiting emerging technologies; or
    investigations that will significantly impact the local community. The
    use of these criteria in case screening and initiation enhances our
    investigative effectiveness and allows for the optimum utilization of
    our resources.
    Identity Theft
        The responsibilities of the Secret Service in criminal
    investigations have increased significantly as a result of the
    proliferation of computer technology and the public's access to the
    Internet. Advances in technology have changed the nature of financial
    transactions from paper currency and coins to today's use of electronic
    payment systems. New criminal schemes are constantly being developed
    utilizing emerging technologies. Identity theft has become a tool of
    the criminal element and is usually used to commit several different
    types of fraud such as: bank fraud; credit card and access device
    fraud; and other computer-generated and computer-assisted crimes. The
    Secret Service continues to diligently attack identity theft and other
    diverse criminal strategies by aggressively pursuing our core
    violations of counterfeiting and financial crimes.
        Identity theft is best described as the illegal use of another
    person's financial identity to commit fraud. It is not typically a
    ``stand alone'' crime; it is almost always a component of one or more
    crimes, such as bank fraud, credit card or access device fraud, or the
    utterance of counterfeit financial instruments.
        Unfortunately, consumers have little control over who has access to
    their personal identifiers. Social security numbers, in conjunction
    with other personal identifiers, are used for the granting of credit
    (auto loans, home mortgages, small business loans, apartment leases)
    and when obtaining banking and investing services. They are requested
    by government agencies on applications for licenses, permits, and
    benefits, and are required by most health care providers for the
    maintenance of medical records.
        Today, it is a relatively simple task for criminals to obtain
    personal information on a variety of individuals through public
    sources, particularly the Internet. Many government and private sector
    entities have web sites with promotion lists, financial disclosure
    forms, and biographies of their executives posted on them.
        Cyber criminals have also ``hacked'' into Internet merchant sites
    and made copies of the proprietary customer lists, which contain
    personal information and credit card account numbers. These account
    numbers are then used in conjunction with other personal identifiers to
    order merchandise that criminals have delivered throughout the world.
    Most account holders are not aware that their credit card account has
    been compromised until they receive their billing statement.
        In many cases, the hacking attempts on corporate and government web
    sites, are successful not due to the expertise of the cyber criminals,
    whose attempts are often quite technologically crude, but because of
    the failure of some business and government entities to take basic
    computer security precautions. It is not unreasonable for consumers to
    expect that they will have to provide personal identifiers when
    obtaining credit or other services, but it is reasonable for them to
    expect that basic security measures will be taken to prevent these
    identifiers from being compromised and/or misused. The Secret Service
    is addressing this issue through a proactive public education campaign
    being conducted through our private industry partnerships. This
    approach, coupled with the successful investigation of criminals
    involved in financial and computer fraud, has significantly enhanced
    our ability to detect and suppress identity theft.
        We also make it a priority to investigate counterfeit instruments--
    counterfeit currency, counterfeit checks, counterfeit credit cards,
    counterfeit stocks and bonds, etc. Many of these schemes would not be
    possible without the compromise of an innocent victim's financial
    identity. The Secret Service aggressively targets organized criminal
    groups that are engaged in financial crimes on both a national and
    international scale. Many of these groups are prolific in their use of
    stolen financial and personal information to further their financial
    crime activity.
        The Secret Service also continues to work in concert with state,
    county, and local police departments to ensure that our resources are
    being targeted at those criminal enterprises that are of a high concern
    to local communities. This partnership approach to law enforcement is
    exemplified by our financial crimes task forces located throughout the
    country. Each of these task forces pools the personnel and technical
    resources needed to maximize the effectiveness of each participating
    law enforcement agency.
    Globalization of Crime
        Since the early 1980's, the U.S. Secret Service has seen a sizeable
    increase in the foreign production and distribution of counterfeit U.S.
    currency. Much of this activity has been linked to organized crime
    syndicates through forensic and investigative techniques. The lowering
    of barriers to international travel, trade, and capital transfers has
    contributed to the complexity of the issue of the international
    counterfeiting of U.S. currency. In the past 5 years, the Secret
    Service, in cooperation with foreign law enforcement agencies, has
    recorded more than 2,411 counterfeit arrests and suppressed 141
    counterfeit plant operations outside the United States.
        The objective of the U.S. Secret Service abroad is to continue to
    improve and expand bilateral cooperation regarding the investigation,
    timely reporting, and suppression of counterfeit U.S. currency and a
    wide array of financial crimes. This includes proactive partnerships
    with law enforcement authorities and financial industry officials, and
    maintaining a comprehensive international training program. Training
    seminars and information exchange sessions can provide much needed
    awareness and expertise and a stronger joint working relationship.
        The strategic placement of overseas personnel promotes more
    effective police operations because our agents are able to respond more
    promptly and more consistently. In an effort to combat international
    crime, the U.S. Secret Service currently has eighteen offices in
    foreign countries and a permanent assignment at Interpol, as well as
    several overseas initiatives. Recently, new offices have been opened in
    Moscow, Pretoria, Lagos, and Frankfurt, with an office soon to open as
    well in Mexico City. Requests to open offices in Beijing and New Delhi
    are pending approval, and should be opened within the next 6-9 months.
    This expansion will enhance our ability to become involved in foreign
    investigations, which ultimately affect the United States, directly or
    indirectly.
        In light of the proliferation of the U.S. dollar as the
    international currency of choice, the Secret Service will be playing an
    expanded role throughout the world to guarantee the integrity of the
    currency of the United States. Several nations have recently adopted,
    or have moved to adopt, the U.S. dollar as their base unit of currency.
    While ``dollarization'' does offer many economic and political benefits
    to the United States, it also makes these countries vulnerable to the
    importation, distribution, and passing of counterfeit currency. To
    ensure that the manpower and resources are available, without drawing
    from existing commitments and fiscal considerations, the Secret Service
    is prepared to explore all available options so that we may continue to
    perform our investigative mission in these emerging dollar-based
    economies.
    Cyberterrorism
        The Secret Service continues to utilize its core of computer
    investigative specialists (CIS) and ECSAP agents to conduct
    investigations into ``Cybercrime'' and ``Cyberterrorism.'' Most forms
    of cyberterrorism, as with any other cybercrime, are detected as a
    simple cyber incident (for example, during routine system testing, or
    during intrusion detection). The Secret Service program therefore
    emphasizes initial response and follow-up investigation, to determine
    if the nature of the incident rises to the threshold of cyberterrorism.
    Suspects in financial crimes investigations have traditionally been
    thought of as white-collar criminals. Today we see many criminals for
    whom financial crime is just one component in a diversified criminal
    portfolio. The proceeds of the criminal activities are not only used to
    support the lifestyle of the suspect, but frequently to finance other
    types of criminal enterprises, including terrorism.
        The threat that computer crime represents in our society today is
    also acutely recognized by the Secret Service in the area of our
    protective responsibilities. In the cyber context, a small adversary
    may compete with, and defeat, a larger more powerful entity by deftly
    exploiting an electronic vulnerability with a minimum amount of
    resources. A well-placed cyber attack against a weak technology or
    support infrastructure system can render an otherwise sound physical
    security plan vulnerable and inadequate. Often, in our networked
    society, systems that we have come to assume are reliable are often
    viewed as being susceptible and therefore targeted as easy prey by
    individuals or groups with malicious intent. For example, a hotel today
    routinely has its telephone network tied into the same local
    infrastructure as its elevators, water and electric supply, and fire
    suppression system.
        To be sure, technology will continue to evolve at a rapid rate and
    play a vital role in our society and daily lives. Our mandate is to
    leverage its enhancements but also to recognize its shortcomings and
    ensure that the secure environment which the Service seeks to provide
    contemplates not only an adversary with conventional weaponry, but the
    computer-based threat as well.
    National Center for Missing and Exploited Children
        With the passage of the Violent Crime Control and Law Enforcement
    Act of 1994, the U.S. Secret Service was authorized to provide forensic
    and technical support to the National Center for Missing and Exploited
    Children (NCMEC). This support includes, but is not limited to: the use
    of the Automated Fingerprint Identification System (AFIS); the Forensic
    Information System for Handwriting (FISH); ink analysis and comparison;
    traditional handwriting and fingerprint comparison; polygraph
    examination and consultation; visual information services such as image
    enhancement, suspect drawings and video and audio enhancement; graphic
    and photographic support; and age regression/progression drawings.
        The Secret Service's Forensic Services Division (FSD) has been
    aggressive in providing specific law enforcement groups with
    information about our services. Recipients of such presentations
    include the International Association of Chiefs of Police, the INTERPOL
    Standing Working Party on Offences against Minors, and the Federal Law
    Enforcement Training Center. Various publications and brochures have
    also aided in promoting FSD's ability to provide critical forensic
    support in these cases. FSD has provided the National Center for
    Missing and Exploited Children with an icon and a web page of
    information, which has been included on the desktops of more than 1,500
    computers belonging to state and local law enforcement agencies
    nationwide. The Secret Service will continue its efforts to promote our
    services and the assistance we can provide to local law enforcement
    agencies through the Center, through our field offices, and through
    competent and timely responses to existing case submissions.
    Boys and Girls Clubs of America
        Computers and the Internet have revolutionized the way that we
    communicate, entertain and learn. They have forever changed the way
    that we conduct business and interact socially. The significance of
    this has been recognized by the Secret Service and recently applied to
    our partnership with the Boys and Girls Clubs of America (BGCA). The
    partnership was created to enrich the lives of our nation's youth by
    supporting programs that stress the prevention and reduction of youth
    violence within our communities. That organization plans to open a
    Cyber Learning Center in every one of its more than 2,000 clubs
    nationwide. This presents an excellent opportunity for us to share our
    knowledge and expertise in this area. In support of this partnership,
    our New York Field Office and the New York area chapters of the Boys
    and Girls Clubs of America conducted the first Cyber Safety for Kids
    seminar on January 30, 2001, at John Jay College in New York City.
        The seminar was attended by over 500 children aged 6 to 16. The
    theme of the seminar focused on the prevention of online victimization,
    exposure to unwanted sexual material such as pornography via the
    Internet, and instructions on where to go to for help when confronted
    with these issues. The children received cyber-etiquette training
    through the use of hands-on activities and exercises and certificates
    of participation were provided to all the children in attendance. By
    December 2001, the Secret Service anticipates reaching thousands of
    children and their parents in the New York City metropolitan area
    through this model program.

                         OFFICE OF PROTECTIVE RESEARCH
    Intelligence Division
        The Secret Service's protective research and protective
    intelligence programs continue to serve a critical role in support of
    the protective mission. Within the Office of Protective Research, the
    Intelligence Division oversees the identification, assessment, and
    management of threatening communications and incidents directed toward
    Secret Service protectees. Specifically, the division develops threat
    assessments in support of domestic and foreign protectee visits;
    conducts evaluations of risk potential associated with specific and
    generalized threats; prepares analyses of protectee-specific threats;
    maintains liaison with other law enforcement, mental health, and
    intelligence agencies; plans and reviews the case management for high
    risk subjects; and, collaborates in the design and conduct of program
    evaluation studies and other risk assessment research to improve our
    understanding about violence directed toward public officials.
        Among key initiatives in fiscal year 2000 was the extensive support
    provided by the Intelligence Division for the Presidential Campaign in
    the form of candidate assessments, training for campaign protective
    details, and trip assessments associated with unprecedented amounts of
    campaign travel. Similarly, the division coordinated complex protective
    intelligence activities related to the Inauguration for President Bush
    and Vice President Cheney.
        In addition to directing and performing such operational
    activities, the Intelligence Division provides leadership for the
    Protective Detail Intelligence Network (PDIN), a consortium of
    Washington, D.C., area law enforcement, security, and public safety
    agencies with protective and security related functions. Initiated in
    1999 by the Secret Service, the PDIN has emerged as an important forum
    for sharing intelligence information that affects security planning
    issues across agencies in the metropolitan area. Hosted on a regular
    basis by the Intelligence Division, PDIN meetings include briefings and
    training concerning significant and designated major security events
    coordinated by the Secret Service, and they facilitate cooperative
    partnerships among agencies who share protective and security
    responsibilities. Through the PDIN, the Secret Service has offered
    assistance in the preparation of security assessments for incoming
    Cabinet members and senior officials of the new administration.
    National Threat Assessment Center
        In furtherance of our protective intelligence mission, the National
    Threat Assessment Center (NTAC) continues to expand its capabilities to
    provide consultation, training, and research in areas of targeted
    violence. NTAC's mission focuses on the broad spectrum of threat
    assessment and targeted violence, pertinent to the protective mission
    of the Secret Service as well as the public safety interests associated
    with such social problems as school violence, workplace violence, and
    threats to public figures. NTAC also works to promote information
    sharing among all agencies with public safety responsibilities. To that
    end, NTAC has offered a series of week-long Threat Assessment Seminars
    attended by law enforcement and public safety officials from across the
    country to receive training on the Secret Service's approach to threat
    assessment, including the identification and management of persons at
    risk for targeted violence. These seminars represent one of the
    initiatives by which NTAC will continue to share Secret Service
    expertise with those who may benefit from our specialized research and
    experience.
        In 2000, the National Threat Assessment Center completed data
    collection and data analysis on the Safe School Initiative, a
    collaborative venture with the Department of Education and supported by
    the National Institute of Justice. The Safe School Initiative is an
    operational study of 37 U.S. school shootings involving 41 perpetrators
    that have occurred over the past 25 years. Through this incident-
    focused, behavior-based analysis, NTAC researchers hope to increase
    understanding the patterns of communication, planning, and preparation
    that precede these incidents. The goal of the Safe School Initiative is
    to provide accurate and useful information to school administrators,
    educators, law enforcement professionals, and others who have
    protective and safety responsibilities in schools, and to help prevent
    incidents of school-based targeted violence.
        The National Threat Assessment Center also provided extensive
    research support during this past year to examining and analyzing
    campaign-related threats and incidents. This research was conducted in
    collaboration with the Office of Protective Operations' Major Events
    Division to assist with the operational planning and training
    associated with Campaign 2000. Presently, NTAC is developing its long
    range agenda for research, training, and consultation activities as
    part of its mission to enhance and facilitate understanding about the
    prevention of forms of targeted violence affecting a variety of public
    settings.
    Technical Security Division
        In order to remain on the leading edge of physical security
    technology, the Secret Service's technical security program maintains a
    robust research and development capability. Our staff of engineers and
    chemists serve on several committees within the Technical Support
    Working Group (TSWG), a multi-agency research consortium, to research
    innovative technology that is applicable to our mission. For example,
    the development and deployment of state-of-the-art armored limousines
    directly resulted from research conducted by the Personal Protection
    Subgroup of TSWG, chaired by engineers from the Secret Service. Other
    projects under research by TSWG on behalf of the Secret Service,
    include development of a lighter and stronger ballistic glass,
    concealable body armor that meets higher standard performance
    requirements, and blast mitigation research. We are also conducting on-
    site biometrics testing in the form of facial recognition technology
    and fingerprint scanning. Promising new developments in this area will
    one day enable us to enhance our abilities to identify persons known to
    be a threat to our protectees, and they will increase the performance
    and reliability of our access systems.
        Currently, the Technical Security Division of the Secret Service is
    playing a major role in the security planning for the 2002 Olympic
    Games in Salt Lake City. Extensive use of protective technology will
    serve to reduce the manpower requirements while, at the same time,
    enhance the overall security of the event.
    Information Resources Management Division
        In fiscal year 2000, the Information Resources Management Division
    (IRMD) completed an internal reorganization to better provide support
    to Secret Service headquarters and field offices. Through this effort,
    several major activities were initiated, including the ``Customer
    Touch'' program which placed information technology (IT) personnel in
    our largest field offices and major headquarters customer offices. IRMD
    also established an Information Assurance staff component to focus
    greater attention on information assurance and Cyber Critical
    Infrastructure Protection (CIP). In addition, the division implemented
    efforts to modernize the Secret Service IT hardware and software
    infrastructures, and they developed and published a Secret Service
    Information Technology (IT) Strategic Plan for 2001 to 2005. IRMD has
    also undertaken partnering efforts with other Treasury bureaus,
    particularly in the area of SmartCard and Public Key Infrastructure.
    Emergency Preparedness Program
        Within the Office of Protective Research, the Emergency
    Preparedness Program (EPP) became fully operational this past year. The
    Emergency Preparedness Program was established in 1999 to oversee the
    Secret Service's emergency preparedness planning efforts. As such, EPP
    manages four interrelated program areas, evolving from Presidential
    Decision Directives 63 and 67: (1) Critical Infrastructure Protection
    (CIP); (2) Continuity of Operations (COOP); (3) Presidential Successor
    Program; and, (4) Operations Security (OPSEC) program. Specifically,
    the Critical Infrastructure Program involves the identification of
    existing or potential vulnerabilities--including physical and computer-
    related--associated with the Secret Service's critical assets. The
    Continuity of Operations plan sets forth a strategy for maintaining the
    capability to perform essential mission elements with minimal or no
    interruption during national or other emergencies. The Secret Service's
    role in the Presidential Successor Program includes transporting
    presidential successors to a secure relocation facility in the event of
    an emergency. Also, the OPSEC program protects the sensitivity of
    employee and mission-related information, with a goal of denying
    adversaries access to critical information that could compromise the
    Secret Service mission.

                          HUMAN RESOURCES AND TRAINING
        On September 29, 1998, a groundbreaking ceremony took place at the
    James J. Rowley Training Center (JJRTC). This date marked the
    initiation of an unprecedented construction and consolidation project
    on the part of the Secret Service and the Department of the Treasury as
    it pertains to training facilities. The construction of a new classroom
    building and a new administration building were the major components of
    this initiative. With the completion of the Administration Building
    (17,000 square feet--January 2000) and the Classroom Building (50,000
    square feet--April 2000), another Secret Service milestone was
    achieved. For the first time in Secret Service history, all training
    personnel and facilities were consolidated at one location, creating a
    more effective and efficient training environment. All instructors and
    support staff members, including those formerly assigned to the 1310 L
    Street location, were assigned to the JJRTC. The majority of the
    personnel assigned to the JJRTC now occupy the new Administration
    Building and the new Classroom Building. Additionally, the Classroom
    Building contains 11 new classrooms with two computer labs.
        Included in the new building construction was the installation of
    computer-based training equipment in nine of the new classrooms in the
    Classroom Building. Prior to the acquisition of this equipment, JJRTC
    instructors had limited access to computer-based training equipment.
    Additionally, the installation of this new equipment standardized the
    amount and type of equipment available for use by the instructors in
    these classrooms. The remaining two classrooms, which are designated as
    computer labs, have been outfitted with 12 new computers for use during
    various aspects of training.
        In June of 2000, work on the Wilkie Firearms Building, including
    the indoor ranges, armory, and classrooms, was completed. Additionally,
    this building now contains a mat room, counterfeit laboratory, and
    office/storage space for firearms, emergency medical equipment, and
    maintenance personnel. The JJRTC Supply Section has also been relocated
    to this building. Renovation of the JJRTC outdoor ranges was also
    completed this past fiscal year. This renovation occurred during the
    months of March and April of 2000, and included an upgrade of the
    electrical, mechanical, structural, and target systems. The ranges
    located at the Post Office in the District of Columbia were also
    renovated with the installation of the new electronic tracking target
    systems, ballistic traps, and linatex curtains. Since 1997,
    construction has been completed on the Drummond Building (Protective
    Detail Training) and the Magaw Building (Counter Assault Team Training,
    Protective Detail Training).
        Last year, the JJRTC provided training for an unprecedented number
    of personnel. During fiscal year 2000, 432 new Special Agents and 120
    new Uniformed Division Officers received their training at the JJRTC.
    In addition, 11,486 training opportunities were provided to special
    agents in the form of the Special Agent Basic Training Course, In-
    Service Training, and Firearms Re-qualifications. 13,304 training
    opportunities were also provided to Uniformed Division Officers, in the
    form of the Uniformed Division Officer Basic Training Course, In-
    Service Training, and Firearms Re-qualifications. Finally, 2,562
    training opportunities were provided to other Secret Service personnel,
    and 1,651 training opportunities were provided to individuals from
    outside agencies.
        A significant challenge for the Secret Service in fiscal year 2001
    will be our recruitment and retention efforts. By the end of fiscal
    year 2002, 379 Special Agents and 190 Uniformed Division members will
    be eligible for retirement. Further, many eligible Uniformed Division
    members are likely to retire in fiscal year 2002, as a result of the
    recently enacted retirement enhancements. The Secret Service's ability
    to accomplish its mission requires that it recruit and retain well-
    qualified candidates to replace these retiring employees.

                                   CONCLUSION
        Mr. Chairman, the Secret Service is committed to its dual mission
    of protecting our nation's leaders, as well as this country's critical
    financial infrastructures and payment systems. We will continue to
    develop our aggressive and innovative approach to combating emerging
    forms of computer crime, and continue to foster our effective
    partnerships with local law enforcement agencies, private industry, and
    community organizations.
        This concludes my statement. I would be pleased to answer any
    questions that you or other members of the Subcommittee may have.

        Senator Campbell. When the Secret Service first started,
    was the mission pretty much totally to protect the President?
        Mr. Stafford. No, it was not. We were created actually on
    April 14, 1865, by Abraham Lincoln, and the day he created us,
    he was assassinated. But he did not create us for protection
    purposes. We were created for investigative reasons,
    specifically to suppress counterfeit money. After the Civil
    War, about a third of all our currency in circulation was
    counterfeit. There was economic chaos in our country and there
    was no Federal investigative law enforcement agency that
    existed at the time to suppress it. We never started protecting
    Presidents until after Lincoln, Garfield, and McKinley were all
    assassinated, in the early 1900s.
        Senator Campbell. Well, your mission has certainly grown
    and now you have to protect athletes, as well. I was on an
    Olympic team a long time ago, and if anybody would have told us
    in 1964 when I was on the team that we would have to worry
    about terrorists killing the young athletes, I never would have
    believed it. And yet within 8 years, in Munich, that was the
    loss of innocence when the Israeli team was murdered right in
    the Olympic camp, and I understand the importance of it now.
    Whenever you have a high-profile event with cameras from all
    over the world, it seems to attract the whackos and that is
    where they can really make a statement because they know that
    everybody in the world will see it. So your mission has grown
    considerably, as other agencies have, too.
        Let me ask a few questions of each of you. Mr. Sloan, in
    fiscal year 1999, Congress gave the Department the authority to
    establish a three-year pay demonstration project for critical
    operations. I think you mentioned that. It took a while to get
    the project off the ground, but there have been some good
    results, as I understand it. What plans does the Department
    have for continuing that project, Mr. Sloan?
        Mr. Sloan. Mr. Chairman, you are absolutely correct. The
    demonstration project was established to enhance Treasury's
    ability to effectively recruit and retain highly qualified
    employees. It did take a little time before it got off the
    ground and I think it is safe to say that ATF has been involved
    with this project for about a year now and has, in fact,
    completed its first cycle in January of this year and has
    prepared a report relative to that evaluation of the project.
        I might also note that in the President's budget, I believe
    we are asking, because of the short time that we have had for
    the project itself, for an extension to the demonstration
    project's authority in the 2002 budget. But it may be
    appropriate if Director Buckles comments a little further on
    the project.
        Senator Campbell. So far as I understand it, through
    January 31, as you mentioned, of this year, the total cost has
    been $3.4 million. How do you plan to continue that funding.
    That is in the President's budget?
        Mr. Buckles. Yes, that would be covered in our budget, in
    our salary and expenses, yes, sir.

                           ATF Supervisory Structure

        Senator Campbell. Okay. Mr. Buckles, many of your law
    enforcement officers are still concerned about the supervisory
    structure in the ATF offices. As I understand it, law
    enforcement personnel are being supervised in some cases by
    non-law enforcement personnel. I used to be a cop, among many
    other things. In fact, I was a police training officer, and
    based on my own experience, it would be hard for me to remember
    going through any classes where you are trained for some
    specialty activity in law enforcement by somebody that was
    never in it or does not have a background in it. I was
    wondering if they have the sufficient background or training or
    experience to be able to do that. How do you justify that
    structure?
        Mr. Buckles. The structure is such that we do not have non-
    law enforcement personnel, first of all, in the field who are
    supervising any law enforcement activities. Where we do, it is
    in management functions. Within division offices, there may be
    agents and other people assigned to those offices. Any time we
    have any kind of law enforcement activity going on, that is
    supervised exclusively by law enforcement personnel.
        In terms of our training, the training and the type of
    training we put on is based upon the needs of the law
    enforcement personnel within the agency. Again, it is
    supervised in some cases by individuals for management purposes
    on scheduling classes and maintaining the budget and getting
    the bills paid and that sort of thing, making sure that we have
    professional standards, and developing and maintaining
    curriculums that are proper. But they do not address the law
    enforcement policy.
        Senator Campbell. All right. Well, you are the Director.
    How many assistant directors are there in the ATF?
        Mr. Buckles. I think there are seven.
        Senator Campbell. Seven? And how many of those have law
    enforcement background?
        Mr. Buckles. Well, we can go back through it. I think I
    just saw a letter, that maybe you have received where it
    suggested that two-thirds of them do not have law enforcement
    background. If we go through it, our head of Field Operations
    that is in charge of all law enforcement activities is a
    special agent. The head of our Firearms, Explosives and Arson
    Division is a special agent. The head of our Inspection
    Division is a former special agent with the Secret Service, so
    that we have got three. The head of our Training Office is non-
    law enforcement. Our Chief Information Officer (CIO) over our
    laboratory and technology is a non-agent. And our Chief
    Financial Officer (CFO), is a non-agent.
        Senator Campbell. Do the assistant directors also make
    policy decisions?
        Mr. Buckles. Yes. We operate in an environment where we
    have something called a Strategic Leadership Team that all of
    the assistant directors are involved in making policy decisions
    and strategic settings, and strategic direction for the Bureau.
        Senator Campbell. Thanks. That is good.

             Funding for Management and Technological Improvements

        Director Buckles, as a result of some complaints of
    legitimate firearms importers, you remember last year $2
    million was provided for management and technological
    enhancements to assist law-abiding firearms dealers and
    collectors as they work through the regulatory process with the
    ATF. The ATF has developed a plan to use that money for
    information technology to streamline the process. I am told
    that you are also planning to implement management process
    changes that should have a more positive impact. Could you
    outline what steps you are taking to make the firearms
    regulatory process more customer friendly?
        Mr. Buckles. The principal areas of concern, I believe,
    with the funding from last year dealt with our Importation
    Branch and what is called our National Firearms Act Branch,
    which handles certain special types of weapons that are
    registered. What we have done in each of those areas is spent
    money on advancing computer technology. Frankly, when you are
    processing, for example, in the National Firearms Act Branch
    some 300,000-and-some-odd requests for transfers or making of
    these weapons, if you do not have----
        Senator Campbell. In what time frame do you get the
    300,000?
        Mr. Buckles. That is in a year.
        Senator Campbell. In 1 year?
        Mr. Buckles. In 1 year, and we do approximately 14,000
    importation permits. So, attempting to manage that level of
    activity without proper computer technology has been one of the
    problems that we have had in this area. We have also been able
    to add additional staff to those offices so that we have
    computer data input specialists, so that the examiners we have
    who are the specialists in the subject matter are able to focus
    their attention on getting the job done and dealing with the
    customers, and are not using all their time putting the
    information into the system.
        Senator Campbell. Thank you.

                        Automated Commercial Environment

        Commissioner Winwood, on April 25, Congress approved the
    release of funds for the Automated Commercial Environment,
    called the ACE project. You mentioned that a little bit, I
    think, in your testimony. On April 27, the Customs Service
    announced that a partnership led by IBM was their choice as the
    prime contractor for the ACE contract. I know that you have
    been instrumental in this ACE process, this project, and I want
    to commend you for that because I think it is very good. But
    you have been involved with it for many years. What is the next
    step? Now that the prime contractor is on board, where does it
    go from here?
        Mr. Winwood. Mr. Chairman, it was a great day when we were
    able to announce the hiring of the prime contractor to get the
    process started, to actually start building the future for the
    Customs Service in international trade. We are negotiating
    right now with that prime contractor to lay out the
    requirements and the deliverables in the first phase of the
    development of the ACE program. They probably will be starting
    their work in approximately 2 to 3 weeks. The prime contractor
    will take our initial plan and review it from top to bottom to
    make sure that all the steps we have taken, how we have laid
    out the initiative and where we need to go, and we are able to
    do it. They will start forming their office, getting in the
    proper experts from the subcontractors. They have to form the
    first group.
        Senator Campbell. They pick their own subcontractors, or do
    they do that in conjunction with your direction, or how is that
    done?
        Mr. Winwood. They pick their own subcontractors, Mr.
    Chairman, and they brought them on board as a part of the bid.
    The company has approximately 5 major partners plus probably
    close to 40 subcontractors from different parts of the country
    and with different expertise that they will bring on board as
    necessary as we go through the different development stages. So
    we are ready to start the process. They are laying out what
    steps they need to take. They are reviewing the entire project
    in the next 2 to 3 weeks and then they will start setting up
    their development office.
        Senator Campbell. And it will be in operation by when?
        Mr. Winwood. Well, if we have continuing funding, our hope
    was to have the project completed in four to maybe a maximum of
    5 years. Right now, we have to readjust the schedule based on
    the funding. It is looking right now, that it will take
    approximately 7 years.
        Senator Campbell. Seven years from now?
        Mr. Winwood. Yes, sir.

                                    Ecstasy

        Senator Campbell. Let me ask--in fact, I do not even know
    actually who to direct this to, but I have been increasingly
    aware and interested in a drug that youngsters seem to be
    taking as a matter of choice these days. You know, we go
    through a cycle. It was marijuana, then it was something else,
    and then it was cocaine, then it was crack and something else,
    and now there seems to be a club drug called Ecstasy. Would any
    of you know something about that and can tell me and the
    committee something about that?
        Mr. Winwood. Yes, sir.
        Senator Campbell. Go ahead.
        Mr. Winwood. There has been an explosion of the importation
    of this so-called club drug since 1997. It was very popular in
    Europe prior to that, and I think they decided that there was a
    mass market here, that they could exploit the children in the
    United States. In 1997, the Customs Service seized
    approximately 400,000 tablets of Ecstasy.
        Senator Campbell. So it is taken in tablet form?
        Mr. Winwood. Tablet form, yes, sir.
        Senator Campbell. Not smoked or----
        Mr. Winwood. No, sir. It is taken in tablet form, about the
    size of a small aspirin. In the year 2000, we seized over 9.3
    million units, which is a tremendous increase. It is very
    worrisome, because, first of all, people have associated--they
    call it the ``love drug'' or the ``friendly drug'' and it is
    not. It is very harmful to people. It is harmful to children.
        Senator Campbell. What is it a derivative from? What does
    it come from, a plant?
        Mr. Winwood. No, sir. They make it into tablet form. At one
    time, when it first started, it was used as an appetite
    suppressant. One of the base elements was used as an appetite
    suppressant back in the, probably the early 1950s and the
    1960s. You add a few more ingredients to it and it gives you
    this so-called euphoric feeling, lets people's guard down,
    makes them relax. So it is very dangerous because it increases
    the heart beat, it dehydrates people, it overheats them, and it
    is very dangerous to young people.
        Senator Campbell. Does it have the explosive or
    inflammatory effect that, say, methamphetamines does when this
    stuff is being made, or contaminative effect?
        Mr. Winwood. I do not believe so. I am not the expert on
    the chemical analysis, but it has the same basic elements as
    some methamphetamines. It is not as dangerous as
    methamphetamines, but it is certainly not just something that
    you would want to have lying around for people to use.
        Senator Campbell. I see. Senator DeWine, would you like to
    ask some questions, and I will maybe get back to a few.
        Senator DeWine. Thank you, Mr. Chairman.

                       Continued Dumping and Subsidy Act

        Commissioner Winwood, let me discuss a specific matter of
    importance to my home State and to the entire country, and that
    is the implementation of the Continued Dumping and Subsidy Act.
    As you know, I wrote this bill, and thanks to the help of a
    friend, Senator Byrd, the measure is now law.
        I understand that Customs has been working on
    implementation regulations for almost 7 months now. I just
    wondered when we could expect to see these regulations actually
    issued.
        Mr. Winwood. Well, we hope to get them out soon, Senator.
    There were a couple of issues that we are faced with. It was a
    challenge to devise the proper regulations to make sure that we
    met all the requirements of the law to protect not only the
    revenue, but also the claimants. There are some administrative
    matters that we had to address, and some accounting issues that
    we had to address. We also had to make sure that from the
    standpoint of the payouts for those who are part of the claim
    or could have been harmed by the claim, that we had the
    opportunity to make sure that the proper amount of money was
    redressed to those individuals.
        The regulations are presently in draft form and they are
    going through final review in Customs right now. We hope to get
    them out in the very near future for Treasury review so that we
    can get them published as a proposed rule. Then they can be
    commented on by the public at large.
        Senator DeWine. How long do you think?
        Mr. Winwood. I hope to have them over at Treasury this
    month, the month of May.
        Senator DeWine. Well, it is important that it gets done. I
    understand you are doing things you have not done before, and
    whenever you are faced with the job of doing something you have
    not done before, it takes a little time, but we will anxiously
    await these regulations.

                                     NIBIN

        Director Buckles, for the last several years, I have been
    involved in efforts to combine the FBI's Drug Fire System and
    ATF's Cease Fire System. This has been something that we all
    know about and we have watched for some time, and I commend
    everyone for moving forward on this, this new system, this
    National Integrated Ballistic Information System, this NIBIN
    system.
        In addition, I have supported appropriations for NIBIN. In
    fact, my Crime Identification and Technology Act of 1998 was
    the first Justice grant program to help State and local law
    enforcement obtain NIBIN. Currently, though, I understand that
    there are 75 NIBIN units deployed and another 150 units
    scheduled for deployment by the end of next year.
        Earlier this year, both the ATF and FBI expressed concern
    that fiscal year 2001 NIBIN implementation might slip into the
    next fiscal year because of problems obtaining communication
    lines. Do you see any impediments to fully implementing phase
    one of NIBIN this fiscal year, such as may be caused by the
    blackouts in California, and if so, if you do see a problem,
    what alternative plan has the Bureau made to assure that we
    meet the NIBIN distribution time table?
        Mr. Buckles. Senator, I think that we have solved the
    problem with the communications. It was an issue at first. In
    fact, in California, we are trying an alternative form of
    networking the machines together so that we will actually have
    a comparison between using the Criminal Justice Information
    System (CJIS) which was what we anticipated to use as a
    network, with one alternative so we can compare the performance
    and costs of those two systems. But we have been working
    carefully with the FBI and have been able to turn around some
    of the issues. It was their vendor who was not able to bring
    the lines up in time, and I think we have those issues solved.
        So we believe that we are going to be able to stay on track
    here. There are some----
        Senator DeWine. On schedule?
        Mr. Buckles. Yes, at least because of the communications
    issues. There may be some other matters that would come up in
    terms of how we roll things out and what type of equipment is
    used, but we intend to try to stay on budget here, or on track
    here.
        Now, in next year's budget, part of the absorption that we
    have been asked to take in non-discretionary costs, we have
    identified some portion that would come out of the NIBIN
    program, as well. What we are trying to do in those situations
    is rather than----
        Senator DeWine. How much out of NIBIN?
        Mr. Buckles. I believe $2 million out of about $24 million.
        Senator DeWine. And what impact is that going to have?
        Mr. Buckles. Well, what we are trying to do is manage
    around that impact. We are finding some ways in which we can
    lower the cost of this program. As with a lot of computer
    technology, sometimes costs go down as they find new kinds of
    equipment, and we have found we can use these, rather than the
    very expensive hubs. In many cases, when we go lay out the
    equipment, we are able to get by with, and meet everybody's
    needs, by using less expensive hubs and then networking and
    pulling people together. So, we are looking for ways like that
    to make sure we can stay on schedule.
        Senator DeWine. But you do not see any geographical problem
    anyplace? In other words, uniformity and you are going to stay
    on schedule?
        Mr. Buckles. We have got a schedule that goes through next
    year that we are marching to right now, and unless something
    happens in the future, we have everything in plans and all of
    the schedules, now that we have the communications problems out
    of the way, we would be able to be carried out. Regarding the
    impact of $2 million absorption next year, we think that we can
    probably manage around that.
        Senator DeWine. I appreciate knowing this. As you know,
    this is a program that I am a big-time supporter of, because I
    think one of the things that the Federal Government can do for
    law enforcement and the most effective use of the money is in
    good technology and good integration nationwide. This system
    solves crimes every single day, and there are not a lot of
    headlines about it, but people in law enforcement, I think,
    appreciate it and understand it and know that it solves crimes
    and saves lives.

                    Western Hemisphere Drug Elimination Act

        Mr. Chairman, I have one additional question, if I could,
    for Mr. Winwood. As you know, I have been a supporter of the
    Customs air interdiction mission. In fact, a couple of years
    ago, I was one of the lead sponsors in the Senate of the
    Western Hemisphere Drug Elimination Act, which included
    authorization for the procurement of P-3 slicks and other
    aircraft for detection and monitoring.
        I wonder if you could tell us, what is the status of the
    six aircraft appropriated under that bill and how will these
    assets contribute to your detection and monitoring mission in
    the arrival and the transit and the source zones, and an
    additional question. Are additional P-3 aircraft needed to meet
    your increasing detection and monitoring mission?
        Mr. Winwood. First of all, thank you, Senator, for the
    tremendous support, because it has been very well received,
    very much appreciated.
        As far as the money that was appropriated, I would say,
    using an average, about 98 percent of the money has been
    obligated that was authorized and appropriated. Of that money,
    six additional aircraft are being brought online in the Customs
    Service, two additional AEWs, which is the domed aircraft, and
    four of what we call the slick, without the dome.
        Starting this summer, we will receive an aircraft
    approximately every 4 to 6 weeks through January of 2002. So
    the money has been obligated. The aircraft have been ordered
    and the delivery schedule is set up and it will start the
    delivery this summer.
        Senator DeWine. And then how long after delivery will they
    be put in use?
        Mr. Winwood. As soon as we can get the pilots up and
    running and checked out on the aircraft.
        Senator DeWine. How big of a challenge is that? Is that a
    problem for you?
        Mr. Winwood. Well, one of the issues with the pilots,
    Senator, is a tremendous amount of competition right now, as
    you probably know, for pilots. It is very difficult for the
    Federal Government to compete with some of the other sources
    who are competing for these types of personnel. However, we
    have a very aggressive hiring program going on right now and
    additional money was supplied through that appropriation and we
    have hired over 80 pilots so far, both P-3 and fixed-wing and
    other types. We are on a very aggressive hiring program right
    now to bring the rest on board. But we should have the
    equipment up and running within a very short time once it is
    delivered.
        Senator DeWine. Good. Thank you. Thank you, Mr. Chairman.

                        Mad Cow--Foot and Mouth Disease

        Senator Campbell. Thank you.
        To Mr. Winwood, let me just change gears just for a minute.
    As the Acting Commissioner of Customs, perhaps you noticed that
    2 months ago, I introduced, along with Senator Dorgan, S. 700,
    what is called the Mad Cow-Foot and Mouth Disease Bill. That
    bill passed by the Senate is now over on the House side. It was
    passed with a Harkin-Hatch amendment. But that bill primarily
    sets up a coordinated effort in case we have to face the
    devastating effects that is happening in Europe right now.
        Could you tell me, perhaps, some of the safeguards that the
    Customs Service is implementing now to help protect the
    livestock industry from what may appear here?
        Mr. Winwood. Mr. Chairman, working in conjunction with the
    Department of Agriculture and the Food and Drug Administration,
    which are the two primary agencies responsible for monitoring
    and responding to mad cow and also for the foot and mouth
    disease epidemic out of Europe, we have done a tremendous
    amount of coordination with those two agencies. They have
    supplied to us their list of critical elements, critical items,
    and the information associated with them that we can put into
    our automated lookout systems, presently in our ACS, or
    Automated Commercial System.
        We meet with them regularly to make sure that, one, the
    list is updated; two, that we are following through all the
    requirements; and three, that we are diligent in not only
    targeting items that could be addressed but that it is done
    thoroughly. Nothing gets released if it is on the critical list
    or on the lookout list until we have coordinated and contacted
    these two principal agencies to make sure it is a product that
    they are interested in, something they need to examine, and
    something they need to approve for release.
        Senator Campbell. Well, you lost me a little bit. Does that
    lookout, include feeds, byproducts----
        Mr. Winwood. Yes, sir.
        Senator Campbell [continuing]. All kinds of stuff, not just
    livestock?
        Mr. Winwood. Yes, sir.
        Senator Campbell. It is anything that might be a carrier of
    either one of those?
        Mr. Winwood. Yes, sir. The two agencies met with us and
    laid out every item that would be of potential concern, whether
    it be feed or any type of other product that is brought in, and
    we have put that by nomenclature into our automated lookout
    system. So, every time there is information arriving about an
    importation of such a product, an alert comes up, our officers
    put it on hold, they get the proper paperwork, and then they
    notify the appropriate agency for review and examination, as
    necessary.
        Senator Campbell. A lookout system, of course, requires
    that people are looking out, and I am kind of concerned about
    what might be slipping in because you do not inspect every case
    of every cargo on every ship that comes in, do you?
        Mr. Winwood. No, sir. No, we cannot. Container-wise, we
    have probably examined by container probably 10 percent of the
    shipping containers that come into the United States. But I do
    believe, Mr. Chairman, with the risk analysis approach we use,
    the risk management, and with the lookout systems, the
    automated profiling systems, with their automated targeting
    systems, the lookout for anomalies in shipping, with the random
    inspections and with the random generated inspections, where
    nobody knows when it is going to happen except the computer, I
    think these combination of factors gives us a pretty good
    handle on looking at the right items, and I think that is what
    we will continue to do.
        Senator Campbell. I see. Thank you. I appreciate it.
        I have several more questions that I would like to submit
    in writing to all four of you, if it is okay, if you could get
    those back to me. I already have a tight morning and Senator
    Dorgan has consented to chair the second half of this committee
    hearing, Senator Dorgan, if you could take over, I would
    appreciate it. And with that, thank you for being here.
        Senator Dorgan [presiding]. I have a couple of questions. I
    was over at the Energy Committee and I regret having to be
    absent for a bit of your testimony. Let me just ask a couple of
    questions of several members of the panel.
        First, Mr. Sloan, my understanding is the request by
    Customs and some of the other agencies in the Treasury
    Department was for increased levels of staffing. Something over
    1,000 FTEs were requested. None were granted. In the law
    enforcement functions over in Justice, we have a request for
    something over 1,000 new positions. Can you tell me, from your
    perspective, why granting the one and not the other was
    appropriate?
        Mr. Sloan. Sir, I cannot speak for the Justice side of the
    equation, but I can tell you that there is a constant concern
    about disparity between the law enforcement entities in both of
    the Departments. It is true that there are not additional
    positions for Treasury law enforcement other than the
    annualized positions that, I think, amount to 700 in the 2002
    budget.
        But I can say that in order to address the disparity, which
    is more than just a perceived disparity, I think one of the
    important things that the Treasury Department is engaged in as
    a result of the requirements of the Appropriations Committees
    is an examination of the law enforcement assets, resources,
    talents, and requirements of the Treasury law enforcement
    community across the board. This is a project that has been
    ongoing for some time. In fact, it is my understanding that the
    results of this examination have now been concluded, at least
    the first phase, and I think it is going to provide us with
    some ammunition that we definitely need to present to decision
    makers the case necessary for trying to close that disparity
    gap.
        Senator Dorgan. Let me ask about the use of the Counter-
    Terrorism Fund in the Department of Treasury. That was
    established for unanticipated contingencies. Obviously,
    counter-terrorism work is very important. All of us understand
    this is an unsafe world with terrorists being trained in
    training camps around the world. They would love nothing better
    than to commit an act of terrorism in this country. I
    understand why we would need to be vigilant and concerned about
    an act of terrorism that would be directed at the Olympic
    Games.
        And yet the Counter-Terrorism Fund was really established
    for unanticipated contingencies, for unanticipated emergencies
    of sorts, and yet it is being tapped for the Olympics. I wonder
    if that is the correct approach. Would it not be a better
    approach for us to simply provide in the regular appropriations
    process for those needs that exist to deal with Olympic issues?
        Mr. Sloan. First, you are absolutely correct, and I am very
    pleased to hear the recognition of Treasury's role in counter-
    terrorism and anti-terrorism activity. In fact, the Secretary
    addressed this exact issue, as you may know, on Tuesday in a
    hearing relative to counter-terrorism activity throughout
    government. I think his testimony also underscored Treasury's
    role in these activities.
        As far as the Counter-Terrorism Fund is concerned and the
    fact that there is discussion in the budget of the use of the
    Counter-Terrorism Fund for the Olympics, which are considered,
    as you may know, a national special security event, I think
    that it is safe to say that, and I am quoting, not quoting, but
    I am sort of paraphrasing the Secretary in this regard, as
    well, it is his opinion that such events, national special
    security events, the responsibility that Treasury has through
    the Secret Service now do need to have a funding mechanism in
    the future that avoids trying to find the money in a mechanism
    such as the Counter-Terrorism Fund. So you are absolutely
    correct in that regard.

                                   G.R.E.A.T.

        Senator Dorgan. Mr. Buckles, you and I visited earlier this
    week about the Gang Resistance Education and Training (GREAT)
    program, which I think is a very important program, and an
    attempt to make sure that program is available on Indian
    reservations. Could you tell me, is your agency looking closely
    at that and working on trying to do the outreach with respect
    to Native Americans?
        Mr. Buckles. Yes, Senator, we have. We have had a very
    aggressive effort on the part of expanding GREAT into the
    Native American community. We have done it in a number of ways.
    First of all, one of our special agents in charge of our Dallas
    office who sits on the board of the Native American Law
    Enforcement Officers Association, so we have someone who can
    participate at that level and make sure everyone knows what is
    available.
        In addition, during this last year, we trained officers
    from 60 different law enforcement agencies, Native American law
    enforcement agencies, 136 officers, and that has addressed over
    18,000 students.
        Senator Dorgan. I appreciate that, and let me again say I
    think it is an important program and I want to work with you on
    it.

                   Workforce Retention and Workload Balancing

        Mr. Stafford, over the years, you have indicated to me and
    to others that the number of people that need or are required
    to have Secret Service protection has grown rather
    substantially and the mission of the Secret Service has grown.
    Have you been able to keep pace with the number of agents and
    the FTEs that are needed for in your agency?
        Mr. Stafford. Senator, as you are aware, we have talked
    about this a number of times, and since becoming Director about
    2 years ago, that has been one of our highest priorities. We
    are trying to bring on more agents to help with the expanded
    workload, and particularly to reduce the amount of overtime
    that our agents are now being required to work and thus improve
    their quality of life.
        I think it is best for me to describe to you the amount of
    overtime they are working and continue to work. The agents in
    our field offices continue to work, on average, 90 hours of
    overtime per month. The agents on our Protective Division work
    more than that. It is far too much.
        For the past 2 years, we have had a very aggressive hiring
    scheme. We brought on about 70 percent of the numbers that we
    need to bring on to meet our goal. We went back to 1994, when
    our agents were working 62 hours of overtime per month, and we
    think that is reasonable. That is our goal. To do that, we will
    need a minimum of another 200 agents, which is the third phase
    of our hiring program.
        Senator Dorgan. And what was your request in the budget
    submission from the agency with respect to agents? Did you
    request additional FTEs?
        Mr. Stafford. Specifically that. It was a 3-year program of
    which we are through 2 of the 3 years. The request was for
    another 204 agents. We have hired about 478 so far. We need in
    excess of 200 additional, for about $32 million. That was the
    request. We are continuing to----
        Senator Dorgan. That is not in this budget submission?
        Mr. Stafford. It is not.
        Senator Dorgan. It seems to me that if you have the
    requirements--I do not think there is a disagreement about
    that--if you have the requirement, it makes much more sense for
    the taxpayer and the government to hire the personnel and pay
    less in overtime. Overtime pay is a fairly expensive component
    of your budget, is it not?
        Mr. Stafford. It is, but the problem is also compounded
    because of the amount we are requiring people to work, and our
    people, our culture is that we work very hard, but we are
    losing a lot of them.
        Senator Dorgan. I was not ignoring the quality of life
    issue. I understand that. When you are forcing people to work
    an enormous amount of overtime, it is difficult on family life
    and a range of other things. I was not dismissing that, but I
    was only saying that on the other side of the issue, with
    respect to the taxpayer and with respect to trying to get the
    most value for our investment here, it makes a lot more sense
    to pay less overtime, which is the highest component of
    compensation, and to hire the people we need.

                   Workforce Retention and Workload Balancing

        Mr. Stafford. Well, you are exactly right, but what I was
    moving towards is that the people that we are losing. Our
    attrition rate used to be nothing. Now, we lose on average 55
    agents a year because of the quality of life issues. It costs
    us about $240,000 to hire those agents and to train them, so it
    is not a very efficient or fiscally responsible way of doing
    business. So no, I think we can improve on that and we can
    improve on the attrition rates if we can continue this hiring
    that we need to do.
        Senator Dorgan. Right. No, I respect the investment needed
    to hire and train and bring someone up to a level that you want
    them to. I mean, that is a significant investment, and to lose
    them because overtime requirements just destroy the quality of
    life makes no sense at all. It makes a lot more sense for us to
    increase the FTEs to the level that is necessary.

                                Risk Management

        Mr. Winwood, finally, on the issue of the 10 percent that
    you just described, I have told this story before, but I was in
    Seattle at the docks one day and your agency was good enough to
    give me a tour, and because I come from North Dakota, we do not
    have a lot of docks, as you know.
        I mean, we have never actually seen a container ship pull
    up in North Dakota and begin off-loading, so it was a real
    education for me. But what I discovered is that we look at just
    a minuscule percentage of what is coming into this country.
        They showed me a container that came off a container ship.
    They had opened the back door and they had some, I believe,
    100-pound bags of frozen broccoli, and they cut one open for me
    to show me that this indeed was frozen broccoli. It was in a
    refrigerated container. And so I said, well, where does this
    come from? They said, Poland. I said, well, how was this
    produced? Do you have any notion of what chemicals might have
    been used, or do we have any notion about whether this broccoli
    is safe to put in somebody's mouth? It was the kind of broccoli
    that was cut up and going to go to a restaurant someplace or a
    series of restaurants.
        But the fact is, we do not have many answers about any of
    those things, do we? We have a massive amount of product coming
    into this country. We look at a very small percentage of that
    product and probably know very little about that which we look
    at.
        Mr. Winwood. The first statement, Senator, about that we do
    not look at everything, that is correct. And as I mentioned
    earlier, we examine approximately 10 percent, on average, of
    all shipping containers, and that is including vessels, and
    truck. In my view, a 40-foot container, whether it has a truck
    in front of it or it is being hoisted off a ship, is an
    importation. We look at about 10 percent.
        I think there is a combination of factors that have to be
    taken into consideration when we do that. First of all, we do
    know a lot about most of those products based on working with
    other agencies. For instance, with food, the Department of
    Agriculture and sometimes the Food and Drug Administration have
    a pretty good network of international cooperation as to the
    types of product, et cetera, that keep us informed. They share
    the information with us, which we put in an automated system
    for targeting. If we have any question at all, we notify the
    agency to come in and to take a look at it.
        The other issue, I think, is that we try very hard, and I
    think we have a very good, sound basis of a program we call
    risk management. It would be impossible to look at everything.
    We would shut down the commerce of the United States. We would
    get in the way of the businesses of this country.
        But by using risk analysis and risk management and tying
    that, Senator, with the support we get from the Congress with
    the right technology, with the proper automation, with well-
    trained people, I submit that you do not have to look at
    everything, you just have to look diligently at the right
    things. It is how you sort, the knowledge that you have, and
    how you use that knowledge, and share it through the
    infrastructure, throughout your agency. You target based on the
    knowns or the anomalies and the unknowns. And pulling those
    three things together, I think, gives us a pretty good
    likelihood of discovering problems that are being shipped in.
        Senator Dorgan. That is what they told me in Seattle. You
    have got that Customs line down pretty well.
        Mr. Winwood. Consistent message, Senator.
        Senator Dorgan. That is right. And I appreciate that and
    understand it and think that it makes a lot of sense. In fact,
    they described to me the risk management approach. I mean, you
    are dealing with certain importers and other things. I
    understand that. My only point is that with increasing
    globalization, this galloping globalization, we just have
    massive quantities of goods moving back and forth----
        Mr. Winwood. Yes, sir.
        Senator Dorgan [continuing]. Some food, some hardware and
    other things, and it requires us to be very vigilant, to have
    the manpower and the technical capability to do what we need to
    do to safeguard the American people, to make sure that what is
    coming in is what ought to be allowed in, and so on.
        Listen, you all are good to come today. We appreciate the
    work your agencies do. We will look carefully at the
    appropriations requests that we have received from the
    administration for your agencies and we will be submitting
    additional questions to you. Thank you very much.
                    Federal Law Enforcement Training Center

    STATEMENT OF W. RALPH BASHAM, DIRECTOR
        Senator Dorgan. Next, I would like to call to the table the
    Director of the Federal Law Enforcement Training Center, Mr. W.
    Ralph Basham; the Deputy Director of the Financial Crimes
    Enforcement Network, FinCEN, William F. Baity; and the Director
    of the Office of Foreign Assets Control, R. Richard Newcomb.
    Please take your seats at the table, and if others would be
    willing to leave the room if you are not intending to stay.
        We would like to proceed, if we might. If you would clear
    the room if you do not intend to stay.
        We have the Director of FLETC, Mr. W. Ralph Basham, the
    Deputy Director of Financial Crimes Enforcement, William Baity;
    and the Director of the Office of Foreign Assets Control, Mr.
    Newcomb. We would also ask that you summarize your remarks in 5
    minutes and we will make your full statement a part of the
    permanent record.
        Why do we not proceed with Mr. Basham.
        Mr. Basham. Thank you, Senator. I am pleased to be here
    today to present our fiscal year 2002 budget request. As you
    know, the Department of the 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 the Secretary of
    the Treasury and the Under Secretary for Enforcement, we have
    received strong support and active assistance for carrying out
    our responsibilities. I would like to especially thank this
    committee. Throughout our 31 years of service to Federal law
    enforcement, this committee has been very supportive and most
    generous in the funding of consolidated training.
        The consolidation concept of law enforcement training at
    the Center continues to be the most efficient and economical
    means for delivering essential service to the law enforcement
    community and the nation. Because of the cooperation of its
    many partners, we believe the FLETC is achieving fully the
    vision of its founders in this remarkable undertaking.
        The Center provides two essential levels of training for
    Federal law enforcement organizations from all three branches
    of government. There are entry-level programs and basic law
    enforcement training for police officers and criminal
    investigators, along with advanced training programs in areas
    such as marine law enforcement, anti-terrorism, computer
    forensics, health care fraud, and international banking and
    money laundering.
        Training is conducted at our Glynco, Georgia, site, as well
    as in Artesia, New Mexico, and a temporary site in Charleston,
    South Carolina. In addition to the training conducted at our
    on-site resident facilities, some advanced training,
    particularly that for State, local, and international, is done
    through export regional sites. In all, we offer approximately
    200 separate training programs at the Center.
        Last year, Congress provided $30 million and designated
    FLETC as the lead for the development of a requalification
    training site in the metropolitan Washington, DC, area. We are
    very grateful to this committee and to others in Congress who
    acted to make this appropriation available to provide mandated
    short-term requalification training in firearms and driver
    training. The Washington area has one of the highest
    concentrations of law enforcement officers and agents in the
    United States. However, there is a serious shortfall in
    adequate, environmentally safe facilities to conduct this
    important training.
        FLETC has reviewed a number of surplus properties in this
    region and determined the former Navy base in Cheltenham,
    Maryland, is the most suitable location. FLETC has requested
    that this property be transferred from GSA's to FLETC's
    inventory, and I am happy to report that we are now moving
    forward to develop this much-needed facility.
        The Center's fiscal year 2002 request is for a total of
    $122.6 million. With this funding, we anticipate the training
    objectives of our partner agencies, as projected, can be
    completely accomplished.
        Our request contains two very important initiatives. One is
    a port-of-entry training facility in Glynco, which will service
    our Customs and Immigration Officers' training needs, as well
    as an accreditation process which will benefit all of Federal
    law enforcement. The requested funding for the accreditation
    project is for the development of government-wide training
    standards and an accreditation process to be used for
    certification of Federal law enforcement training programs in
    instructional delivery and academy operations. The FLETC is
    working cooperatively with other Federal law enforcement
    agencies to conduct research and establish a training
    accreditation model, organizational structure, and process.
        In previous years' appropriations testimony, Congress
    requested, and we submitted, a 5-year construction plan to
    increase facility capabilities at our permanent centers in
    Glynco, Georgia, and Artesia, New Mexico. Upon completion of
    this plan, sufficient capacity was projected to meet the fiscal
    year 2004 date set by Congress for the cessation of that part
    of the U.S. Border Patrol training being conducted at a
    temporary site in Charleston, South Carolina.
        However, to stay within the administration's efforts to
    hold down government-wide spending in 2002, the full amount of
    funding for capital expenditures identified in the original
    plan for fiscal year 2002 is not being requested. The
    construction plan will now have to be extended through 2005 or
    beyond because of the funding and time line changes. However,
    we will make every effort to minimize any adverse impact this
    construction delay may cause.

                               Prepared Statement

        In closing, Mr. Chairman, I would just again like to thank
    this committee for all of your interest and long-time support
    for Federal law enforcement training and the Federal Law
    Enforcement Training Center's mission. Thank you very much.
        Senator Dorgan. Thank you very much.
        [The statement follows:]

                     Prepared Statement of W. Ralph Basham

        Mr. Chairman, Senator Dorgan, and Members of the Subcommittee, I am
    pleased to be here today to report on the current operations and
    performance of the Federal Law Enforcement Training Center (FLETC) and
    to support our appropriations request for fiscal year 2002.

                                OPENING REMARKS
        The Center has experienced tremendous growth since its
    establishment in 1970, when a handful of agencies partnered together
    and established the Consolidated Federal Law Enforcement Training
    Center. We expect further growth as more agencies recognize the many
    benefits of consolidated training both from a cost standpoint and the
    level of quality of training provided.
        The Department of the 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 and the Under Secretary for
    Enforcement, the FLETC has received strong support and active
    assistance for carrying out its responsibilities. I want to especially
    thank this Committee for the trust it has continued to place in the
    FLETC. Throughout our 31 years of service to Federal law enforcement,
    this Committee has been especially supportive and most generous in its
    funding of consolidated training. We extend our appreciation and look
    forward to working with you in the coming years.
        The Administration and Congress can be proud of the quality of
    training being provided at the FLETC and the savings realized through
    consolidation. The consolidated concept for law enforcement training at
    the FLETC continues to be the most efficient and economical means for
    delivering this essential service to the law enforcement community and
    the nation. Because of the excellent cooperation of its many partners,
    we believe the FLETC is achieving fully the vision of its founders in
    this remarkable undertaking.

                            FISCAL YEAR 2002 REQUEST
        Today, I am prepared to discuss several initiatives in the
    President's fiscal year 2002 budget. The Center's fiscal year 2002
    request is for a Salaries & Expenses (S&E) appropriation of
    $100,707,000 and 654 FTE, an increase of $1,224,000 and 5 FTE above the
    fiscal year 2001 level. Our request for the Acquisition, Construction,
    Improvements & Related Expense (ACI&RE) appropriation is for
    $21,895,000, a decrease of $32,310,000 below the fiscal year 2001
    appropriation. Most of this decrease relates to one-time construction
    appropriations, which do not recur in fiscal year 2002. FLETC supports
    the President's fiscal year 2002 request and we anticipate that the
    training objectives of our partner agencies, as projected, can be
    completely accomplished. The funding and FTE requested in this budget
    proposal will support two important initiatives: $2,000,000 will be
    used to construct a ``Port of Entry'' training facility at Glynco and
    $650,000 and 3 FTE to establish a training accreditation process to
    benefit all Federal law enforcement.
        Together, the S&E and ACI&RE request totals of $122,602,000 for
    fiscal year 2002. Coupled with an estimated $37,000,000 in funds to be
    reimbursed to the FLETC for training related services by our partner
    agencies, the total budget for fiscal year 2002 is $159,602,000.

                 GOVERNMENT PERFORMANCE AND RESULTS ACT (GPRA)
        Before providing this Committee with an overview of our operations
    and discussing each of the initiatives in more detail, I would like to
    take a moment to address the 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 annual performance
    plans that are tied to their strategic plans. Performance plans are to
    include measurable goals which agencies are required to report after
    the year is completed. These performance plans are now an integral part
    of the budget documents sent to you each year.
        There are a total of seven performance measures to report on in our
    budget request for this year. The performance measures used for the Law
    Enforcement Training activity in fiscal year 2000 included: (1) results
    of the student quality of training survey, (2) actual percentage of
    basic training requested that was delivered, (3) variable unit cost per
    basic student-week of training funded, (4) number of personnel input
    forums conducted, and (5) number of training partnership organization
    meetings. The performance measures for the Plant Operations activity
    included: (1) student quality of services survey and (2) finalizing the
    comprehensive development plan.
        The student quality of services survey and student quality of
    training survey performance measures are outcome measures. The student
    quality of training survey and the student quality of services survey
    are based on a percentage of students who answer satisfactory or better
    to the questions presented in the survey. Both were computed using
    evaluations completed by students attending FLETC programs. The
    percentage of basic training actually conducted is based on whether the
    FLETC conducts 100 percent of the basic training requested by its
    partner agencies. The variable unit cost per basic student-week of
    training funded is also an efficiency measure and is based on training
    dollars divided by funded student-weeks of training. Finally, the plan
    called for the FLETC to conduct four personnel input forums and 10
    partnership organization meetings per year.
        I am pleased to report that the Center's overall performance
    against established target goals for fiscal year 2000 was very good.
    The most critical performance measure in our plan, the student quality
    of training survey measure, was 99.2 percent. This exceeded the
    Center's performance plan target goal of 80 percent. The Center
    conducted 100 percent of the actual basic training requested. The
    FLETC's training costs were below the cost figure established for the
    variable unit cost per basic student-week of training. The plan
    projected a per week cost of $149 and the actual cost was $146. All
    other measures in the Law Enforcement Training activity were either met
    or exceeded. In the Plant Operations activity, all performance measures
    were either met or exceeded.
        As stated in the FLETC's testimony last fiscal year, we have
    revised our strategic plan and performance measures in an effort to
    more accurately reflect performance indicators and to better align them
    with the organization's mission. The revision is now complete and the
    plan has been provided to this Committee and to our other stakeholders.

                         FISCAL YEAR 2001 ACHIEVEMENTS
        Finally, before I discuss operational areas, I would like also to
    report on some of the Center's other specific achievements.
        In fiscal year 2001, the Center had a complete audit of its
    financial records and systems for the first time in its history and
    received an ``unqualified opinion'' for its operations. Also, FLETC has
    completely revised one of its flagship basic programs, The Criminal
    Investigator Training Program. This was the first significant major
    revision to this program, which has over 45 agency customers, in over
    two decades. The revised program involves more student centered
    learning and is oriented toward practical exercises and problem
    solving.
        At the request of the Department of the Treasury, FLETC has assumed
    the lead for the establishment of a United States International Law
    Enforcement Academy (ILEA) operation in Gaborone, Botswana, the first
    of its kind on the African continent. The academy under the joint
    direction of the Departments of State, Justice and Treasury, will
    provide training to law enforcement officers from nations throughout
    that region. Finally, I want to mention that the FLETC also has been
    proactive in the use of non-toxic ammunition for its firing ranges.
    Over 13.2 million rounds of ammunition are now fired annually on
    FLETC's ranges. Significant progress has been made and FLETC is
    encouraged by this development, which could result in eliminating or
    reducing lead hazards and other environmental concerns.

                             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 FLETC has experienced tremendous growth over the years. With
    few exceptions, the FLETC conducts basic and advanced training for the
    vast 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 partner agencies that is specific to their individual
    mission needs. In all, there are now more than 200 separate training
    programs offered through the FLETC and its partners.
        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,
    computer forensics and health care fraud, and international banking and
    money laundering. Training is conducted at the Glynco, Georgia center,
    the Artesia, New Mexico center, and at a temporary training site in
    Charleston, South Carolina.
        The temporary training site in Charleston was established in fiscal
    year 1996 to accommodate an unprecedented increase in the demand for
    basic training by our partner agencies, particularly, the Immigration
    and Naturalization Service (INS) and U.S. Border Patrol (USBP). The
    training workload increase is the direct result of prior Administration
    and Congressional initiatives to control illegal immigration along the
    United States borders.
         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 affordable for our
    customers. At a time when the FLETC residential sites have been
    stretched to capacity limits to meet increased Federal training
    requirements, the use of export sites for other types of training has
    proved highly successful. In utilizing export sites, most of which are
    local police academies, the FLETC does not incur any capital
    expenditure obligations.

                       WASHINGTON, DC AREA SITE PROGRESS
        Public Law 106-346 enacted by Congress in fiscal year 2001 provides
    $30,000,000 for the development of a firearms and driver training
    requalification site in the metropolitan Washington, DC area. This
    project came about as a result of a serious shortfall in adequate
    firearms and driver skills training capabilities in this region, which
    has one of the highest concentrations of Federal law enforcement
    officers in the United States. These officers have mandated short-term
    requalification training on a periodic basis to refresh perishable
    skill areas that left unaddressed can lead to liability issues. The
    initial working group established by the Under Secretary for
    Enforcement to review available options included the Treasury
    Enforcement bureaus--Internal Revenue Service, Criminal Investigation
    Division; U.S. Secret Service; U.S. Customs Service; Alcohol, Tobacco
    and Firearms; Financial Crimes Enforcement Network, and FLETC. This
    later was expanded to include the U.S. Capitol Police; U.S. Park Police
    and the Washington, DC Metropolitan Police Department. FLETC was
    designated as the lead for this endeavor and, after consideration of
    several surplused Federal properties, determined that a former Naval
    communications site in Cheltenham, Maryland was the most suitable
    location. FLETC has requested that this property be transferred by GSA
    to the FLETC's inventory, but a protracted legal suit filed prior to
    the requested transfer is still under review by a U.S. District Court.
    Due to this pending legal action, FLETC has not pursued any
    construction or developmental activity. However, FLETC has taken a
    number of measures to expedite the site conversion to a requalification
    training site should the legal suit be resolved favorably for the
    government. We are deeply indebted to this Committee and to others in
    the Congress who acted to make this appropriation available and we will
    keep the Congress apprised of developments. Over the years, the FLETC
    has acquired a reputation as an organization with a ``can do'' attitude
    that provides high quality, cost efficient training and state-of-the-
    art programs and facilities. I have come to realize and have seen
    first-hand the many 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 simultaneous operation
    of multiple agency training sites. Consolidation also ensures
    consistent high quality training and fosters interagency cooperation
    and camaraderie in Federal law enforcement.
        Quality, standardized, cost-effective training in state-of-the-art
    facilities, interagency cooperation, and networking are indisputable
    positive results of consolidation. However, the concept of consolidated
    training is fragile and must be constantly nourished, supported and
    protected, if it is to remain viable.

                                    WORKLOAD
        During fiscal year 2000, the Center graduated 23,326 students,
    representing 97,336 student-weeks of training. This total included
    16,635 students who were trained at Glynco, GA; 2,553 students trained
    at Artesia, NM; 639 students trained at the temporary training site in
    Charleston, SC; and 3,499 students trained in export programs. There
    were 8,635 basic students; 10,985 advanced students; 3,383 state and
    local students, and 323 international students trained providing for an
    average resident student population (ARSP) of 1,872. The April 2000
    partner agency workload projections, upon which our fiscal year 2002
    budget requests are based, indicate that during fiscal year 2002, the
    Center will train 32,973 students representing 145,463 student-weeks of
    training. This total includes 22,448 students to be trained at Glynco;
    5,412 students at Artesia; 1,350 students at the temporary site in
    Charleston; and 3,763 students in export programs. A total of 12,536
    basic students; 13,897 advanced students; 6,303 state and local
    students; and 237 international students are projected for a total ARSP
    of 2,797.

                                 GROWTH TRENDS
        The Center has experienced sustained growth in the training
    demanded by its partner agencies and we have been able to accommodate
    many of these increased training requirements by being innovative and
    undertaking extraordinary measures.
        To accommodate substantial training increases 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 short-term facilities for peak periods.
    Further too, the Center has not always had sufficient dormitories to
    accommodate all of our students in on-Center housing and has used
    contractual arrangements with local motels. While necessary, many of
    the temporary measures taken to meet these training demands were costly
    and disruptive to the on-going training operations and efficiencies.

               TEMPORARY SITE FOR THE U.S. BORDER PATROL TRAINING
        Beginning in 1996, the Center again had to resort to using a
    temporary accommodation to meet the extraordinary training needs of one
    of our partner agencies, the U.S. Border Patrol. As I mentioned
    earlier, a temporary training site was established in Charleston, South
    Carolina during 1996 because our existing FLETC facilities did not have
    sufficient, sustained capacity to accommodate all of the training being
    requested. This site is a FLETC-U.S. Border Patrol collaborative
    effort, but facility operations are being funded through the U.S.
    Border Patrol's appropriations.
        In previous fiscal year appropriations testimony, the FLETC
    submitted a five-year construction plan to increase capabilities at our
    permanent centers in Glynco, GA and Artesia, NM. Upon completion of
    this plan, sufficient capacity was projected to meet the fiscal year
    2004 date set by Congress for the cessation of U.S. Border Patrol
    training at the Charleston site. In order to stay within the
    Administration's efforts to hold down government-wide spending in
    fiscal year 2002, the full amount of funding for capital expenditures,
    as identified in the original plan for fiscal year 2002, is not being
    requested. The FLETC construction plan now will have to be extended to
    fiscal year 2005 because of funding and time-line changes. We support
    the Administration's goals and FLETC will make every effort to minimize
    any adverse impact this construction delay may cause. The FLETC is
    actively pursuing discussions with appropriate Department of Justice
    and INS officials on feasible options to bring about the relocation of
    U.S. Border Patrol training as quickly as possible. We will continue to
    keep this Committee apprised of developments.

               FACILITIES MASTER PLAN/FIVE YEAR CONSTRUCTION PLAN
        Now, Mr. Chairman, I would like to brief you and the Committee on
    the sufficient progress that has been made in expanding the FLETC's
    facilities. The Master Plan, first presented to Congress in June 1989,
    was intended to provide for efficient and orderly development of the
    Center's land and facility resources to meet anticipated workload needs
    through fiscal year 1998. It was a comprehensive blueprint and orderly
    guide for expansion of the Center's capacities to meet all of
    requirements justified to accomplish multi-agency law enforcement
    training.
        Over the years, the original Master Plan was updated to refine
    earlier estimates and incorporate changes necessary to meet the
    evolving training needs of our customers.
        In fiscal year 1999, due to the U.S. Border Patrol and INS
    projected multi-year hiring and advanced training buildup, the FLETC
    Master Plan was changed to a five-year plan to focus exclusively on
    addressing the FLETC facility capacity constraints to allow for the
    closure of the Charleston site. In fiscal year 2000, the five-year
    planning estimates for new construction were reduced from $128,000,000
    to $83,000,000. A study developed by FLETC and submitted to the
    Congress in May 2000 reflected that significant cost avoidance in new
    construction could be achieved by realigning all U.S. Border Patrol
    training to the Artesia, NM center and consolidating other training
    into the Glynco, GA center. As mentioned earlier, assuming there is
    fiscal year 2003 funding approval, this plan will be delayed one year.
        Since 1999, Congress has appropriated approximately $40,000,000 of
    the current $83,000,000 five-year plan. Of this amount, $10,000,000 was
    for Glynco projects, and $30,000,000 was for Artesia projects. I am
    pleased to report that we have obligated approximately $32,000,000
    through September 30, 2000. By the end of this fiscal year we expect to
    obligate most of the remaining funds. Also, since the beginning of
    fiscal year 1999 we have been partnering with the General Services
    Administration on the assignment of construction projects and, thus
    far, this is proving to work exceedingly well.

                              CONSTRUCTION REQUEST
        The FLETC's fiscal year 2002 ACI&RE request of $21,895,000 will
    provide funding for all of the cyclical maintenance and up-keep of our
    two permanent sites. The fiscal year 2002 request also includes
    $2,000,000 for partial funding for construction of a ``Port of Entry''
    training facility in Glynco to accommodate the training provided to
    U.S. Customs Service, INS and Department of Agriculture personnel. The
    remaining funding to construct this facility will be reallocated from
    other available resources. This construction initiative supports goal
    two in FLETC's strategic plan to significantly expand the access to,
    and availability of, quality law enforcement training. The Center
    continues to coordinate closely with its partner agencies so that the
    design features of each training construction project will meet current
    and future needs. This close consultation sometimes prolongs the period
    it takes to design and construct facilities; however, the time and
    effort are well spent because this ensures that the funds are more
    efficiently and wisely used.
        Mr. Chairman, I now would like to take this opportunity to briefly
    discuss our funding request for the remaining initiative in the FLETC's
    fiscal year 2002 budget request that I referred to earlier in my
    testimony.

                             ACCREDITATION PROJECT
        The fiscal year 2002 S&E request is for an increase of $650,000 and
    3 FTE to support the development of government-wide training standards
    and an accreditation process to be used for certification of Federal
    law enforcement training programs, instructional delivery, and academy
    operations. For many years the challenges for advancement of law
    enforcement have been reviewed and discussed in numerous forums and
    reports. The establishment, publication, and adherence to
    professionally developed, recognized, and coordinated training
    standards for Federal law enforcement will assist in maintaining public
    confidence in the integrity, professionalism, and accountability of law
    enforcement agencies.
        The FLETC is working cooperatively with other Federal law
    enforcement agencies to conduct research and establish a training
    accreditation model, organizational structure, and processes. The model
    would be used to establish Federal law enforcement training standards
    and evaluate the facilities, associated policies, and procedures by
    which these standards are met.

                     FIREARMS RANGES/ENVIRONMENTAL CLEANUP
        Finally, I want to note that great progress in the construction of
    new firearms ranges has been made over the last couple of years to
    permit the closing and environmental clean up required for several
    ranges acquired, and in use, since FLETC relocated to Glynco in 1975.
    However, the requirements for intensive firearms and tactical training
    for our customer agencies has continued to grow. Indications are that
    one additional multi-purpose firearms range will be needed prior to our
    closing the last existing earth berm firearms range. The FLETC plans to
    use existing funding this Committee has been providing for this purpose
    over the past several years. Both the additional range and the cleanup
    of the old ranges can be accomplished without any increases in the
    current annual appropriation.

                                    CLOSING
        Mr. Chairman, I am committed to the mission of the Center to
    provide the highest quality law enforcement 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 your continued support 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.
                      Financial Crimes Enforcement Network

    STATEMENT OF WILLIAM F. BAITY, DEPUTY DIRECTOR
        Senator Dorgan. Mr. Baity, you may proceed.
        Mr. Baity. Mr. Chairman, thank you very much for the
    opportunity today to discuss FinCEN's fiscal year 2002
    appropriation request of $45.1 million.
        Last year, this committee was critical in helping FinCEN
    meet the growing demands for its services. This year, we seek
    your support for a budget increase of $7.7 million. This
    increase includes $2.2 million to annualize our core programs
    and $5.5 million toward the successful implementation of our
    regulatory programs relating to a core group of financial
    service providers, over 160,000 strong, that are known as money
    service businesses, or MSBs.
        Through innovative use of technology and analytical
    expertise, FinCEN helps law enforcement build its
    investigations and plan new strategies to combat financial
    crimes. Our request is premised in three areas of priority for
    fiscal year 2002. They are, first, to enhance the quality and
    the delivery of information to our customers; second, to assess
    our current and future administration of the Bank Secrecy Act,
    or BSA; and third, to strengthen FinCEN's infrastructure.
        FinCEN's flagship program is its direct support for
    investigations carried out by law enforcement agencies. Each
    year, FinCEN works with over 165 different agencies on about
    6,500 cases that involve well over 32,000 subjects of inquiry.
    The experience we have gained in adding value through
    analytical techniques to support these criminal investigations,
    combined with improved outreach efforts, have resulted in even
    greater demands for our support services. We look forward to
    demonstrating one of these analytical case support processes at
    the law enforcement trade show on May 24.
        To improve the quality of delivery of information to our
    customers, we are using technology such as secure connectivity
    to enable customers to more efficiently access our data. In our
    Gateway system, we have made a number of technological upgrades
    which are now allowing customers at the Federal level, such as
    the FBI and the DEA, to use this particular system. Moreover,
    we are improving our customers' investigative efforts by
    providing strategic analysis, such as trends and patterns, as a
    complementary service to our case support.
        A second priority is our complete assessment of how we are
    administering the provisions of the Bank Secrecy Act, both
    currently and prospectively. Effective administration of the
    BSA is at the core of our mission to support law enforcement.
    We realize that our ability to support law enforcement is
    directly related to the quality of the information reported by
    the financial community. Our challenge is to ensure that this
    information provides law enforcement the highest quality of
    data possible, but in proper balance with the burdens that
    recordkeeping and reporting place on financial institutions. In
    that regard, the implementation of the MSB program represents
    one of our greatest challenges over the next several years.
        Unlike depository institutions or banks that have financial
    regulators overseeing their operations, MSBs constitute a
    multi-billion-dollar collection of businesses that have been
    largely unregulated at the Federal level and previously
    uncatalogued. Our request will provide funding to continue the
    efforts that began in fiscal year 2001 to develop and implement
    a national education campaign to ensure that MSBs clearly
    understand their registration and reporting requirements.
        Since last year's hearing, we have awarded a multi-year
    contract to a public relations firm to help us shape this
    campaign. Through the contractor, we have conducted focus
    groups around the country which are proving to be of great
    value in understanding the needs of these MSBs. And, of course,
    we are consulting extensively with industry representatives in
    this process.
        Also, this year's request would enable us to provide
    funding to the IRS to begin the process of building the human
    resources needed for effective examination and enforcement once
    the regulations are implemented. Our partnership and reliance
    on the IRS is a critical component of our MSB program. Further,
    because the success of the MSB program overall is so heavily
    dependent upon our education and outreach efforts now, we are
    continually reassessing those efforts to help guide us as we
    move beyond registration to the requirement that MSBs report
    suspicious activity or SARs.
        In addition to the December 31 registration requirements,
    MSBs are scheduled to begin filing suspicious activity reports,
    or SARs, at the beginning of 2002. We believe it is vital,
    however, to review all of the SAR protocols. With that in mind,
    we are reexamining the MSB implementation schedule for SAR
    reporting.
        Our third priority, which I know is not unique to FinCEN,
    involves obtaining and maintaining the human talent and skills
    in conjunction with the cutting-edge information technology
    that will allow our networking capabilities to grow. In that
    regard, we are exploring creative ways to leverage these
    talents.

                               Prepared Statement

        In closing, let me reiterate that we regard this
    subcommittee as one of the most valued partners in our efforts
    to achieve our objectives. Again, thank you for your guidance
    and support to FinCEN, and I look forward to answering any
    questions you may have. Thank you.
        Senator Dorgan. Mr. Baity, thank you very much.
        [The statement follows:]

                     Prepared Statement of William F. Baity

        Mr. Chairman, Senator Dorgan, and members of the Subcommittee,
    thank you for this opportunity to discuss with you our fiscal year 2002
    appropriation request of $45.1 million for the Financial Crimes
    Enforcement Network (FinCEN). I am Bill Baity, Deputy Director of
    FinCEN, and I am testifying today on behalf of our Director, Mr. Sloan,
    who is the Acting Under Secretary for Enforcement.
        We appreciate your ongoing responsiveness to our needs. Last year,
    you provided funding to help us meet the growing demands for our
    services. This year, we are asking for your support for a budget
    increase of $7.7 million. It includes $5.5 million for the Money
    Services Businesses (MSB) Regulatory Program and $2.2 million for
    FinCEN's core programs that are essential in America's fight against
    money laundering and financial crime.
        FinCEN was created in 1990 to support law enforcement by analyzing
    the information required by the Bank Secrecy Act (BSA), one of the
    nation's most important tools in the fight against money laundering.
    The BSA's recordkeeping and reporting requirements establish a
    financial trail for investigators to follow as they track criminals,
    their activities, and their assets. Over the years, FinCEN has
    developed its expertise in adding value to the information collected
    under the BSA by uncovering leads and exposing unknown pieces of
    information contained in the complexities of money laundering schemes.
    This information also is invaluable to investigations of terrorist
    fundraising--by tracking terrorists through their financial
    transactions and their assets.
        We effectively link law enforcement, regulatory and financial
    communities together for the common purpose of preventing and detecting
    financial crimes. Because of this subcommittee's past support, we have
    been able to construct a cost-effective technological infrastructure.
    This fact, coupled with a continual refinement of the network concept,
    allows the agency to remain modest in size and budget while increasing
    the services we provide to our many customers.
        Your support of our appropriation request is essential to FinCEN's
    ability to succeed in our three areas of priority for fiscal year 2002.
    They are:
      --Enhancing the quality and delivery of information to our customers;
      --Assessing our administration of the BSA; and
      --Strengthening FinCEN's administrative infrastructure.
       enhancing the quality and delivery of information to our customers
    Providing Investigative Case Support
                Direct Case Support
        FinCEN's flagship program is its direct case support to Federal law
    enforcement agencies. Each year, FinCEN works with approximately 150
    different agencies and state and local law enforcement investigators in
    all 50 states. We answer an average of 6,800 requests for investigative
    information. To respond to these requests, FinCEN intelligence analysts
    use advanced technology and countless data sources to link together
    various aspects of a case and add value to what is already known by
    investigators. The experience we have gained in analyzing and
    disseminating financial and other data to support criminal
    investigations, combined with improved outreach efforts, have resulted
    in greater demands for our case support services. I'd like to mention
    several of our efforts during this past year to enhance the quality and
    delivery of information to our customers.
                Analytical System for Investigative Support (ASIS)
        ASIS is a case management software system developed by FinCEN that
    gives Federal, State and local law enforcement officials the ability to
    make sense of the information they gather through their investigations.
    This application helps those in law enforcement unravel the web of
    deception woven by criminals. It provides a user-friendly tool to
    organize and link their complex investigations, greatly advancing their
    ability to bring successful prosecutions.
        In the past year, we began a new partnership with the National Drug
    Intelligence Center (NDIC) combining their data with our software
    resulting in improved and more complete pictures of criminal
    organizational activities and ties. The software enhancements are quick
    and convenient. FinCEN's ASIS converts large volumes of data from
    NDIC's Real-time Analytical Intelligence Database (RAID) for processing
    and presentation in ways that are useful to investigators in the field.
    For example, ASIS enables our analysts to create link charts and
    geographical mapping as visual representations of the RAID data. The
    charts and maps show subjects, places and activities. Additionally,
    ASIS enables the analysts to link FinCEN's other databases to RAID
    data. This linkage reveals connections to other information from
    financial records, such as suspicious activity reports (SARs).
        ASIS can convert data quickly into usable bits. For example, in two
    hours and 40 minutes, ASIS converted the data of a large RAID case
    involving over 6,800 subjects. Analysis of the converted data revealed
    links to 4,700 activities; 5,200 addresses; 5,700 associations; and
    5,200 subject activities. Also, ASIS enabled our analysts to provide
    new information for the case through its links to BSA data. The new
    information included 680 currency transaction reports (CTRs), 59 SARs,
    and one Currency or Monetary Instrument Report (CMIR). Additionally,
    using ASIS, our analysts linked information from RAID to 110 rows of
    records in FinCEN's database. In a smaller case, with only 38 subjects
    in RAID, our analysts used ASIS to expand the number of subjects to
    over 70 through analysis and linking. The conversion took one minute
    and 20 seconds.
        The ASIS program is also portable--it can be loaded onto a lap-top
    thus allowing our analysts to use it to provide on-site support to
    multi-agency task forces, High Intensity Financial Crime Areas
    (HIFCAs), and High Intensity Drug Trafficking Areas (HIDTAs).
                Gateway Process
        We are also using technology to provide our customers with direct
    electronic access to the BSA information. Using the Gateway process,
    state, local, and, more recently, Federal law enforcement agencies can
    directly access BSA information. This year, we made technological
    upgrades to Gateway, enhancing security and monitoring processes. The
    upgrades have attracted new users such as the Federal Bureau of
    Investigation and the Drug Enforcement Administration. The information
    is delivered through a secure and carefully monitored system. FinCEN's
    managers audit the Gateway process through both record reviews and on-
    site visits to ensure that all inquiries are connected to actual or
    potential criminal violations.
        One of the most outstanding and useful features of this system is
    its ``alert'' mechanism that automatically alerts FinCEN that two
    agencies have an interest in the same subject. In this way, FinCEN is
    able to assist Federal, State, and local law enforcement agencies in
    coordinating their investigations among themselves.
                Secure Communications
        FinCEN's secure communications program is the key to its long-range
    objective to offer secure direct access through the Gateway process.
    With more of our customers able to access our databases directly, our
    analysts will have more time to spend on supporting complex case
    analysis. We are customizing on-line protected access to information at
    FinCEN according to clients' needs and in keeping with applicable law
    and our internal data protection policies regarding information sharing
    and e-government security standards. FinCEN has worked, since its
    beginning, to protect access to the information it holds, to oversee
    the activities of its employees and, above all, to prevent misuse of
    the information with which it is entrusted.
    Identifying Financial Crime Trends and Patterns
        One of the critical ways of adding value to the information we
    provide to our law enforcement customers is strategic analysis. As you
    know, we have been engaged in an effort to build up our Office of
    Strategic Analysis in order to improve our capacity to identify trends
    and patterns in financial crime. We believe the products FinCEN has
    produced over the past year illustrate the progress we are making. For
    example, our strategic analysts have produced threat assessment
    products to assist the Departments of Treasury and Justice in making
    designations of High Intensity Financial Crimes Areas (HIFCAs). As you
    are aware, the HIFCA Program focuses Federal, State, and local law
    enforcement efforts on areas in which money laundering and related
    financial crimes are extensive or present a substantial risk. The areas
    at risk may be actual locations, industries, sectors, or institutions.
    FinCEN conducts analyses and assists in coordinating efforts to provide
    Treasury and Justice with geographic and systemic assessments for
    designating high-risk areas.
        Another product, which has proven to be helpful to both law
    enforcement and financial institutions is FinCEN's published reviews of
    Suspicious Activity Reports (SARs). Over the past three years, as
    directed by Congress, FinCEN has published reviews of SARs in order to
    demonstrate their value to law enforcement and provide feedback to
    financial institutions. The most recent review, The SAR Activity
    Review, was released in October 2000. FinCEN is committed to providing
    this publication semi-annually. Our analysts, in conjunction with
    representatives of the financial services industry and the regulatory
    and law enforcement communities, are preparing to publish the second
    issue in May. Also, FinCEN produces the SAR Bulletin, a series of
    bulletins containing information and guidance for the financial
    industry and law enforcement. The bulletins cover money laundering
    methodologies identified through analysis of SAR information.
        Additionally, FinCEN employees worked on two initiatives critical
    to the nation's efforts to combat money laundering and financial crime.
    They are the U.S. Department of State's International Narcotics Control
    Strategy Report and the 15 FinCEN advisories issued against non-
    cooperative jurisdictions in conjunction with the Financial Action Task
    Force and the G-7. Both initiatives required meticulous research and
    involved highly technical and legal information. Our reports had to be
    thorough and accurate because they have significant United States
    policy implications, as well as consequences for the countries
    involved. Also, this year FinCEN has published a number of reports,
    some of which are law enforcement sensitive, and specific to law
    enforcement investigative concerns.
                High Intensity Financial Crimes Areas (HIFCAs)
        Earlier in my testimony, I mentioned how FinCEN provided expert
    analyses to help Treasury and Justice make HIFCA designations and how
    we use our software program, ASIS, to assist law enforcement efforts in
    the HIFCAs. But our support for HIFCAs extends beyond our analytic
    capabilities and our software. FinCEN is committed to providing the
    HIFCAs with on-site analysts and, if needed, other analytical research
    support from our office in Vienna, Virginia. The HIFCAs have been
    established in the four regions designated in the National Money
    Laundering Strategy of 2000. The four regions are three geographical
    areas, New York/Northern New Jersey, Los Angeles, and San Juan, and one
    money laundering system, bulk cash smuggling across the Southwest
    border. FinCEN already has one on-site analyst in place and the
    remaining analysts are coming on-board in the near future. Our analysts
    will focus on collaborative investigative techniques, both within the
    HIFCA and between the HIFCA and other areas. We will also facilitate a
    more systemic exchange of information on money laundering between HIFCA
    participants.
    Fostering International Cooperation
        The growing sophistication and expertise of money launderers,
    coupled with the tremendous increase in the volume and scale of
    international trade and business transactions, has made international
    cooperation essential. No nation, acting alone, can address the
    transnational crime and money-laundering problem. Recognizing the
    global nature of financial crimes, FinCEN has been a key player in
    encouraging and working with other governments to develop effective
    standards and build the necessary institutions in the fight against
    money laundering. FinCEN's efforts to build effective international
    cooperation encompass two major areas of activity: (1) establishing or
    strengthening our Financial Intelligence Unit (FIU) counterparts, and
    (2) facilitating the exchange of information among these institutions
    in support of anti-money laundering investigations. The network of FIUs
    we have promoted has caught on dramatically. Just six years ago, there
    were less than a handful of FIUs. Today there are over 53 such units
    with additional units anticipated. Additionally, FinCEN administers a
    common web system for the FIUs, which provides a way for them to
    communicate in a secure manner. With the hook-up of Luxembourg, Belgium
    to the common secure web system, the number of FIUs participating now
    totals 36. Also, with this secure international network, FinCEN is
    better able to assist domestic law enforcement in acquiring critical
    information to help in U.S. anti-money laundering investigations.
    Magnitude of Money Laundering
        The activities I've just described are key to FinCEN's goal of
    leveraging its resources to create a network for prompt and efficient
    delivery of information to its customers. But as we have discussed
    before, it is difficult to gauge the success in the nation's battle
    against financial crime until we can estimate the magnitude of money
    laundering. We recognize the great support you have provided in the
    past for this study. It is a difficult tasking, but we are confident
    that in the end it will help our customers and us direct resources in
    the most efficient way.
        Since we came before the committee last year, we have awarded a
    contract to a vendor to develop our methodology. The analytic approach
    proposed by the vendor will use multiple methods, including direct
    estimates for money laundering (drug trafficking and bank fraud),
    indirect estimates for other predicate crimes, trend indicators and
    economic modeling. In addition to examining the proceeds of crime from
    a microeconomic approach, we will also develop a macroeconomic approach
    based on analysis of underground economic activity. In its Phase I
    Stage, the contractor is seeking to identify data sources in select
    Federal agencies to examine a representative sample of ``cleansed''
    data (i.e., containing no sensitive identifiers) so that parameters can
    be identified to develop an estimation model. Extraction of a fuller
    data set will not be necessary until Phase II. While FinCEN has
    provided a sample of sanitized SARs for examination, other targeted law
    enforcement agencies have not yet provided access. This is delaying
    progress at this time. We believe that our contract provides sufficient
    protection for sensitive law enforcement information and have also
    adapted strict contract requirements for the protection of information.

                    ASSESSING OUR ADMINISTRATION OF THE BSA
        Another priority for fiscal year 2002 is our assessment of how we
    administer the BSA. FinCEN's regulatory program--which stresses the
    effective administration of the Bank Secrecy Act (BSA)--is at the core
    of our mission to support law enforcement investigations. FinCEN's
    ability to support law enforcement is directly dependent on the quality
    of the information we receive from industry under the BSA regulatory
    structure. Our continuing challenge is to ensure that this information
    provides law enforcement with the highest quality of data possible
    without placing undue burden on the financial industry.
        To achieve these dual objectives, FinCEN continues to reassess its
    administration of the BSA. We work in partnership with the regulatory
    and law enforcement communities to recommend and implement policies
    designed to effectively administer the BSA. For example, in 1996, SAR
    reporting was required of depository institutions and we are working to
    extend this reporting requirement to the Money Services Businesses
    (MSBs) industry. Currently, FinCEN is developing proposed rules
    requiring SAR reporting for the casino industry and the security
    broker/dealer industry.
        The passage of the Financial Services Modernization Act has changed
    the structure of financial regulation in the United States by providing
    for functional regulation of financial conglomerates and has impacted
    the additional development of rules within the regulatory structure of
    the BSA. Because of the authority granted by the Act, the traditional
    lines of distinction among the financial service providers is
    disappearing, requiring FinCEN to take into account the ability to
    conduct disparate financial transactions within the same institution.
    At the same time, FinCEN will continue to improve the timeliness of
    processing cases of non-compliance for monetary penalties and other
    regulatory sanctions and also provide guidance to improve and
    facilitate BSA compliance.
    Money Services Business (MSB) Program
        The term ``MSB'' is used to define over 160,000 businesses that
    provide a spectrum of products and services including money
    transmissions, issue, sale and redemption of money orders and
    traveler's checks, check cashing and currency exchange. Unlike banks
    and similar depository institutions that have five Federal financial
    regulators overseeing their operations, MSBs constitute a multi-billion
    industry that has been largely unregulated at the Federal level. FinCEN
    and the Internal Revenue Service (IRS) will fill that role. As you
    know, by December 31, 2001, MSBs are required to register with the
    Department of Treasury. Also, they are required to maintain a current
    list of their agents for examination, on request, by any appropriate
    law enforcement agency.
        Our fiscal year 2002 budget request continues the efforts that
    began in fiscal year 2001, providing a comprehensive national education
    campaign geared to this industry by assuring that MSBs clearly
    understand their registration and reporting requirements. Since we came
    before this subcommittee last year, we have awarded a multi-year
    contract to a public relations firm to help us shape our campaign.
    Through the contractor, we have already conducted a number of focus
    groups around the country, which are proving to be of great value to us
    in understanding the needs of the MSBs. Additionally, we have consulted
    extensively with industry representatives.
        Our budget request would enable FinCEN to provide funding to the
    IRS to hire personnel to extend outreach to the MSBs and respond to
    public inquiries about the new requirements. Our partnership with the
    IRS is a major component of our effort to administer the MSB program in
    an effective and efficient manner.
    Extending Suspicious Activity Reporting (SAR)
        In addition to the new registration requirements, MSBs are
    scheduled to begin filing suspicious activity reports in 2002.
    Suspicious activity reporting by all classes of financial institutions
    covered by the Bank Secrecy Act is an essential part of the
    government's counter-money laundering efforts. Law enforcement
    investigations have shown that money launderers move their illicit
    proceeds into financial institutions where they believe they will more
    easily be able to evade enforcement and regulatory efforts to detect
    and deter money laundering.
        It is vital, however, that we first ensure that the MSBs are
    knowledgeable about these new requirements. FinCEN is committed to
    producing the most cost-effective reporting regime, for both law
    enforcement and the industries involved. We want to make sure we have
    covered the needs of the MSBs first with registration, then with SARs.
    For these reasons, we are extending the effective date of the SAR rule
    to allow additional time to identify and educate this diverse business
    community.

              STRENGTHENING FINCEN'S ADMINISTRATIVE INFRASTRUCTURE
    Leveraging Resources
        FinCEN's effectiveness is based on our emphasis on networking. We
    combine talents and abilities, information and technology, government
    agencies and financial institutions to form a united force against
    financial crime. But in spite of our flexibility to leverage talents
    from a variety of sources, we, like other government agencies, are
    struggling to recruit and retain specialized personnel. This fact,
    coupled with the intensely competitive nature of today's information
    technology marketplace, could impact the timely completion of planned
    technology innovations.
        To help obtain the skills we need, FinCEN is beginning new
    endeavors to further leverage resources. We have begun a partnership
    with Mercyhurst College in Erie, Pennsylvania, to both encourage and
    benefit from the college's pioneering efforts in establishing a degree
    program in intelligence analysis.
        For example, our partnership with the college includes mentoring
    seniors in the completion of their Senior Research Papers on money
    laundering/financial crime topics, which have been identified by
    FinCEN. The finished papers will fulfill a graduation requirement and
    be useful to us in expanding our knowledge base. Also, FinCEN is
    actively involved in recruiting degree program participants and
    graduates through summer internships and permanent employment. Two
    graduates from this degree program are currently applicants for
    analytical positions at FinCEN.
        Finally, FinCEN is an active participant in the Partnership in
    Education initiative, which is a U.S. Treasury organization that has
    partnered with public schools to assist in preparing high-school
    students in the transition to college and career. Clearly, we have a
    vital stake in the economic future of our youth in encouraging public
    service.
    Lease Renewal
        FinCEN is also facing facility issues in the near future. We have
    advised both the Subcommittee staff and the Department that our lease
    expires in 2003, and have been engaged in discussions with the General
    Services Administration (GSA) to move through the lengthy process of
    lease renewal or relocating to a new facility. GSA will have the
    solicitation by fall of this year with the award expected sometime in
    early 2002. We will continue to keep you apprised of the developments
    as they occur.

                                   CONCLUSION
        In summary, FinCEN's primary functions are to support law
    enforcement efforts that counter money laundering and other financial
    crimes, and maintain an effective regulatory program for that purpose.
    We regard this subcommittee as one of the most valued partners in our
    network. Thank you for your support of FinCEN.
                        Office of Foreign Assets Control

    STATEMENT OF R. RICHARD NEWCOMB, DIRECTOR
        Senator Dorgan. Next, we will hear from Mr. Newcomb.
        Mr. Newcomb. Thank you, Senator Dorgan. I am particularly
    pleased to have the opportunity to be with you today to talk
    about Treasury's Office of Foreign Assets Control, or OFAC, as
    we are commonly called.
        OFAC administers economic sanctions programs against
    foreign countries, entities, and individuals to further U.S.
    foreign policy and national security objectives. These
    sanctions programs are normally imposed pursuant to a
    declaration of national emergency by the President under
    specific statutory authority, but may also be imposed directly
    by the Congress, as in the case of legislation pertaining to
    foreign terrorist organizations and narcotics kingpins.
        I would like to focus my oral remarks today on these last
    two items, particularly the establishment of the Foreign
    Terrorist Asset Tracking Center and the implementation of the
    Foreign Narcotics Kingpin Designation Act, or what we refer to
    as the Kingpin Act.
        OFAC has historically been responsible for compiling
    available evidence establishing that certain foreign entities
    or individuals are owned or controlled or acting for or on
    behalf of foreign governments subject to an economic sanctions
    program. These entities and individuals have become so-called
    specially designated nationals and are subject to the same
    sanctions as the foreign government to which they are related.
        In 1995, the President used his authority under the
    International Emergency Economic Powers Act to declare national
    emergencies with respect to both terrorists who threaten to
    disrupt the Middle East peace process and significant narcotics
    traffickers centered in Colombia. These declarations of
    national emergency marked the first occasion that this
    statutory authority had been invoked to directly target
    organizations and individuals rather than hostile foreign
    regimes.
        In December 1999, the Congress passed the Kingpin Act,
    which is modeled after OFAC's Colombian Narcotics Traffickers
    program. The Kingpin Act provides a statutory framework for the
    President to impose sanctions against foreign drug kingpins and
    their organizations on a worldwide scale. Like the Colombia
    program, the Kingpin Act is designed to deny those significant
    foreign narcotics traffickers and their organizations,
    including their related businesses and operatives, access to
    the U.S. financial system and to all trade and transactions
    involving U.S. companies and individuals.
        The President named the first 12 kingpins, the so-called
    tier one designations, on June 1, 2000. That was the first such
    designation under the Act. The President plans to take the next
    list of kingpins public by June 1 of 2001. OFAC also has
    authority under the Kingpin Act to make derivative, or so-
    called tier two designations, of the kingpin businesses and
    agents. These tier two designations are very important to the
    long-term practical impact and effectiveness of the Kingpin
    Act, since they target entities through which kingpins
    penetrate legitimate commerce.
        OFAC sanctions programs against foreign narcotics
    traffickers and foreign terrorists expose and impede money
    laundering activities, terrorist fundraising and financial
    flows. While these activities continue to be coordinated with
    traditional law enforcement agencies, we believe that counter-
    terrorism activities against foreign terrorists will be greatly
    enhanced by the establishment of the new Foreign Terrorist
    Asset Tracking Center.
        Last year, the report from the National Commission on
    Terrorism, the so-called Bremer report, recognized the
    potential for more effectively employing the broad sanctions
    authorities delegated to the Office of Foreign Assets Control
    and recommended development of a joint task force of relevant
    U.S. Government agencies to develop strategies to counter-
    terrorist fundraising. This report also recommended that the
    Secretary of Treasury create a unit within the Office of
    Foreign Assets Control dedicated to the issue of terrorist
    fundraising. The Congress subsequently provided funding to
    Treasury for fiscal year 2001 to develop this center in
    coordination with other relevant U.S. Government agencies.
        The Center's mission is to gather information from all
    sources relating to terrorist groups, organizations,
    affiliations, and sources and methods of fundraising and funds
    movement. The Center will use this information to
    conceptualize, coordinate, and implement strategies within the
    U.S. Government that ultimately could lead to denying these
    target groups access to the international financial system,
    impair their fundraising abilities, expose, isolate, and where
    appropriate, block their financial transactions, and work with
    other friendly governments to take similar measures.
        OFAC is currently in the process of establishing this
    Center, and other U.S. Government agencies with counter-
    terrorism responsibilities have committed to participate in
    this center by, for example, providing the Center with all
    relevant information, detailing specialists to analyze the data
    and appointing special liaisons to cement the constant
    interaction of the member organizations.
        It is currently anticipated that the departments and
    agencies that will participate in or work with the Center are
    the Department of Treasury--of course, us--the Customs Service,
    the Internal Revenue Service, the Secret Service, Alcohol,
    Tobacco and Firearms, and, of course, FinCEN; the Department of
    Justice in the form of the FBI, the INS; the CIA, the Office of
    Transnational Issues and the DCI's Counter-Terrorism Center;
    the National Security Agency; and the Department of State's
    Office of Counter-Terrorism Coordinator, also called SCT.
        The role of each agency would, of course, depend on the
    target and the circumstances of each target's fundraising,
    money movements, and modus operandi. Some terrorist groups are
    involved in multiple activities to produce income. These
    activities would also be covered under the Center's mission.
        OFAC is currently hiring staff to implement the Kingpin
    Act, establish the Terrorist Asset Tracking Center, and make
    certain other improvements to our other sanctions programs. We
    currently have 77 staff members on board, 21 position offers
    outstanding, and expect to hire an additional 36 positions, 8
    of which are reimbursable from those agencies I mentioned, by
    the end of fiscal year 2001.
        Crucial to the successful administration of these
    priorities, of course, is enhanced customer service,
    particularly with regard to the pending implementation of the
    Trade Reform and Export Enhancement Act of 2000. Your
    continuing support of our mission is crucial.
        Thank you very much for the opportunity to discuss these
    matters of concern to the Congress as well as the executive
    branch. I look forward to working with you and your staff and
    in keeping you posted on our progress. Thank you, Mr. Chairman.

                               Prepared Statement

        Senator Dorgan. Mr. Newcomb, thank you very much.
        [The statement follows:]

                    Prepared Statement of R. Richard Newcomb

        Chairman Campbell, Senator Dorgan, and Members of the Subcommittee,
    I am pleased to have the opportunity to speak to you today about the
    work of the Treasury Department's Office of Foreign Assets Control, or
    ``OFAC,'' as we are commonly called. OFAC administers economic
    sanctions against foreign countries, entities and individuals to
    further U.S. foreign policy and national security objectives. These
    sanctions programs are normally imposed pursuant to a declaration of
    national emergency by the President under specific statutory authority,
    but may also be imposed directly by the Congress, as in the case of
    legislation pertaining to foreign terrorist organizations and narcotics
    kingpins.
        OFAC currently administers twenty-one economic sanctions programs
    involving assets freezes and/or trade embargoes, including programs
    directed against Angola (UNITA), Burma, Cuba, Iran, Iraq, Libya, North
    Korea, Sierra Leone, Sudan, the Taliban in Afghanistan, foreign
    terrorists and foreign narcotics traffickers. (See the attached chart
    for a complete list of OFAC programs.) In performing its mission, OFAC
    relies principally on the President's broad powers under the Trading
    With the Enemy Act (``TWEA''), the International Emergency Economic
    Powers Act (``IEEPA''), and on occasion, the United Nations
    Participation Act (``UNPA''), to prohibit or regulate commercial or
    financial transactions involving specific foreign countries, entities
    and individuals. These powers are employed to freeze, or block, foreign
    assets by prohibiting transfers of those assets which are located in
    the United States or in the possession or control of U.S. persons, as
    well as to prohibit financial transactions (such as bank lending),
    imports, exports and related transactions. These sanctions programs may
    be either selective, prohibiting a specific class of economic
    transactions (such as transactions with the government of the target
    country), or comprehensive, prohibiting all unlicensed economic
    transactions involving the designated country or its nationals. OFAC's
    blocking authority has also been employed to protect classes of assets,
    as in the case of the 1990 freeze of Kuwaiti assets after Iraq's
    invasion of Kuwait, or in the case of assets pertaining to the
    implementation of agreements between the United States and the Russian
    Federation relating to the disposition of highly enriched uranium.
        Organizationally, OFAC is composed of the following components:
         Licensing Division.--Makes determinations on requests for specific
    licenses--processing more than 18,000 such requests during the past
    twelve-month period--and provides guidance to the public with respect
    to interpretive rulings and transactions authorized by general license.
    The influx of requests for licenses and interpretive rulings under the
    twenty-one separate programs OFAC administers has increased
    dramatically. In an effort to meet this demand and provide responsive
    and thorough customer service, OFAC is instituting measures to: process
    licenses within two weeks absent the need for interagency consultation;
    hire additional personnel to respond to phone inquiries; promote
    transparency of agency action by publishing interpretive rulings on its
    website; and issue implementing regulations within sixty days of the
    issuance of an Executive order or enactment of legislation with an
    opportunity for public comment.
        Compliance Division.--Serves as the primary point of contact for
    the financial community, fielding more than 45,000 ``hotline'' calls
    per year to provide guidance on in-process transactions. Last year, the
    calls resulted in denying access to the U.S. banking system to more
    than 5,500 items that were contrary to U.S. sanctions and the blocking
    of more than 2,000 transactions. As a result of regulatory audits which
    it conducts, the Compliance Division opened 1,000 cases in fiscal year
    2000 and issued more than 1,000 ``administrative demands for
    information,'' culminating in 205 referrals to either the Civil
    Penalties or Enforcement Divisions and the issuance of more than 500
    Warning Letters. This OFAC Division also monitors adherence to the
    terms of licenses and requirements regarding blocked property; conducts
    public and private sector awareness programs to assure familiarity with
    requirements for compliance with regulations; and maintains and updates
    OFAC's public informational material, website, and fax-on-demand
    service.
        Blocked Assets/Information Technology Division.--Maintains OFAC's
    aggregate database of blocked assets; coordinates multilateral
    sanctions implementation with foreign governments; and develops and
    implements information technology systems in OFAC.
        International Programs Division.--Administers the Specially
    Designated National, Specially Designated Terrorist, Specially
    Designated Narcotics Trafficker, and Foreign Terrorist Organization
    programs, as well as designations under the Foreign Narcotics Kingpin
    Designation Act, including the preparation of two annual Presidential
    reports to the Congress and an annual report to the Congress on blocked
    terrorist assets; and coordinates certain multilateral enforcement
    matters with foreign governments.
        Enforcement Division.--Coordinates overall enforcement of sanctions
    programs by making referrals to Customs and other law enforcement
    agencies for criminal investigations, opening sixty investigations
    during 2000; provides technical advice and assistance to Customs agents
    and inspectors and Assistant U.S. Attorneys concerning suspected
    violations, with six criminal prosecutions brought in 2000; and
    administratively pursues non-criminal cases for civil penalty
    consideration, opening 1,544 new civil cases for investigation with 515
    referrals for civil penalty consideration during 2000 (see attached
    chart).
         Civil Penalties Division.--Administers the civil penalties program
    for violation of sanctions laws administered by OFAC, processing more
    than 2,000 cases and collecting more than $3.2 million in fines over
    the course of the past year (see attached chart).
        Policy Planning and Program Management Division.--Performs policy
    analysis; coordinates interoffice and interagency program
    implementation and regulatory issues; and currently prepares thirty-
    five statutorily required Presidential reports and fourteen Notices of
    Continuation of emergency authorities per year to the Congress.
        Other components of OFAC include the Miami Office, which
    coordinates certain Cuba licensing, compliance and enforcement matters,
    and the Bogota Office, which coordinates the Colombian narcotics
    traffickers program and conducts research on specially designated
    narcotics traffickers. Offices are also being established in Mexico
    City and Bangkok in support of OFAC's implementation of the Foreign
    Narcotics Kingpin Designation Act. A ninth division within OFAC is also
    being organized to establish the Foreign Terrorist Assets Tracking
    Center. In addition, while not organizationally part of OFAC,
    Treasury's Office of the General Counsel devotes a complement of
    attorneys to providing OFAC legal support in the administration of its
    programs.
        I would like to focus the remainder of my remarks today on OFAC's
    increasing responsibilities to administer economic sanctions with
    respect to foreign terrorists, particularly with regard to the
    establishment of the Foreign Terrorist Asset Tracking Center, as well
    as economic sanctions programs targeting foreign narcotics traffickers.
        OFAC's International Programs Division has historically been
    responsible for compiling available evidence establishing that certain
    foreign entities or individuals are owned or controlled by or acting
    for or on behalf of a foreign government subject to an economic
    sanctions program. These entities and individuals then become
    ``specially designated nationals,'' and are subject to the same
    sanctions as the foreign government to which they are related. In 1995,
    the President used his authority under IEEPA to declare national
    emergencies with respect both to terrorists who threaten to disrupt the
    Middle East Peace Process and significant narcotics traffickers
    centered in Colombia. These declarations of national emergency marked
    the first occasion that this statutory authority had been invoked to
    directly target organizations and individuals, rather than hostile
    foreign regimes.
        Since the inception of the Colombia program in 1995, OFAC has
    identified 578 businesses and individuals as specially designated
    narcotics traffickers (``SDNTs''), consisting of ten cartel leaders of
    the Cali, North Valle, and North Coast drug cartels, 231 of their
    businesses and 337 other individuals. Four of the most notorious
    Colombian drug kingpins were identified in the Executive order itself.
    OFAC has added six more Colombian drug cartel leaders since 1998,
    including four leaders of Colombia's powerful North Valle drug cartel
    named in 2000 and 2001. United States persons are prohibited from
    engaging in financial or business dealings with the ten drug kingpins
    and the 568 other SDNTs.
        As a result of the SDNT program against Colombian drug cartels,
    traffickers' companies have been forced out of business, are suffering
    financially, and have been isolated both financially and commercially.
    By May 2001, more than sixty SDNT companies, with an estimated annual
    aggregate income of more than U.S. $230 million, have been liquidated
    or are in the process of liquidation. SDNTs are denied access to
    banking services in the United States and Colombia and have been denied
    access to the benefits of trade and transactions involving U.S.
    businesses. SDNT individuals have been denied U.S. visas or had their
    visas revoked. OFAC will continue to identify businesses of the
    Colombian drug cartels and to expand the SDNT list to include
    additional drug traffickers and their organizations.
        Economic sanctions were imposed by the President pursuant to IEEPA
    in 1995 against terrorists who threaten to disrupt the Middle East
    Peace Process. This action was taken to combat fundraising in the
    United States on behalf of foreign terrorist organizations identified
    in an annex to the implementing Executive order. In August 1998, a
    second Executive order was issued expanding the list of foreign
    terrorists to include Usama bin Ladin, his organization (Al-Qaeda), and
    two other individuals. In addition to the thirteen terrorists and
    terrorist entities identified by Executive order, OFAC has authority to
    designate organizations or individuals, known as ``specially designated
    terrorists'' or ``SDTs,'' that are owned or controlled by, act for or
    on behalf of, or that provide material or financial support to these
    terrorists. As a result of these sanctions, a number of individuals
    acting on behalf of the Middle East terrorists have been subjected to
    sanctions, and financial assets of some of these groups have been
    blocked.
        We believe that the sanctions have had a deterrent effect on
    fundraising in the United States and have impeded terrorists' use of
    the U.S. financial system. OFAC continues to work closely with Justice,
    State, the FBI, and other Federal agencies in implementing the two
    Middle East terrorist Executive orders against identified or potential
    SDTs.
        In April 1996, Congress passed the Antiterrorism and Effective
    Death Penalty Act (``Antiterrorism Act''), in part to prevent U.S
    persons from providing material support or resources to Foreign
    Terrorist Organizations (``FTOs'') throughout the world. Currently,
    twenty-nine FTOs are subject to OFAC-administered sanctions, having
    been designated by the Secretary of State in consultation with the
    Secretary of the Treasury and the Attorney General. Under the
    Antiterrorism Act and OFAC's implementing regulations, U.S. financial
    institutions must maintain control over all funds in which an FTO has
    an interest, block financial transactions involving FTO assets, and
    report those actions to OFAC. OFAC is the coordination point with State
    and Justice on FTO designations and also has responsibility for
    coordinating with the financial community, the FBI, State, and other
    Federal agencies in implementing the prohibitions of the Antiterrorism
    Act.
        In December 1999, the Congress also passed the Foreign Narcotics
    Kingpin Designation Act (the ``Kingpin Act''), which is modeled after
    OFAC's Colombia narcotics traffickers program. The Kingpin Act provides
    a statutory framework for the President to impose sanctions against
    foreign drug kingpins and their organizations on a worldwide scale.
    Like the Colombia program, the Kingpin Act is designed to deny these
    significant foreign narcotics traffickers and their organizations,
    including their related businesses and operatives, access to the U.S.
    financial system and to all trade and transactions involving U.S.
    companies and individuals. The President named the first twelve
    kingpins (``tier one designations'') on June 1, 2000. The President
    plans to make the next list of kingpins public by June 1, 2001. OFAC
    also has authority under the Kingpin Act to make derivative (``tier
    two'') designations of the kingpins' businesses and agents. These tier
    two designations are very important to the long-term practical impact
    and effectiveness of the Kingpin Act, since they target entities
    through which the kingpins penetrate legitimate commerce.
        OFAC's sanctions programs against foreign narcotics traffickers and
    foreign terrorists expose and impede money laundering activities,
    terrorist fundraising and financial flows. While these activities
    continue to be coordinated with traditional law enforcement agencies,
    we believe that counter-terrorism activities against foreign terrorists
    will be greatly enhanced by the establishment of the Foreign Terrorist
    Asset Tracking Center (the ``Center''). Last year, the Report from the
    National Commission on Terrorism (the ``Bremer Report'') recognized the
    potential for more effectively employing the broad sanctions
    authorities delegated to OFAC and recommended the development of a
    joint task force of relevant U.S. government agencies to develop
    strategies to counter terrorist fundraising. The Bremer Report also
    recommended that the Secretary of the Treasury create a unit within
    OFAC, dedicated to the issue of terrorist fundraising. The Congress
    subsequently provided funding to Treasury for fiscal year 2001 to
    develop the Center, in coordination with the relevant USG agencies.
        The Center's mission is to gather information from all sources
    relating to terrorist groups' sources and methods of fundraising and
    funds movement. The Center will use this information to conceptualize,
    coordinate, and implement strategies within the US government that
    could ultimately lead to denying these target groups access to the
    international financial system; impair their fund-raising abilities;
    expose, isolate, and, where appropriate, block their financial
    transactions; and work with other friendly governments to take similar
    measures. The Center will accomplish this mission by:
      --gathering information from all sources relating to terrorist
            groups' sources and methods of fundraising and funds movement;
      --reviewing data regarding the fundraising activities and funds of
            terrorist groups thatthreaten the US national security;
      --assessing the sources and methods of fundraising and funds movement
            of each targeted foreign terrorist group, and of their
            operatives and terrorist-owned entities;
      --tracking all information about the nature, operations, goals, and
            methods of each terrorist group, related especially to the
            movement and placement of their assets;
      --sharing all relevant information and analysis, as appropriate, with
            U.S. regulatory, diplomatic, defense, intelligence and
            enforcement communities;
      --conceptualizing and developing implementation strategies to deny
            targeted terrorist groups access to the international financial
            system, and whenever possible, to expose, isolate and
            incapacitate their financial holdings within the United States
            and in other countries;
      --developing strategies to deny these targets the ability to conduct
            financial transactions with U.S. entities and individuals and
            impair their fundraising abilities; and
      --persuading foreign governments to take similar measures.
        Such strategies would bring to bear the full weight and influence
    of the Federal government relating to financial matters--regulatory,
    diplomatic, defense, intelligence and enforcement communities--and
    involve foreign and domestic actions.
        OFAC is currently in the process of establishing the Center and USG
    agencies with counter-terrorism responsibilities have committed to
    participate in the Center by: (1) providing the Center with all
    relevant information; (2) detailing specialists to analyze the data;
    and (3) appointing special liaisons to cement the constant interaction
    of the member organizations. It is anticipated that the departments and
    agencies that will participate in or work with the Center are: (1) the
    Department of Treasury--OFAC, Customs, IRS, USSS, ATF, and FinCEN; (2)
    the Department of Justice, FBI, INS; (3) the CIA--Office of
    Transnational Issues and the DCI's Counter-Terrorism Center; (4) the
    National Security Agency; (5) the Department of State--Office of the
    Counter-Terrorism Coordinator (S/CT); and (6) the Department of
    Defense.
        The role of each agency would depend upon the target, and the
    circumstances of each target's fundraising, money movements, and
    placements modus operandi. Some terrorist groups are involved in
    multiple activities to produce income. These activities would also be
    covered under the Center's mission.
        OFAC is currently hiring staff to implement the Kingpin Act,
    establish the Foreign Terrorist Assets Tracking Center and make the
    other improvements I've discussed. We currently have seventy-seven
    staff members on board, twenty-one position offers outstanding, and
    expect to hire an additional thirty-six positions--eight of which
    involve reimbursable agreements with other agencies--by the end of
    fiscal year 2001. Crucial to the successful administration of these
    priorities is enhanced customer service, particularly with regard to
    the pending implementation of the Trade Reform and Export Enhancement
    Act of 2000. Your continuing support of our mission is critical.
        Thank you very much for the opportunity to discuss these matters of
    grave concern to the Congress as well as the Executive Branch. I look
    forward to keeping you posted of our progress.
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        Senator Dorgan. Just a couple of questions. First, to Mr.
    Newcomb and Mr. Baity, there are a number of very complicated
    areas in government, but the areas in which you work and your
    employees work are extraordinarily complicated and I know that
    you work in consultation and cooperation with a wide range of
    other agencies, and for that we are appreciative. I think a
    number of circumstances would require other agencies to reach
    out for the kind of expertise only you have in dealing with
    white collar financial crime and other related issues, so we
    appreciate your work.

                            Construction Cost Delays

        I do want to ask a couple of questions of Mr. Sloan and Mr.
    Basham. Mr. Basham, you have indicated that this budget, in
    order to save some money, is causing you to push back the
    construction schedule on the consolidation of the FLETC
    facility. What will that end up costing us? I assume it is
    going to cost us extra money by not proceeding with the intent
    we had previously expressed.
        Mr. Basham. Well, the ongoing cost of running the
    Charleston facility, of course, is going to be a factor, as
    well as when the time lines slide, it is obviously going to
    create additional cost just from inflation alone in
    construction of the facilities that will have to be put in
    place. Depending on how long that time line is pushed back will
    determine--it could be several millions of dollars that is
    going to be an additional cost in order for us to provide those
    facilities.
        Senator Dorgan. I am going to ask if you would send me some
    information telling me what we would save if we just proceed to
    do what we have been planning to do regarding the
    consolidation, do the construction, and close the facility, as
    opposed to this approach, where we push it back and end up
    costing more money to do the same thing. If you would give me
    some estimate of that in writing, I would appreciate that.
        Mr. Basham. I will provide that to you, sir.

                           Trade Policy and Sanctions

        Senator Dorgan. This would probably be a question for Mr.
    Sloan and Mr. Newcomb. We have been scrapping here in Congress
    for some while about the sale of food and medicine to Cuba,
    changing the regulations that have previously prohibited that.
    I have introduced legislation on appropriations bills the last
    2 years, actually got them passed, went to conference. In the
    first case, it got dropped. The second year, it got mangled
    some, but nonetheless, it is now the law in kind of a perverted
    form.
        But it is the law that we are attempting to change and
    Congress, by a wide vote, expressed an intention to attempt to
    relax the circumstances under which we might do business with
    Cuba dealing with food and medicine. The administration has yet
    to publish regulations to implement the legislation that was
    passed last year, and I do not know whether Mr. Sloan or Mr.
    Newcomb would be the appropriate one to answer when we might
    see those regulations.
        Mr. Newcomb. Mr. Chairman, we have been working since the
    passage of that legislation, along with the Commerce
    Department, the State Department, and the White House to get
    these regulations issued. I can tell you, I believe it is
    imminent. I received a call just yesterday that a meeting would
    be held again this week to coordinate those activities.
        By way of clarification, the way this seems to be going at
    this time is that Commerce has, by delegation going back some
    30 years or so from the Office of Foreign Assets Control,
    exports from the United States directly to Cuba have
    traditionally been the jurisdiction of the Commerce Department,
    and it has been the current intention up until this time that
    that should remain. So with regard to implementation of this
    Act, Commerce will issue those regulations.
        We plan on issuing regulations affecting Iran, Libya, and
    Sudan, which are the three countries currently where exports
    are permitted, and in doing so anticipate an enhanced,
    expedited export licensing regime.
        Senator Dorgan. Let me just say that this is an important
    area. We are not yet finished legislating on this. We will
    legislate again this year and we will straighten out the bend
    that occurred last year in a kind of a surreptitious way at the
    end of the last session. So as you consider these regulations,
    understand there is a desire for many of us in Congress to see
    that you do this as quickly as possible and be prepared to redo
    it at the end of this legislative session, because we will have
    more to say on it.

                         Additional Committee Questions

        Mr. Sloan, thank you for being here with the agencies that
    are involved in these issues. They are, as I indicated, in many
    areas complex, in virtually all areas vitally important, and we
    on the subcommittee want to provide appropriate and adequate
    funding to make sure that we meet our obligations, and Senator
    Campbell and I and the other subcommittee colleagues will work
    diligently to try to do that.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

             Questions Submitted to the Department of the Treasury

             Question Submitted by Senator Ben Nighthorse Campbell

                southeast european cooperative initiative (seci)
        Question. Please describe some of Treasury's ongoing work within
    the Southeast European Cooperative Initiative (SECI) framework and the
    potential benefits derived from U.S. participation.
        Answer. SECI is an important initiative to Treasury law enforcement
    due to the alarming increase in crime throughout the Balkan Peninsula.
    The U.S. Secret Service and the U.S. Customs Service are the lead
    agencies for Treasury involvement. The Secret Service is focused on
    financial crime where American financial and Internet companies are, by
    far, the largest percentage of victims. Customs work is related to
    border control, international trade, and trans-border crime.
        The physical location of the SECI in Bucharest and its regional
    structure allows us to maintain convenient contact with the eleven
    member country representatives. The Secret Service has observer status
    through the Rome Field Office. The Special Agent in Charge has frequent
    and personal contact with SECI management in Bucharest. The Secret
    Service has now received approval for an office in Bucharest, which
    will allow even closer contact.
        The Secret Service partnerships with the credit card industry have
    contributed to the development of training and other initiatives to
    support the SECI member nations. In March 2001, the Secret Service
    hosted SECI staff executives at a seminar in Washington, D.C. The
    seminar focused on Secret Service investigative responsibilities with
    an emphasis on financial crimes in Eastern Europe. Additionally, the
    Secret Service and the credit card industry will conduct a six-day
    seminar in June 2001. Specialized training in financial fraud will be
    provided to SECI officials. Also addressed will be specific trends in
    their region and suggested cooperative solutions.
        SECI officials are examining the concept of a financial fraud task
    force in which the Secret Service would act in an observer and advisory
    capacity. This is an important initiative as we believe that most of
    the financial fraud in this region has a strong connection to the
    United States.
        The U.S. Customs Service operates Border Advisory Teams in five
    SECI countries (Bulgaria, Croatia, Macedonia, Moldova, and Romania)
    with a total of 12 advisors. The teams focus on improved border
    operations and increased effectiveness in enforcement through risk
    management and selectivity. The teams also assist the host countries
    with complying with the requirements of a World Bank Loan Program, the
    Trade and Transportation Facilitation in Southeast Europe (TTFSE). This
    leverages approximately $3 million in USG funding for over $68 Million
    in World Bank Loans for the countries. The loans will be used to repair
    border sites, purchase inspection equipment and update automation. In
    turn, the countries are required to streamline their customs and border
    operations, reduce wait times and most importantly, increase
    enforcement.
        These operations bring twofold benefits for the United States.
    First, improving border operations promotes foreign investment in the
    local economy. Secondly, improving enforcement effectiveness reduces
    smuggling and revenue loss and helps to stabilize the local government
    for which customs duties are a major source of revenues. The reduction
    of smuggling also helps to cut off the flow of illicit drugs and
    weapons and promotes stability, economic growth and democratization.
        Secondly, Customs has supported the SECI Anti-Crime Center in
    Bucharest since its inception. In fact, a Customs advisory team helped
    to draft the Center's original charter and international Memorandum of
    Understanding. Customs has personnel permanently detailed to the Center
    and other SECI member countries. At this time, the region is not a
    major source for narcotics. However, the growing strength of organized
    crime in the area needs to be addressed or it will become a threat to
    U.S. interests.
        In addition to Customs and Secret Service involvement, FinCEN
    supports SECI related requests for training, technical assistance and/
    or requests for information through established law enforcement
    channels, as well as the Egmont System of financial intelligence units
    existing in SECI countries. Treasury Department law enforcement plans
    to continue its support and assistance to the SECI.
                                     ______

                 Questions Submitted by Senator Byron L. Dorgan

                             U.S. CUSTOMS STAFFING
        Question. We understand from testimony at the House hearing last
    week, that Customs originally requested 1,000 new agents and inspectors
    to better manage its awesome dual responsibility of protecting the
    Nations borders from transnational crime, while at the same time
    fostering trade and trade compliance. Yet the Administration denied the
    request for funding. Concurrently, the Administration chose to fund the
    Department of Justice bureaus, specifically INS and the Border Patrol
    to obtain 1,140 additional agents over the next two years, bringing
    them to the authorized level of 5,000 new agents.
        Did Customs originally request new Agents and Inspectors for fiscal
    year 2002? Was this request denied? If there is a critical need for
    staffing in the Customs Service, why was this request denied? Does the
    need still exist?
        Answer. Under the current Administration, there was no fiscal year
    2002 budget request process from bureau to Department, or from
    Department to OMB. The current Administration has not validated the
    previous Administration's estimate.

                     ROLE OF TREASURY IN COUNTER-TERRORISM
        Question. The Administration announced that Vice President Cheney
    will oversee development of a plan for responding to terrorist attacks
    in the United States. As a part of that plan, a new office within FEMA
    will coordinate the terrorist response efforts by more than 40
    agencies. Treasury Secretary O'Neill testified on May 8, 2001, that the
    Customs Service is the Nation's ``first line of border defense but he
    failed to mention that the Secret Service is the lead agency for
    National Special Security Events under PDD-62, and only briefly
    mentioned ATF and your other law enforcement agencies.
        What is Treasury's role in Counter-Terrorism?
        Answer. In his brief oral statement, Secretary O'Neill was able to
    provide only highlights of Treasury's counter-terrorism efforts. His
    statement for the record more fully outlined the roles each of
    Treasury's enforcement bureaus play in combating terrorism. Briefly,
    those roles are as follows.
        Bureau of Alcohol, Tobacco and Firearms (ATF).--ATF enforces
    Federal laws relating to firearms, explosives, and arson, and regulates
    the firearms and explosives industries. Its resources include personnel
    specializing in responding to explosives and arson incidents,
    specialized data resources, including an Arson and Explosives National
    Repository database, and the only Federally trained and certified fire
    investigators.
        U.S. Customs Service.--With its unique border search authority,
    Customs investigates a range of crimes linked to terrorism, including
    smuggling, illegal exports of licensable technologies and arms,
    violations of international sanctions, and money laundering. Its
    mission includes preventing the importation of weapons of mass
    destruction (WMD) and investigating the exportation of WMD materials
    and technologies, arms, funds and other support to terrorists abroad.
        U.S. Secret Service.--The Secret Service protects the President and
    first family, the Vice President, former Presidents, visiting foreign
    heads of state, the White House complex, and foreign embassies in the
    United States. It coordinates security at designated National Special
    Security Events. It also conducts financial crimes investigations
    designed to ensure the integrity of the critical financial, payment,
    and telecommunications infrastructures.
        Internal Revenue Service--Criminal Investigation (IRS-CI).--IRS-CI
    investigates domestic extremist groups using tax fraud and money
    laundering as a funding mechanism. Also targeted are international
    terrorist financing activities, particularly if tax exempt
    organizations are involved.
        Federal Law Enforcement Training Center (FLETC).--FLETC offers a
    number of training programs for Federal, State, local and foreign law
    enforcement personnel from over fifty countries. FLETC also provides
    training to our foreign law enforcement partners on both an ongoing
    basis as well as in response to emerging high threat areas.
        Financial Crimes Enforcement Network (FinCEN).--FinCEN is charged
    with administering the Bank Secrecy Act (BSA), which imposes certain
    transaction reporting and record-keeping requirements on financial
    institutions that are designed to protect those institutions from money
    laundering and to provide a paper trail for investigators. As the
    central point for collection and analysis of BSA data, FinCEN provides
    case support to law enforcement investigations, including terrorism
    investigations.
        Office of Foreign Assets Control (OFAC).--OFAC administers
    Presidentially imposed economic sanctions against terrorist sponsoring
    countries and Middle East terrorist organizations. It also administers
    the sanctions program established by the Antiterrorism and Effective
    Death Penalty Act to prevent persons within the United States or under
    U.S. jurisdiction from providing material support or resources to
    Foreign Terrorist Organizations (``FTOs'') throughout the world. In
    addition, OFAC is in the process of establishing a Foreign Terrorist
    Asset Tracking Center (FTAT).
        During recent Hearings on U.S. efforts in counter-terrorism, a
    ``top off'' exercise was ordered by Congress to demonstrate U.S.
    capabilities in a domestic terrorist event. The last exercise occurred
    last Summer, and the next is planned in 2002. Secretary Thompson stated
    that this is predominantly a Department of Justice Exercise.
        Question. What role do the Treasury Law Enforcement agencies have
    in the next topoff exercise?
        Answer. In Topoff 2000, Treasury's law enforcement bureaus attended
    pre-exercise briefings and were prepared to respond/assist within the
    scope of our respective missions. The Bureau of Alcohol, Tobacco and
    Firearms (ATF), assumed a major role in the Portsmouth, NH scenario,
    which involved a car bomb and chemical agent. ATF also provided
    investigative assistance in the Denver scenario and simulated a
    response to the nuclear, chemical, radiological (NCR) scenarios in
    Washington D.C. Like Topoff 2000, Treasury's law enforcement bureau
    will be ready to respond within the scope of their respective missions.
    Treasury law enforcement's participation in future Topoff exercises
    will be dependent upon the exercise scenarios chosen by the co-
    sponsors.

                             COUNTER-TERRORISM FUND
        Question. The Counter-Terrorism Fund was established to address the
    Department of the Treasury's needs for unanticipated contingencies. The
    Office of Management and Budget wants to tap into this to pay ``other
    agencies.''
        Which Treasury agencies will be reimbursed from the fund in support
    of the Winter Olympics in Salt Lake City?
        Answer. The fiscal year 2002 Budget submitted by the President adds
    $45 million to the Treasury Counter-Terrorism Fund. This fund is set up
    to reimburse Treasury bureaus for costs incurred in fulfilling
    important counter-terrorism related responsibilities.
      --Treasury is planning to reimburse the following agencies from the
            Counter-Terrorism Fund:
        Bureau of Alcohol, Tobacco and Firearms; United States Customs
    Service; United States Secret Service; Financial Crimes Enforcement
    Network; Internal Revenue Service; United States Mint; and Treasury
    Inspector General for Tax Administration.
        Question. Are there non-Treasury agencies being reimbursed from the
    fund?
        Answer. No. There are no current plans to reimburse the non-
    Treasury agencies from this fund.
        Question. What is your position on this?
        Answer. The Treasury Counter-Terrorism Fund was created to
    reimburse Treasury agencies for counter-terrorism activities. We
    believe that non-Treasury agencies need to explore a separate and
    distinct funding mechanism to ensure proper agency funding in support
    of the fiscal year 2002 Winter Olympics, that does not include the
    Treasury Counter-Terrorism Fund.
        Question. Why are we using this fund for a NSSE that we know about
    years in advance?
        Answer. The use of the Counter-Terrorism Fund is consistent with
    what has been done in the recent past; the budget assumes that Treasury
    bureaus will be reimbursed for Olympics-related costs from the Counter-
    Terrorism Fund.
        Question. Will this be the future avenue for funding for NSSEs?
        Answer. There are no existing plans to use the Counter-Terrorism
    Fund to fund Treasury bureaus for future NSSEs. The Administration is
    currently reviewing alternative funding mechanisms for National Special
    Security Events. We support this effort.
        Question. The fund was also established for unanticipated
    emergencies, but you are tapping it for Olympics. What of actual
    terrorist incidents?
        Answer. Yes, we concur that the fund was established for
    unanticipated emergencies and we believe there will still be sufficient
    money in the fund to reimburse Treasury agencies in the tragic event a
    terrorist incident occurs.
        Question. What justification?
        Answer. Justification is that these funds will reimburse Treasury
    bureaus for counter-terrorism activities, i.e., designing and
    implementing security at NSSEs, such as the 2002 Winter Olympics. This
    specific purpose is expressly stated in the fiscal year 2001
    appropriation for the Treasury Counter-Terrorism Fund.

                              PROGRAM ABSORPTIONS
        Question. We received information from the various agencies under
    your aegis, particularly the Secret Service and U.S. Customs, that they
    will have to find significant savings for program absorption. The
    amounts offset projected inflation for non-pay expenditures, as well as
    a variety of other non-discretionary cost increases. Customs must find
    approximately $35 million in savings, and the Secret Service must find
    approximately $14 million. Both agencies have suggested that they will
    realize these absorption's through improved resource management and by
    exploring potential efficiencies.
        What if the required absorptions cannot be realized through these
    methods?
        Answer. It is our view that the absorption's can and will be
    realized through the proposed efficiencies.
        Question. Can you guarantee that the critical missions performed by
    this agency for the health and security of the United States will not
    be denigrated?
        Answer. We do not believe the absorptions will cause any
    denigration to the critical missions of Treasury's law enforcement
    bureaus.

                                  TREASURY IG
        Question. We have been briefed that the Treasury IG is conducting
    more investigations than audits, and that it wants to charge agencies
    for those audits. For example, the Customs Service recently had an
    audit for which Treasury IG wants to charge them $1.5 million in costs.
    Yet the Treasury IG was funded $33 million for these audits.
        What is the current status?
        Answer. In addressing this question, we wish to clarify two points.
    First, the $33 million represents our fiscal year 2001 appropriation to
    fund the entire Treasury Office of Inspector General (OIG) including
    both our investigative and audit operations.
        Secondly, with regard to the recently completed audit of the U.S.
    Customs Services (Customs) fiscal year 2000 financial statements, we
    are not attempting to charge Customs $1.5 million for the cost of this
    audit. This audit is final and we issued an unqualified opinion on
    Customs fiscal year 2000 financial statements on February 23, 2001. The
    only cost to Customs was $180,000 for a contract to perform Electronic
    Data Processing (EDP) general control work and approximately $95,000 to
    reimburse the OIG for travel costs related directly to the conduct of
    this audit.
        We have advised Customs, however, that we will no longer be able to
    perform the financial statement audit of Customs with OIG staff and
    that the estimated cost to use a contractor will be $1.5 million for
    the fiscal year 2001 audit.
        As a matter of background, the Office of Management and Budget
    designated Customs for annual entity financial statement audits
    pursuant to the Government Management Reform Act (GMRA) of 1994. OIG
    auditors have performed this annual audit since fiscal year 1994 with
    limited contractor support for things like EDP general and application
    control reviews and statistical analyses. While Customs has funded the
    costs of contractor support and travel by OIG staff, OIG has absorbed
    all other costs of the audit over the last seven years.
        During this time, we have dedicated significant staff, to meet the
    statutory requirements for financial statement audits. We have worked
    extensively with Customs during the conduct of these audits to help
    them overcome the serious weaknesses in their financial controls that
    prevented them from receiving an unqualified opinion. As a result
    Customs has received an unqualified opinion on their financial
    statement for the third consecutive year.
        Question. Also, why are there more investigations than audits?
        Answer. There has not been a significant increase in investigations
    relative to audits. During fiscal years 1999 and 2000, the total number
    of investigative cases closed by our office was 156 and 104,
    respectively. The numbers of audits completed during these fiscal years
    totaled 134 and 125, respectively.
        Two things should be noted, however, that make comparisons between
    numbers of investigations and audits difficult. First, investigations
    are typically of short duration and are conducted by an individual
    investigator. On the other hand, audits are typically conducted by a
    team of three auditors over a longer period of time and are oftentimes
    nationwide in scope to determine whether a particular Treasury program
    or activity is being operated in an economical, efficient, and
    effective manner.
        Secondly, since fiscal year 1998 we have significantly increased
    the size of our investigative staff relative to the audit staff
    primarily in response to concerns by the Senate Finance Committee as
    well as other congressional committees that we needed to provide more
    oversight over the Office of Internal Affairs at Customs and Offices of
    Inspection at the Bureau of Alcohol, Tobacco and Firearms and the
    United States Secret Service. For example, in fiscal year 1999 we
    reviewed a total of 510 closed cases in the three law enforcement
    bureau's internal affairs units. In fiscal year 2000, we reviewed an
    additional 438 closed cases. The increase in our investigative
    operations has also permitted our office to conduct investigations into
    matters that we would have previously turned over to the bureau Offices
    of Internal Affairs and Inspection due to the lack of staff.
        Question. What do you see as the primary function of the OIG?
        Answer. As prescribed in the Inspector General Act of 1978, as
    amended, the primary function of the OIG is to: (1) conduct and
    supervise audits and investigations relating to programs and operations
    of the Department of the Treasury except for the Internal Revenue
    Service which is the responsibility of the Treasury Inspector General
    for Tax Administration; (2) provide leadership and coordination and
    recommend policies for activities designed to promote economy,
    efficiency, and effectiveness in the administration of, and to prevent
    and detect fraud and abuse in such programs and operations; and (3)
    keep the Secretary of the Treasury and the Congress fully and currently
    informed about problems and deficiencies relating to the administration
    of such programs and operations and the necessity for and progress of
    corrective action.
        We have focused on these core mission activities since we became a
    statutory Inspector General with the passage of the 1988 amendments.
    The only things that vary are the activities that we audit and
    investigate. A number of factors can drive this including risk, new
    legislative requirements, and new areas of emphasis by the Congress and
    the Administration. For example, the passage of the CFO Act in 1990 and
    subsequently the GMRA in 1994 resulted in us shifting a significant
    portion of our audit resources from program audits to financial audits.
    Likewise, based on Congressional committee concerns, we have
    reallocated OIG resources to increase our oversight of the internal
    affairs functions in the law enforcement bureaus.
                                     ______

       Questions Submitted to the Bureau of Alcohol, Tobacco and Firearms

             Question Submitted by Senator Ben Nighthorse Campbell

                      firearms technological enhancements
        Question. As a direct result of complaints from legitimate firearms
    importers, $2 million was provided last year for management and
    technological enhancements to assist these law-abiding firearms dealers
    and collectors as they work through the regulatory process at ATF. ATF
    has developed a plan to use that money for information technology to
    streamline the process at ATF. I am told that you are also planning to
    implement management process changes which should have a more immediate
    positive impact.
        I would appreciate it if you could outline exactly what steps you
    are taking on the management side to make the firearms regulatory
    process more customer friendly.
        Answer. A number of significant management initiatives are being
    implemented, along with technological enhancements, to improve service
    to our customers. Specifically, we have signed a contract to hire two
    contract employees to perform data entry for the Firearms and
    Explosives Imports Branch. This will have an immediate impact on the
    length of time it takes to process an Import permit. By removing data
    entry responsibilities from the examiners, they can dedicate their time
    to researching and identifying the articles to be imported, and more
    quickly make a decision on the importability of goods. The contract has
    been signed, application packets for the contract employees have been
    submitted, and background investigations on the applicants are being
    conducted. In addition, we have forwarded to the FBI a request to
    electronically transmit fingerprints to the FBI. Currently, both the
    National Licensing Center (NLC) and the National Firearms Act (NFA)
    Branch submit fingerprint cards to the FBI. Paper submission of
    fingerprints results in a delay of over two weeks before a response is
    received. Electronic submission will decrease the time to a matter of
    days, thus greatly decreasing the time it takes to process a firearms
    license application or an NFA registration. Further, we are making
    improvements to the Imports, Licensing and NFA websites, providing
    greater access to forms, frequently asked questions, and links to other
    ATF sites.
        A significant management initiative is the inclusion of performance
    measures and customer service standards in every employee's performance
    critical elements. By identifying customer service standards and
    defining performance measures, management will have the ability to
    analyze performance, provide additional training where necessary, and
    ensure management and employees alike meet the standards we will have
    communicated to our customers. These are the significant management
    initiatives, along with others, that coupled with technological
    enhancements, will provide our customers with a more streamlined
    processing system, assuring their permits and applications will be
    processed not only timely, but inquiries will be handled by a
    professional and courteous staff.

                        FISCAL YEAR 2002 BUDGET REQUEST
        Question. Congress provided significant funds in fiscal year 2001
    for expansion of several programs within ATF such as the Youth Crime
    Gun Interdiction Initiative and the Integrated Violence Reduction
    Strategy. Does the proposed fiscal year 2002 budget request allow you
    to continue those initiatives?
        Answer. The fiscal year 2002 President's budget request contains
    sufficient funds to allow for annualization of the previous year's
    initiatives.

                                WINTER OLYMPICS
        Question. I noted that ATF has certain responsibilities for the
    2002 Winter Olympic Games, as well as providing staffing support for
    the Secret Service's security plan. However, there does not appear to
    be additional funding requested in the ATF budget for this purpose.
        How do you plan to pay for your Olympic Games responsibilities?
        Answer. ATF is working with Treasury to identify funding sources to
    fulfill ATF's responsibilities at the Olympics. Currently, the Treasury
    Counter-Terrorism Fund is being considered as potential source of
    funding.
        Question. Will this hurt ongoing programs?
        Answer. As noted above, a potential funding source has been
    identified and ongoing programs should not be adversely affected.
    However, should circumstances change, we will promptly inform the
    Committee.
                                     ______

                 Questions Submitted by Senator Byron L. Dorgan

             gang resistance education and training program (great)
        Question. In my meeting with you this week, you stated that ATF has
    received $20 million in requests from law enforcement agencies through
    the GREAT program, yet the fiscal year 2002 budget only provides $13
    million.
        Can you absorb the difference, and if not how will you determine
    who receives funding?
        Answer. ATF employs a rigorous and systemic approach to determining
    the distribution of GREAT cooperative agreement funds. As noted in your
    question, we routinely receive requests for funding that exceed the
    amount available in our appropriation. Since we are not able to offset
    these additional requirements from within our existing funding, we
    utilize a balanced distribution approach to ensure that all localities
    that request and qualify for funding receive some level of funding.
    However, this approach does result in localities receiving less funding
    than they request.
        The distribution methodology has been published in the Federal
    Register, and copies will be provided if requested. It essentially
    divides the requesting localities into five categories based on
    population, so that their requests are evaluated against other
    localities of similar size. The available funding is segmented by
    population category, with a maximum award amount established within
    each category for a single locality.
        A rating system is employed which assigns points to each locality
    based on how they score in a number of different areas. Based upon the
    scores, the funding available for that population category is
    distributed among the localities.
        As noted, this process allows us to provide funding to all
    localities that request and qualify for it. However, we are not able to
    fully fund each localities' request.

                                WINTER OLYMPICS
        Question. The projected costs for ATF's support of the 2002 Winter
    Olympics in Salt Lake City is projected to be $10.523 million.
        Where will this funding come from and how will it affect your
    current program and staffing obligations?
        Answer. ATF is working with Treasury to identify funding sources to
    fulfill ATF's responsibilities at the Olympics. Currently, the Treasury
    Counter-Terrorism Fund is being considered as potential source of
    funding. Therefore, current program and staffing obligations should not
    be affected.
                        cost of personnel annualizations
        Question. According to the fiscal year 2002 budget, ATF could be
    directed to absorb funding for the Olympics, construction projects, and
    a number of other programs.
        How will this affect funding and support for the new hires and the
    annualization of the new initiatives?
        Answer. As mentioned above, there should be no affect on
    annualizations or hiring. Should circumstances change, the Committee
    will be promptly notified.
                                     ______

                Questions Submitted to the U.S. Customs Service

             Questions Submitted by Senator Ben Nighthorse Campbell

                         AUTOMATION MODERNIZATION--ACE
        Question. Some concern has been expressed about the current rate of
    appropriations for the ACE project and the ongoing maintenance of the
    existing ACS system. I am told that the original plan was to develop
    and implement ACE within four years with increasing amounts of
    appropriated funds each year. Last year Congress was able to provide
    $130 million, and that same amount has been requested for fiscal year
    2002.
        If the Customs Service were to receive $130 million each year for
    the ACE project, how long would it take to complete?
        Answer. If Customs continues to receive $130 million each year, the
    ACE Trade Modernization initiative will take 14 years to complete.
        Question. How much funding is required once the service and its
    prime contractor are in a position to actually start building this new
    system?
        Answer. The prime contract was awarded on April 27, 2001. In fiscal
    year 2001, Customs received $130 million to begin work on ACE; to date,
    $50 million of this $130 million has been released. In January 2002, we
    plan to begin building ACE based upon the requirements work we complete
    this year (contingent on $80 million being approved for release in the
    fall of 2001). The funding provided and requested, and the schedule
    defined in fiscal year 2001 and fiscal year 2002, will provide the
    foundation for a development effort in the future.

                 AIR AND MARINE PROGRAM STRATEGIC PLAN/SPENDING
        Question. Members of the Senate are becoming increasingly concerned
    about the age of the existing aircraft and vessel fleets. Buying new
    planes and boats is an expensive proposition.
        Does the Customs Service plan to develop a multi-year plan for the
    systematic replacement of its aging fleets?
        Answer. Customs has a 5-year Air and Marine Modernization Plan that
    outlines systematic replacement of the fleet. It provides a current
    description, status of assets, and identifies the mission requirements
    of a consolidated Air and Marine interdiction program.
        The first publication of the Customs Air and Marine Interdiction
    Division Modernization Plan was released in August 2000. The second
    publication is currently being reviewed within the Administration.
        Priorities for the plan begin with safety but also look at
    overcoming obsolescence to improve operational effectiveness and reduce
    operations and maintenance costs.
        Priorities for the plan focus on providing safe, effective air and
    marine operations and reduced operating and maintenance costs.
        The technological improvements will pay for themselves within 3-5
    years through reduced operations and maintenance costs.
        Under the nation's drug strategy, the Customs Service has
    responsibility in all three interdiction zones--the source zone, the
    transit zone, and the arrival zone. It is an understatement to say that
    this is a huge task.
        Question. Can Customs do it all?
        Answer. Customs has the core competencies to accomplish its
    currently assigned missions in accordance with the National Drug
    Control Strategy.
        Customs core competencies include conducting detection and
    monitoring operations as well as interception and apprehension
    missions.
        The depth and breadth to which Customs can perform these missions
    is commensurate with the resources available.
        Question. What resources are necessary for this responsibility?
        Answer. For increased effectiveness and long-term sustainability of
    assigned missions, the Customs air and marine fleet requires
    modernization.
        The Air and Marine Modernization Plan (January 22, 2001) provides a
    ``blue print'' to effectively accomplish currently assigned missions in
    accordance with the National Drug Strategy.
        Customs believes that the Department of Defense's unique expertise
    in providing logistical, intelligence, and communication infrastructure
    remains critical to the overall effort.

                             INVESTIGATIVE EFFORTS
        Question. On March 26, the Customs Service announced the take-down
    of a global child pornography web site based in Russia which resulted
    in arrests and search warrants in this country. This case is a prime
    example of the need for international cooperation among law enforcement
    entities. It also shows the insidious side of the Internet.
        What is the current Customs Service budget for child pornography
    investigations?
        Answer. Operations like the one in Russia highlight the success
    achieved by our CyberSmuggling Center in targeting international child
    pornography traffickers and individuals who exploit children in the
    cyber environment. These operations are made possible by the work
    performed at the Customs CyberSmuggling Center, which coordinates
    Customs efforts against child pornography.
        The Center's budget is approximately $5 million. About 65 percent
    of work performed at the Center is directed toward combating the
    exploitation of children.
        Violations identified and developed at the Center are then referred
    to field offices for further investigation and law enforcement action.
    Therefore, about $3.25 million is used to combat child pornography and
    other child exploitation at the Center.

                 AIR AND MARINE PROGRAM STRATEGIC PLAN/SPENDING
        Question. The only new fiscal year 2002 initiative for Customs is
    funding to support the Western Hemisphere Drug Elimination Act. I note
    that $35 million has been requested for a new airplane, several boats,
    infrared sensors, as well as safety enhancements for flight crews.
    There has been a tremendous amount of public criticism of U.S. anti-
    drug activities in other regions as a result of the shoot-down in Peru.
        What exactly is the Customs responsibility under the Western
    Hemisphere Drug Elimination Act?
        Answer. Customs will increase Detection and Monitoring mission
    support in the Source and Transit Zones.
        Under the Western Hemisphere Drug Elimination Act, Customs P-3
    fleet will grow to 16 aircraft (8 airborne early warning and 8 tracker/
    interceptor aircraft).
        This increased operational support will provide: 8 hours per day of
    airborne early warning (AEW) and 8 hours per day of tracker/interceptor
    (slick) aircraft coverage in the source zone, for a total of 16 hours
    of flight time per day. 8 hours per day of AEW and 8 hours per day of
    slick aircraft coverage in the transit zone, for a total of 16 hours of
    flight time per day.
        Customs will keep operational a minimum of three AEW and two slick
    aircraft at forward operating locations.
                                     ______

                   Questions Submitted by Senator Mike DeWine

                             AIR AND MARINE PROGRAM
        Question. Before the recent accidental shoot down in Peru, how many
    P-3 aircraft were assigned specifically for the source zone?
        Answer. Since January 7, 2001, Customs has provided a minimum of
    one airborne early warning P-3 mission per day in the source zone. We
    have met this commitment by providing enough back-up P-3 aircraft to
    ensure one would be available every day. The exact number of aircraft
    dedicated to this mission varies based upon the maintenance
    requirements.
        Question. In the 6 months prior to the Manta forward operating
    location in Ecuador closing down for runway upgrades, how many total P-
    3 flights did Customs fly?
        Answer. One deployment occurred in the 6 months prior to Manta's
    closure. Due to maintenance complications, only one mission was flown
    during this deployment.
        Question. With the expected closure of Manta, what alternative
    locations were developed to sustain source zone flights? Have you flown
    from any of those locations prior to the shoot down in Peru?
        Answer. Alternative operational locations for Manta, Ecuador are as
    follows:
        Piura, Peru--Missions flown prior to Peru incident; Panama City,
    Panama--Missions flown prior to Peru incident; Apiay, Colombia--
    Missions flown prior to Peru incident; Barranquilla, Colombia--Missions
    flown prior to Peru incident; Cartagena, Colombia--Not used for
    missions prior to Peru incident; Palanquero, Colombia--Not used for
    missions prior to Peru incident.
        Question. Finally, how many counter-drug end game operations have
    Customs P-3 aircraft been involved in during the past 3 years in the
    source zone?
        Answer. Customs assets normally perform as a team with other law
    enforcement entities. The below successes are overall results from this
    team effort. P-3 aircraft were involved in the majority of these
    events.

    ------------------------------------------------------------------------
                                          Noncommercial
                                        maritime movement  Noncommercial air
                                              events        movement events
                                           interdicted        interdicted
    ------------------------------------------------------------------------
    1999 Overall Total................                118                 48
    1999 USCS Participation...........                 19                 32
    2000 Overall Total................                 80                 28
    2000 USCS Participation...........                 19                 21
    2001 Overall Total \1\............                 38                 15
    2001 USCS Participation \1\.......                  9                14
    ------------------------------------------------------------------------
    \1\ Data through 1st Quarter 2001.

        Question. With the implementation of Plan Colombia and a greater
    emphasis on the source zone, do you expect the number of P-3 aircraft
    allocated flight hours to increase?
        Answer. Joint Interagency Task Force (JIATF)--EAST schedules
    Customs assets according to mission priorities and asset availability.
        Plan Colombia directs resources and priorities to the source zone,
    and Customs expects JIATF--EAST to schedule our assets accordingly.
        In accordance with the Interagency Planning Guide and U.S.
    Interdiction Coordinator guidance, Customs will continue to increase
    coverage of source zone as we bring on board two more P-3 airborne
    early warning aircraft and four P-3 ``slicks.''

                             RECRUITMENT/RETAINING
        Question. I understand that like the military services, Customs has
    experienced problems retaining and recruiting pilots? What is the
    status of this situation? What steps have you took to address this
    problem?
        Answer. As of May 14, 2001, Customs has 26 Branch Fixed/Rotary Wing
    Pilot vacancies; 24 offers were extended to pilot applicants, and 24
    applicants accepted these offers. All are in the various stages of the
    pre-employment process. Recently approved retention initiatives such as
    the 10 percent group retention bonus, as well as a streamlined
    recruitment and selection process, have been designed to maximize pilot
    hiring. These changes have been initiated to ensure that the pilot
    ``pipe-line'' consists of a well-qualified pool of applicants and is
    adequate to fill the remaining 2 vacancies. Further, these changes will
    also ensure that there is an ample number of qualified applicants to
    accommodate vacancies as they occur in the future.
        As of May 14, 2001, Customs has 18 P-3 pilot vacancies; 3 offers
    were extended to pilot applicants, and 3 have accepted these offers.
    All are in the various stages of the pre-employment process. Five
    additional pilot recommendations have been forwarded for management
    review and approval. We anticipate filling the remaining positions, as
    well as establishing a ``pipe-line'' for future vacancies, by issuing a
    merit promotion vacancy announcement to entice current Customs pilots
    to ``crossover'' to become P-3 pilots. The inducement to these pilots
    is the accretion of the grade from its current GS-13 to a GS-13/14.
    Additionally, a new public notice vacancy announcement has been
    prepared with entry grade increase from GS-13 to GS-13/14. Customs has
    implemented the following recruitment and retention incentives:
        Increase of P-3 pilot career ladder to GS-14.
        Identification of non-P-3 Customs pilots who can be trained to fly
    P-3s.
        Continuation of retention pay at the rate of 10 percent for all
    pilots through fiscal year 2002.
        Streamlining of the recruitment, selection, and background
    investigation clearance processes.

                             AIR AND MARINE PROGRAM
        Question. I understand that Customs has developed a modernization
    plan for its air and marine resources to improve its ability to stem
    the flow of illicit drugs into the United States now and in the future?
        Answer. Customs has developed a 5-year fleet modernization plan,
    incorporating innovative technology and multi-mission equipment, to
    improve its ability to stem the current flow of illicit drugs into the
    U.S. and enable the flexibility to respond to future threats.
        Question. How important is the modernization plan to your long-term
    efforts and how do you foresee the plan enhancing your counter drug
    efforts?
        Answer. The Customs Air and Marine Modernization Plan is extremely
    important to its long-term efforts because it establishes a baseline
    for over $2 billion in assets and develops a business plan that
    includes the following enhancements:
      --Improved safety, standardization and interoperability
      --Maintained base mission capabilities
      --Increased mission effectiveness by infusing new equipment and
            technology into the fleet
      --Reduced operations, crew training costs, and maintenance costs
      --Improved program efficiency by consolidating a fleet of diversified
            mission-specific platforms into a standardized fleet of a
            select number of multi-mission platforms
      --Replacement of obsolete equipment
                                     ______

                 Questions Submitted by Senator Byron L. Dorgan

                                    STAFFING
        Question. House testimony reflects you requested 1000 additional
    agents/inspectors, which OMB denied.
        Can you accomplish your enforcement and trade facilitation goals
    without these additional hires?
        Answer. The fiscal year 2002 staffing level will provide sufficient
    resources to allow Customs to meet its highest priority mission
    requirements.
        The fiscal year 2002 President's Budget limited overall Federal
    spending increases to four percent over fiscal year 2001 enactment
    levels. Increases to Customs staffing as might be indicated by the
    Resource Allocation Model could not be accommodated within this
    constraint.
        Question. What part of your mission is compromised without these
    added personnel?
        Answer. Customs received a level of resources that will allow it to
    meet its highest priority mission requirements.

                         AUTOMATION MODERNIZATION--ACE
        Question. With the $130 million Administration request this year in
    the fiscal year 2002 budget, how long will it be until ACE becomes
    operational?
        Answer. ACE development will be modular, and the first module will
    be operational in late fiscal year 2002 (dependent on the release of
    $80 million appropriated in fiscal year 2001). If Customs continues to
    receive $130 million each year, the ACE Trade Modernization initiative
    will take 14 years to complete.
        Question. With further delays in the program, is there concern that
    the system will become obsolete before it becomes operational?
        Answer. We plan to build ACE in a modular fashion allowing
    technology insertion and refresh to occur throughout the development
    life cycle.
        Further delays will increase the cost due to prolonged software
    development activities, increased hardware and software license costs
    while the system is being developed, extended operation of the
    Modernization office, and extended operation of the Prime integration
    contractor's management office.
        In addition, the Prime integration contractor team, as well as
    Customs, will have difficulty maintaining continuity of staff during
    the development process and staff turnover will increase the time spent
    understanding the import problems and will reduce the time spent
    developing solutions. In addition, the number of task orders will
    increase, causing an increase in the cost of oversight and integration.
        Question. What would the funding be for fiscal year 2002 to stay on
    track ($308 million)?
        Answer. All funding scenarios will be revised to reflect the Prime
    contractor's input. The Prime will assess reallocation and sequencing
    of the software development increments, and the overall enterprise
    system architecture for implementing ACE, in concert with other
    enterprise IT requirements. Initial Prime replanning results are
    expected at the end of the summer.

                                  TRADE ISSUES
        Question. What are the current wait times at the Southwest Border
    (SWB)?
        Answer. Currently, SWB wait times vary, and Customs is committed to
    reducing excessive wait times.
        Recent data reveal that the overall average wait time for passenger
    vehicles is less than 20 minutes. However, at some of the busier ports
    of entry such as El Paso, Texas, and San Ysidro, California, wait times
    can be one hour or more during peak periods such as rush hour, weekends
    and holidays. However, no wait periods frequently occur during off peak
    hours.
        The average wait time for commercial traffic is normally less than
    30 minutes. This can also increase to over one hour during peak, rush
    periods at some of the busier and more congested facilities, including
    Otay Mesa, California. However, at the new World Trade Bridge in
    Laredo, Texas commercial traffic seldom experiences wait times in
    excess of 30 minutes.
        Question. Are the wait times a function of staffing shortfalls or
    infrastructure or both?
        Answer. As stated above, current SWB wait times vary, and Customs
    is committed to reducing excessive wait times. We are aligning the
    staff to address peak periods of traffic when wait times increase.
    There are some infrastructure limitations that hamper our efforts, for
    instance the need for a new commercial crossing at San Luis, Arizona to
    separate the commercial vehicles from the passenger vehicles; thereby,
    avoiding the gridlock situation that currently exists.
        Through recent Congressional funding we are in the process of
    hiring 228 Inspectors and Canine Enforcement Handlers at SWB ports of
    entry. These officers are being deployed at key locations to address
    the workload demands and enforcement threat.
        Customs is also committed to addressing the workload and
    enforcement threat at the Northern Border ports of entry. We are
    continuing to monitor the traffic patterns to determine appropriate
    staffing levels. Furthermore, as a result of recent appropriation of
    over $28 million, we are in the process of protecting and enhancing the
    security of the Northern Border ports of entry with additional Agents,
    deployment of technology, and infrastructure improvements.
        My staff has been to the SWB and notes it was chaotic even on a
    weekend. They have also been to the Northern Border, which is grossly
    understaffed. We need to do more and this budget does not do it.
        Question. With spiraling trade increases and shortfalls in
    staffing, can you adequately maintain your trade facilitation mission?
        Answer. The tremendous growth in international trade places great
    demands upon the Customs Service to facilitate legitimate trade while
    protecting the public and industry from unsafe and illegal goods, and
    unfair trade practices. In the past four years alone, Customs workload
    has increased 46 percent as measured by the number of entries processed
    and by 35 percent as measured by the value of U.S. imports for
    consumption. In the same time period, commercial staffing levels have
    remained stagnant.
        To manage trade in this environment, Customs is utilizing risk
    management, a data driven process that identifies and defines levels of
    risk for non-compliance associated with specific importers and
    industries. By prioritizing these levels of risk by importer and
    industry, Customs is able to direct its limited resources accordingly,
    while facilitating the transit of goods posing a low risk for non-
    compliance.

                            FOREIGN OFFICES/ATTACHE
        Question. The U.S. Customs Service Office of International Affairs
    has numerous overseas offices which play a critical role in trade
    compliance, trade enforcement, and international training.
        How does this mission foster U.S. Trade programs?
        Answer. The Office of International Affairs has become a leader in
    developing more efficient and transparent import and export procedures
    throughout the world. Streamlining procedures and making customs
    operations more predictable in other countries is a primary focus in
    supporting U.S. trade policy and opening markets to U.S. exporters.
    Training and technical assistance provided by the Office of
    International Affairs addresses the implementation of international
    conventions and agreements, including the World Trade Organization
    Valuation Agreement, the Harmonized System Convention for
    classification of goods, the WTO Trade-Related Aspects of Intellectual
    Property Rights (TRIPS) and the revised International Convention on the
    Simplification and Harmonization of Customs Procedures (Kyoto
    Convention).
        In addition, the Office of International Affairs provides technical
    support to U.S. negotiators on customs-related issues during trade
    negotiations to ensure that such arrangements facilitate the flow of
    legitimate trade and provide preferential treatment to goods qualifying
    under the terms of the agreement while maintaining the appropriate
    level of enforcement. The office participates in the Free Trade Area of
    the Americas negotiations, as well as the development of arrangements
    with Chile and Singapore.
        Question. How do they support your international law enforcement
    mission?
        Answer. The U.S. Customs Service currently has 25 offices located
    at strategic locations around the world. Customs investigative
    priorities are aligned with the International Crime Control Strategy.
    Customs foreign offices conduct complex criminal investigations in the
    following priority enforcement program areas:
      --Trade Fraud (intellectual property, forced labor, revenue
            protection, etc.)
      --Smuggling (narcotics, merchandise, cargo theft, cultural property,
            etc.)
      --Financial (international money laundering)
      --Strategic (export violations, weapons & related dual-use
            technology)
      --Cybersmuggling (child pornography/sexual exploitation, computer
            forensics)
        Attache offices are comprised primarily of special agents. They
    support the investigations of domestic offices and initiate
    investigations from foreign sources. The investigators work with
    foreign law enforcement counterparts to obtain information, evidence
    and testimony for presentation in U.S. Federal courts.
        The U.S. Customs Service has foreign offices at the following
    locations:
        Americas.--Bogota, Colombia; Caracas, Venezuela; Mexico City,
    Mexico; Hermosillo, Mexico; Monterrey, Mexico; Tijuana, Mexico;
    Montevideo, Uruguay; Ottawa, Canada; Panama City, Panama.
        Asia.--Bangkok, Thailand; Beijing, China; Hong Kong, China; Seoul,
    Korea; Singapore; Tokyo, Japan.
        Europe/Africa.--Berlin, Germany; Frankfurt, Germany; Brussels,
    Belgium (WCO); London, England; Moscow, Russia; Paris, France; Lyon,
    France (Interpol); Pretoria, South Africa; Rome, Italy; Vienna,
    Austria.
        Offices to be Opened in 2001.--Manila, Philippines; Sao Paulo,
    Brazil; Toronto, Canada; Vancouver, Canada.
        Proposed Office.--New Delhi, India (pending Government of India
    approval).
        Question. Are you focusing enough attention on your overseas
    mission?
        Answer. Customs does the best job possible, given the always
    competing demands for available resources.
        Question. Given staffing constraints, is one part of your mission
    neglected vis-a-vis the other?
        Answer. The Office of International Affairs employs an integrated
    strategy to deliver law enforcement expertise, training and
    modernization to our trading partners. Through these efforts, the
    foreign offices develop effective partnerships to combat transnational
    crime, money laundering and trade fraud while facilitating
    international trade. The integrated strategy provides Customs with
    unique access and influence with our foreign partners, which leads to a
    positive impact on foreign legislation, trade practices and
    international law enforcement.

                              PROGRAM ABSORPTIONS
        Question. You recently briefed the Treasury Appropriations staff
    that you plan to realize $35 million in program absorptions in your
    fiscal year 2002 budget.
        Can you state that savings realized through management efficiencies
    will not effect service to the Nation?
        Answer. The absorption of $35 million in inflationary cost
    increases will be accomplished through an enterprise approach toward
    administrative services and functions. For example, Customs will work
    with main Treasury and our sister bureaus to identify areas where
    economies of scale can produce cost savings. These areas include, but
    are not limited to, national contracts for a variety of communications
    and business travel services. In addition, Customs will take a very
    hard look at ``mission critical'' requirements and meet only those that
    are truly critical.
        Question. What if you can not achieve $35 million in savings
    through program absorptions?
        Answer. Regardless of the types of management efficiencies and how
    they are achieved, Customs will not compromise the security of the
    United States.

                            NATIVE AMERICAN TRACKERS
        Question. Native American Patrol Officers (CPOs) from the Tohono
    O'odham reservation are being used to track and apprehend drug
    smugglers in Arizona. The program is a resounding success. Last year
    the CPOs were responsible for interdicting 58,000 pounds of narcotics,
    almost a third of the drugs seized in Arizona. They have seized 40,000
    pounds in the last six months alone. We learned that via section
    213.3105(b)(9) of Schedule A, the SecTreas limits the number of CPOs to
    a certain number (25). That sections reads, ``(9) Not to exceed 25
    positions of Customs Patrol Officers in the Papago Indian Agency in the
    State of Arizona when filled by the appointment of persons of one-
    fourth or more Indian blood,''. . .
        Why is there a limit on the positions?
        Answer. Schedule A authority for CPOs in the Tohono O'odham Nation
    is currently limited to 25 positions, to be filled by persons with one-
    fourth or more Indian blood. The original Schedule A authority was
    granted in 1974 and authorized 7 CPOs. In order to maintain an
    effective operation on the reservation territory, in 1975 the Customs
    Service requested an additional 18 positions. OPM granted our request
    and increased our authorized Schedule A positions to 25.
        Question. If you were authorized to expand the program, would you
    try?
        Answer. Yes. An expanded number of CPOs would provide an increased
    enforcement presence along the border.
        Expansion of the program would also depend upon our ability to
    recruit a sufficient number of applicants who are qualified and
    certified as persons of one-fourth or more Indian blood.
                   san ysidro outbound license plate readers
        Question. The layout of the Southbound lanes of I-5 into Mexico
    have little capacity to slow traffic as vehicles depart the United
    States. The license plate readers are technically capable of
    identifying stolen vehicles, but it is virtually impossible to identify
    or stop the actual vehicle before it departs the United States. There
    was an April 19, 2001 meeting with CALTRANS, Sen. Feinstein, Customs,
    FBI and CHP.
        What was the outcome of that meeting?
        Answer. Attendees at the April 19, 2001 meeting were apprised that
    Customs was initiating operation ``Hot Wheels'' to address the issue of
    outbound stolen vehicles and the effectiveness of outbound License
    Plate Readers (LPRs) along the Southwest border. The operation was held
    April 24-May 8, 2001, at San Ysidro and Otay Mesa, California.
    Operation ``Hot Wheels'' allowed Customs to:
      --Validate outbound License Plate Reader information;
      --Validate the effectiveness of using the ``pulse and surge''
            enforcement method to interdict stolen vehicles;
      --Determine minimum staffing levels needed to effectively interdict
            stolen vehicles; and
      --Measure the impact of traffic flow when vehicle speeds are reduced
            so that safe enforcement operations can be performed.
        Customs attended a meeting on May 16, 2001, with California,
    Arizona, New Mexico, and Texas law enforcement officials and explored
    enhanced interdiction methods for outbound stolen vehicles.
    Representatives from the National Insurance Crime Bureau (NICB) were
    also in attendance. Discussion included the possibility of establishing
    a committee to develop the intelligence gathering and enforcement
    capabilities associated with the LPRs. The proposed committee is
    tentatively scheduled to meet July 10, 2001. Senior Executives of U.S.
    Customs expect to meet with Mexican officials by the end of May to
    discuss various issues, one of which will be stolen vehicles. The
    feasibility of exchanging LPR data with Mexican Customs will be raised.

                           SAN YSIDRO DETENTION CELLS
        Question. A serious problem exists with the location of the
    detention cells used to detain, interview and process individuals
    apprehended at that border facility. As it stands, prisoners/suspects
    must be led through public space and use a public elevator to access
    the cells. This presents an obvious security risk to the public, as
    well as to Customs and INS employees.
        What is needed to remedy this dangerous situation?
        Answer. Currently, violators are led from the secure detention area
    through a public elevator to the designated interview, processing, and
    fingerprinting area. To remedy this situation, a project was developed
    with the General Services Administration (GSA) to construct a holding
    and processing area at an estimated cost of $1.3 million. This
    processing center would be located at the existing West Headhouse in
    the secondary area and would consist of 13 cells. The project is
    currently in the design phase. Customs and GSA are awaiting the final
    blueprints of a modified plan. The plan was modified to provide for 9
    holding cells and interview rooms based on available funding.

         CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF 1985 (COBRA)
        Question. Customs is responsible for collecting nine different user
    fees covering various services to the traveling public and trade
    community. (They are collected in part from commercial vessels,
    vehicles, rail cars, private aircraft, brokers, air/sea passengers,
    etc). These fees are deposited into an account which is used to
    reimburse the Salaries and Expense account in the following order:
    Overtime, premium pay, benefits on overtime, and salaries for full time
    and part-time inspectors and equipment that enhance Customs services
    for those persons and entities required to pay fees. The authorization
    to collect COBRA user fees expires (sunsets) on September 30, 2003.
    Critically, COBRA enables Customs to pay for overtime and the funds
    were used to hire an additional 1,400 inspectors and K-9 officers. Due
    to the enormous growth in workload and service demands, combined with
    shrinking appropriated base budget, these 1,400 positions are in
    jeopardy, as is the $119 million in overtime needed each year resulting
    from staffing limits.
        How close is Customs to drying up the reserve fund?
        Answer. The COBRA reserve fund is available for unanticipated
    expenditures, this money is only used after all other funds have been
    exhausted. The COBRA statute requires that a $30 million contingency
    fund be maintained in addition to the $39 million carryover. The COBRA
    expenses have been increasing at a greater rate than collections. As a
    result, Customs has exhausted all but $39 million of the available
    COBRA balances accumulated from prior years and must now manage
    spending within estimated annual collections. Since 1995, the Customs
    Service has faced enormous growth in workload and service demands as
    well as higher position costs.
        Question. Are you actively pursuing extension of COBRA?
        Answer. Legislative proposals for extending the COBRA statute have
    been under consideration.
        Question. If COBRA sunsets in September 2003 without extension,
    what will happen to the 1,400 positions funded by those fees?
        Answer. If COBRA sunsets in September 2003 the 1,400 positions
    funded by COBRA fees would either be absorbed in the Salaries and
    Expenses Appropriation if there were additional appropriation resources
    or eliminated through attrition over a three-year span. In addition,
    COBRA funds the equivalent of more than 1,150 FTE through overtime.
                                     ______

                 Questions Submitted to the U.S. Secret Service

             Questions Submitted by Senator Ben Nighthorse Campbell

                   SECURITY FOR THE 2002 WINTER OLYMPIC GAMES
        Question. As you know, I am the only member of the Senate who was
    on an Olympic team so I have a personal interest in making sure that
    the 2002 Winter Olympic Games run smoothly. The Secret Service is
    responsible for site security--and it must be a huge undertaking to
    secure a ski mountain! Without going into any security-related details,
    do you believe you have the resources necessary to do the job properly?
        Answer. The Service has put together a security plan that it
    believes will prevent terrorist incidents at the 2002 Winter Olympic
    Games. The source of the funding needed in fiscal year 2002 to
    implement this security plan has not yet been identified; however, the
    Administration is currently reviewing various possible funding
    mechanisms.
        Question. During a recent staff oversight trip to Salt Lake City,
    your staff provided briefings on the extensive preparations your agency
    has made thus far. As a result of that trip, a number of issues came to
    my attention that I would like to address:
        What costs are the Secret Service contractually obligated to pay,
    and when must they be paid. Do you have the necessary funding?
        Answer. In order to secure hotel rooms for large protective events,
    where rooms will be in short supply and demand will be high, the
    Service must book hotel rooms months or even years in advance of the
    event.
        For the 2002 Olympics, the Service is under contract with the Salt
    Lake City Organizing Committee (SLOC) for rooms costing $4.1 million.
    The Service will be obligated to pay, subject to the availability of
    funds, for these rooms in fiscal year 2002. The Administration is
    currently reviewing various possible funding mechanisms to cover the
    costs associated with the protective security activities for the
    Olympics.
        Payments to SLOC are due in full by October 31, 2002. In the event
    the Service has not received its fiscal year 2002 appropriation by
    October 31, 2002, payment is due within 14 days of receipt of an
    invoice or the date the Service receives its fiscal year 2002
    appropriation, whichever is later.
        The Service has also contracted for rooms independently of the SLOC
    for a total of $6.8 million.
        Payments to these various lodging establishments follow a number of
    payment plans ranging from full payment within 10 days of receipt of
    our fiscal year 2002 appropriation, to full payment within 30 days
    after the event or receipt of a correct invoice whichever is later.
        For office space the Service has established leases with the
    General Services Administration (GSA) and the Veterans Administration
    (VA) in Salt Lake City for five (5) separate locations to support its
    operational requirements.
        The rent for the GSA leases will total approximately $214,000 over
    the entire period of use, and will be paid on a monthly basis.
        The Department of Veterans Affairs, VA Salt Lake City Healthcare
    System (VASLCHCS), Salt Lake City, Utah, and the Service have entered
    into an agreement for the temporary use of their Building 4, designated
    parking areas, and access to and use of selected VASLCHS facilities.
    The Service will use this facility as its Coordination Center for the
    2002 Winter Olympics.
        Usage of these facilities began March 1, 2001 and will continue
    through March 31, 2002. The Service will reimburse VASLCHCS a total of
    $136,000, and payments will be made on a quarterly basis.
        Through a joint effort with several Federal agencies, an Air Space
    Operations Center (``ASOC'') is being established at Hill Air Force
    Base, Salt Lake City, Utah. Renovations are required to accommodate the
    necessary equipment and personnel which will be installed at the
    location. The U.S. Secret Service has reimbursed the Utah Air National
    Guard for materials only for these renovations. Cost of materials for
    this project totaled $10,000.
        Question. We were informed that some 2,100 agents would be required
    to implement the security plan. Where will these agents come from? Are
    you ``borrowing'' personnel from other agencies?
        Answer. Yes, the personnel required to implement the Service's
    security plan will come from other agencies, both within and outside
    the Department of the Treasury. However, following additional review,
    the number of law enforcement personnel required to implement the
    security plan has been reduced to just under 1,700.
        Question. If so, from whom?
        Answer. We are currently engaged in discussions with several
    agencies and departments regarding support for the Olympics, to include
    the following:
        Department of the Treasury: Bureau of Alcohol, Tobacco and
    Firearms; U.S. Customs Service; Internal Revenue Service; U.S. Mint;
    Inspector General for Tax Administration.
        Department of Justice.
        Department of Agriculture: USDA Forest Service.
        Department of the Interior: National Park Service; U.S. Bureau of
    Land Management; U.S. Fish and Wildlife Service.
        Question. To your knowledge, have these agencies received funding
    for their participation?
        Answer. Currently, these agencies have not received funding for
    their support of the Secret Service Security plan, however, the
    Administration is currently reviewing various possible funding
    mechanisms to cover the costs associated with the protective security
    activities for the Olympics.
        Question. If not, how does that impact your security plan?
        Answer. The Administration is currently reviewing various possible
    funding mechanisms to cover the costs associated with the protective
    security activities for the Olympics.
        Question. How many military personnel will be utilized in your
    security plan?
        Answer. We respectfully suggest that information regarding the
    numbers and purpose of Military assets needed to implement our security
    plan be given in an executive session.
        Question. Has DOD committed the required resources?
        Answer. Again, the Service would prefer to discuss this in an
    executive session.
        Question. Besides funding, what else can Congress provide to assist
    your efforts regarding the Olympics?
        Answer. Aside from funding, at this time, we don't believe there is
    anything the Congress can provide to assist us.

                     WORKFORCE RETENTION/WORKLOAD BALANCING
        Question. In fiscal year 2000, Congress directed you to submit a
    summary of workload trends for field agents including average overtime
    and early separations. You were also directed to provide quarterly
    reports to the Committee on workforce retention and workload balance,
    including investigative and protection workloads, recruitment, and
    staffing by field offices. Have you seen a decrease in the amount of
    overtime worked by field agents since the beginning of the fiscal year?
        Answer. No. There has actually been a small increase in overtime
    during the first quarter of fiscal year 2001 compared to fiscal year
    2000. Average overtime per month increased from 80 hours in fiscal year
    2000 to 83 hours in fiscal year 2001(through December). This was to be
    expected given the Presidential Campaign.
        A considerable decline in overtime is expected to occur during the
    remaining months of fiscal year 2001 and carry over into fiscal year
    2002. Current projections for fiscal year 2001 put the average overtime
    estimate between 67 hours and 73 hours of overtime per month for field
    agents. The average number of hours of overtime per month is expected
    to move toward the lower number during the remaining months of fiscal
    year 2001, as the additional special agents hired to date through our
    Workforce Retention and Workload Balancing effort complete training and
    the first year of employment.
        Field agents should begin to approach the target overtime figure of
    62 hours per month during fiscal year 2002. Current projections put the
    average number of overtime hours per month for field special agents at
    between 64 and 69 hours by the end of fiscal year 2002.
        Question. Have you seen a decrease in the amount of early
    separations of special agents since the beginning of the fiscal year?
        Answer. During fiscal years 1999 and 2000, 52 and 53 special agents
    respectively, separated early. The Service expects this number to drop
    during fiscal years 2001 and 2002, as the additional special agent
    hiring accomplished during the past two years begins to significantly
    address the problems we believe have led to a higher than usual number
    of early separations.
        Question. Considerable funding increases have been provided to the
    Secret Service for the purpose of hiring more special agents in order
    to reduce the workload and decrease attrition. I know you are aware
    that some members of the Committee had some doubts that you would be
    able to hire the full number requested. What efforts have you made in
    hiring since the beginning of the fiscal year?
        Answer. In addition to our aggressive and innovative approach of
    sponsoring our own nationwide Secret Service specific recruitment
    events with diverse radio, newspaper and television advertising, we
    participate in a host of nationwide job fairs. The Secret Service
    advertises in culturally diverse magazines and publications, military
    publications and Internet law enforcement sites. The Secret Service
    also has its own web site at www.treas.gov/usss where our duties,
    positions, field offices and job fairs are outlined and updated on a
    monthly basis to keep interested applicants aware of new information.
        Every two years, we provide each of our employees with updated
    Employee Recruiter Handbooks outlining each position for which
    applicants are being sought. We ask each of our employees to actively
    recruit qualified applicants for the special agent, Uniformed Division
    and administrative, support and technical positions.
        The Secret Service keeps up with state of the art recruitment
    methods and means. As the sophistication of job seekers and our need
    for technological skills increase, technology has become an integral
    part of our overall recruitment strategy. Also, the Secret Service uses
    several special employment programs to bring well-educated graduates
    into its workforce. Efforts include:
      --Utilizing the Office of Personnel Management's USA Job Web site
            ``What's Hot'' feature. This feature is a direct link to
            targeted Secret Service vacancies.
      --Posting a national listing of Secret Service recruitment events on
            the Secret Service web site
      --Making application forms accessible via the Internet
      --Participating in various career/job fairs nationwide
      --On a case-by-case basis, advertising in local newspapers to recruit
            hard to fill positions
      --Maintaining an ongoing relationship with Historically Black
            Colleges and Universities, Hispanic Serving Institutions, and
            other minority organizations, to encourage the recruitment of a
            diverse workforce
      --Hosting college groups at Secret Service Headquarters to provide
            employment opportunity briefings
        Question. Are your hiring efforts meeting your goals? Will you hire
    the full number of full-time equivalents (FTE) you requested for fiscal
    years 2000 and 2001?
        Answer. Yes, these efforts are meeting our goals. During fiscal
    year 2000 the Service achieved 98 percent of its authorized FTE level,
    and it is currently estimated that we will achieve 99.6 percent of our
    authorized FTE in fiscal year 2001.
        Question. I would appreciate it if you could break down the total
    number of special agents, uniformed division, and administrative
    personnel for fiscal years 1999, 2000, and 2001.
        Answer. See below.

                                  DETAIL OF FULL-TIME EQUIVALENT POSITIONS BY CATEGORY
    ----------------------------------------------------------------------------------------------------------------
                                                                                                         Estimated
                                                                        Fiscal year     Fiscal year     fiscal year
                                                                           1999            2000            2001
    ----------------------------------------------------------------------------------------------------------------
    Special Agents..................................................           2,300           2,637           2,861
    Uniformed Division Officers.....................................           1,039           1,009           1,044
    Administrative Personnel........................................           1,602           1,599           1,652
                                                                     -----------------------------------------------
          Total.....................................................           4,941           5,245           5,557
    ----------------------------------------------------------------------------------------------------------------

        Question. What impact has the increase in personnel had on work
    space requirements?
        Answer. The infusion of additional staff into the Service's
    facilities infrastructure has caused some growing pains. The Service is
    incorporating the new personnel into its existing offices. While
    working toward these interim accommodations, the Service has computed
    the costs of necessary facilities, security, and information technology
    infrastructure needs to total $5.1 million. The effect has been a $6.1
    million increase in our annual costs for workspace rental. It should be
    noted that these increases in personnel often require the relocation of
    entire offices rather than adding space to existing office sites. The
    relocations are costly compared to the presumed costs of incremental
    increases to existing offices.
        Question. Your budget request does not include additional funding
    for the third year of the workforce re-balancing and workforce
    retention initiative which this Committee supported in the last two
    years. What will be the impact of delaying the third year of this
    initiative on quality of life, retention, and hiring issues?
        Answer. Following an interagency study involving the Department of
    the Treasury and the Secret Service, a Workforce Retention/Workload
    Balancing effort was undertaken. This effort has two main objectives.
    First is the objective of stemming the loss through resignation of
    young field special agents--special agents with less than 6-10 years on
    the job. To achieve this objective will require restoring the quality
    of work and personal life for the younger field special agent that
    existed during the early 1990's. Currently, field special agents are
    working approximately 83 hours of overtime per month (we expect
    overtime to drop to 67-73 hours by the end of fiscal year 2001). They
    are also spending over one-quarter of their time each month on the road
    and away from their families. The targeted level for overtime is 62
    hours per month, and for time out of district no more than 16 percent
    of the time. Longer hours, more time on the road, and less time with
    their families is causing increased numbers of younger special agents
    to reconsider their situations and conclude that there are more
    attractive law enforcement careers elsewhere.
        Second, the balance of work between the Service's protective and
    investigative missions has been shifted toward protection, to the point
    where it not only jeopardizes the success of the protective mission,
    but also lessens the overall attractiveness of working for the Secret
    Service. At the time of the study 53 percent of a field special agent's
    time was being devoted to the protective mission, and only 29 percent
    of his/her time was devoted to the investigative mission. A better
    balance, the balance sought with this Workforce Retention/Workload
    Balancing initiative, would reverse these percentages. However, not
    being able to complete the recommended staffing relative to this
    initiative will mean only an improvement toward an equal balance
    between protective and investigative work and could result in pressure
    to again increase overtime worked by field agents. The balance is
    improving and we will continue to strive towards our desired balance
    and to work at improving the quality of life for those in our
    workforce.
        The 1999 Working Group on U.S. Secret Service Workforce Retention
    and Workload Balancing reviewed an analysis of the Service's historical
    workload mix and supported a level of field investigative staff
    consistent with the workload mix ratio in fiscal year 1994. Further,
    the Working Group's report included a critical recommendation to
    increase field staffing to achieve an appropriate workload balance in
    the protective/investigative mix, as well as to reduce overtime and
    protection-related travel, in order to address agent retention and
    quality of life issues.

                                 COUNTERFEITING
        Question. Although Colombia has been a major source of counterfeit
    U.S. currency, I understand that other countries are also involved. How
    extensive is the counterfeiting threat?
        Answer. Colombia produces approximately 33 percent of all
    counterfeit U.S. currency passed in the United States, and is the
    primary overseas producer of counterfeit. With the dollarization of
    many Latin American countries, the Secret Service is seeing an increase
    in counterfeiting activity. For example, after Ecuador and El Salvador
    chose the dollar as their currency, production of counterfeit U.S.
    currency in Colombia has grown. An increase is also being seen in the
    smuggling of counterfeit U.S. currency into these newly emerging
    markets. Recent printing plant seizures in Colombia have revealed that
    some Colombian counterfeiters are now producing lower denomination
    counterfeit U.S. currency for distribution in these new markets.
        The Secret Service believes the threat of counterfeiting activities
    will increase in Latin America as organized crime in Colombia and
    others take advantage of the opportunity presented by dollarization.
    The Secret Service is also seeing an increase in counterfeit U.S.
    currency being produced in Europe and Asia. Although the amount of
    counterfeit appears nominal, the counterfeit U.S. currency is of a very
    high quality. During previous years, a number of significant plants
    producing counterfeit U. S. currency have been suppressed throughout
    the world by local authorities assisted by the U.S. Secret Service. For
    example, in November 2000, local authorities in Holland seized one
    plant that was preparing to distribute approximately $100 million in
    counterfeit U.S. currency and 390 million in counterfeit Deutsche
    Marks. However, while a number of seizures are reported, the full
    extent of counterfeiting activity is difficult to ascertain due to
    various factors. Improved reporting from these countries and a
    permanent Secret Service presence could help us attain better estimates
    of counterfeiting activity.
        Question. What impact does this threat have on the U.S. economy?
        Answer. Counterfeit U.S. currency produced in foreign countries,
    including Colombia, had the potential to result in losses totaling $250
    million during fiscal year 2000. It is noted that accurate reporting of
    counterfeiting activities, from many overseas sources, is believed to
    be sporadic and not representative of the true counterfeit problem.
        During fiscal year 2000, over 13 million in counterfeit U.S.
    currency produced in Colombia was circulated in the United States,
    resulting in a direct loss to U.S. citizens. Citizens of Latin American
    countries were also victimized by counterfeit United States. currency
    distributed in their countries.
        For the past 10 years, U.S. citizens have incurred a loss of over
    $102 million due to Colombian produced counterfeit currency, alone.
    Over $67 million in counterfeit U.S. currency has been seized in
    Colombia prior to circulation.
        The above numbers are expected to increase with the dollarization
    of Latin America. This may result in a loss of faith in the U.S. dollar
    and diminish seigniorage payments to the U.S. Federal Reserve.
        Colombian counterfeiters are expanding their distribution networks
    of counterfeit U.S. currency to these impoverished countries, causing
    the further erosion of already substantially weakened economies.

                                OVERSEAS OFFICES
        Question. Does the Secret Service have adequate resources to police
    counterfeiting overseas?
        Answer. No. The Secret service does not have sufficient
    representation overseas. The Bogota Resident Office, for example, is
    responsible for the entire country of Colombia which produces over 60
    percent of all offset manufactured counterfeit U.S. currency. The
    Bogota resident special agent in charge is attempting to meet this
    challenge with limited resources, having only three agents permanently
    assigned to that office. The Secret Service has established task forces
    within the different Colombian law enforcement entities in an attempt
    to supplement and project Secret Service manpower.
        With the dollarization of Latin America, the U.S. Secret Service is
    receiving an overwhelming number of requests for investigative
    assistance and training. These countries are asking for investigative
    support as well as training in the detection and identification of
    counterfeit and genuine U.S. currency. The Secret Service is seeing an
    increased need to establish anti-counterfeiting task forces in these
    countries as well as others, possibly leading to the establishment of
    permanent offices where warranted. The establishment of anti-
    counterfeiting task forces and a permanent presence in some of these
    countries will give the Secret Service first hand intelligence on these
    criminal activities and counterfeiting trends. This will also enable
    the Secret Service to establish a close working relationship with
    officials and further the Secret Service mission of protecting the
    integrity of our nation's currency.
        Question. Your budget request represents a 2.4 percent increase
    from fiscal year 2001, on target with the President's commitment to
    hold down spending government-wide. Although I am sure you would have
    liked to see more initiatives included in your request--everyone wants
    more money to do more things--I hope you would agree that this is a
    responsible budget submission. Does your fiscal year 2002 budget
    request allow the Secret Service to carry out its core mission?
        Answer. Yes, the fiscal year 2002 budget will be adequate to fund
    our mission-critical programs and obligations. We expect to attain our
    three mission goals: to reduce crimes against our nation's currency and
    financial systems; to protect our national's leaders, visiting world
    leaders, and other protectees, as well as, reduce threats posed by
    global terrorists and other adversaries; and to provide a responsive
    support infrastructure to meet the needs of both the protective and
    investigative mission. We will continue to develop our aggressive and
    innovative approach to combating emerging forms of computer crime, and
    continue to foster our effective partnerships with local law
    enforcement agencies, private industry, and community organizations.
        Question. During an overseas oversight trip with the Secret Service
    a couple of years ago, my staff noted that the Service is in need of
    more personnel overseas. We note that the establishment of a permanent
    post overseas is an expensive and laborious process. In many instances,
    with an immediate response and the use of recurring temporary
    assignments, the Service has rectified a fraud problem in the time it
    would have taken to administratively open a foreign post and get an
    agent on the ground to assess the problem. What were your costs in
    fiscal year 2000 for the numerous overseas temporary assignments?
        Answer. The USSS spent $438,000 in expenditures for three (3)
    Financial Crime-related overseas initiatives (City of London, England
    Initiative; the Lagos, Nigeria Task Force; and the Wiesbaden, Germany
    Initiative).
        There is no means to calculate additional expenditures related to
    overseas temporary investigative assignments such as the procurement of
    ``assignment specific'' equipment. Also, this figure is specific to
    temporary investigative assignments, and does not include the
    expenditures related to overseas temporary protective assignments.
        Question. How may foreign offices does the Secret Service have now?
        Answer. The Secret Service currently has 18 foreign offices, plus a
    presence at INTERPOL--Lyon, France.
        Question. How many agents are assigned overseas?
        Answer. The Secret Service currently has 44 special agents assigned
    to our foreign offices and 2 agents to INTERPOL--Lyon, France.
        Question. Have you submitted a foreign office and staffing
    initiative? If so, what offices and FTE levels did you request?
        Answer. Our baseline request under the previous Administration was
    $888.4 million. Under the current Administration, there was no fiscal
    year 2002 budget request process from bureau to Department, or from
    Department to OMB, and the current Administration has not validated the
    previous Administration's baseline estimate.
        Question. What percentage of your investigative caseload involves
    interactions overseas?
        Answer. It is estimated that approximately one-third of all U.S.
    Secret Service investigative criminal cases have a foreign nexus.
                                     ______

                 Questions Submitted by Senator Byron L. Dorgan

                                WINTER OLYMPICS
        Question. Pursuant to PDD-62 you have the lead for security at the
    2002 Winter Olympics at Salt Lake City. Are you having any difficulty
    in finding volunteers from your sister law enforcement agencies to
    assist in staffing for the games themselves?
        Answer. The planning process that the Secret Service currently has
    underway includes canvassing all appropriate Federal law enforcement
    agencies to determine their interest and availability in participating
    in the operational security portion of the Federal counter-terrorism
    plan. Presently, the Secret Service intends to use Federal law
    enforcement personnel from eleven other agencies to supplement its own
    personnel in effecting perimeter security at the 2002 Winter Olympics.
    Participating agencies have been supportive of this mission, but have
    concerns relative to the costs that they might have to bear if a
    funding source is not identified.
        Question. Additionally, the cost estimates for the games continues
    to be a moving target. At this point in time what is your best guess as
    to the total costs to be borne by your agency?
        Answer. For fiscal year 2002, the Service estimates that it will
    require $19,530,000 to implement its security plan.
        Question. By all participating agencies?
        Answer. To support the Secret Service's security plan, it is
    estimated that $33,068,000 will be required by other agencies within
    the Department of the Treasury, including $4,931,000 for air security,
    and an additional $8,003,000 is needed by agencies outside the
    Department of the Treasury.

                         STAFFING AND OVERTIME CONCERNS
        Question. In the 2001 cycle you testified that the average overtime
    worked per agent was approximately 85 hours per month in the protective
    divisions, and about 78 hours per month in the investigative divisions.
    This places an obvious burden on your agents and has led to retention
    and morale problems. Has the overtime burden been reduced with the
    additional FTEs you were able to hire from funds provided by this
    Subcommittee in Phase I and Phase II? Are more needed?
        Answer. As the additional special agents hired complete their
    training and are assigned to field offices, this overtime burden is
    expected to decline. Current projections for fiscal year 2001 put the
    average overtime estimate between 67 hours and 73 hours of overtime per
    month for field agents. The fiscal year 2001 projection is somewhat
    higher than that which would be expected due to the impact of the
    Presidential Campaign activities from October 2000 through January
    2001. A considerable decline in overtime is expected to occur during
    the remaining months of fiscal year 2001 and carry over into fiscal
    year 2002.
        Hiring 70 percent of the agents recommended by the Workforce
    Retention and Workload Balancing initiative will go a long way in
    reducing the extreme amounts of overtime worked by field agents. Field
    agents should begin to approach our target average overtime figure of
    62 hours per month during fiscal year 2002. Current projections put the
    average overtime per month for field agents between 64 and 69 hours by
    the end of fiscal year 2002. However, the impact of not funding the
    third year of this initiative will make it more difficult to reach the
    final target of 62 hours of overtime per month for field agents.

                                 IDENTITY THEFT
        Question. Identify theft is the illegal use of another person's
    financial identity to commit fraud. It is usually one component of
    other financial crimes, such as bank fraud, credit card or access
    device fraud, or issuing counter financial instruments. Identity theft
    is an enormous concern to the average person and most people aren't
    aware just how easy it is to accomplish, as consumers have little
    control over who has access to their personal identifiers. It is
    relatively simple for criminals to obtain personal information on
    individuals through public sources, particularly the Internet. Given
    the expertise of the Secret Service in this area, where do you think
    our State and local law enforcement agencies are on countering these
    crimes?
        Answer. Numerous metropolitan police departments are taking a
    proactive approach to the problem of identity theft. One example is the
    Los Angeles County Sheriff's Department, which initiated a multi-agency
    identity theft task force to combat identity theft in the Los Angeles
    metropolitan area. Additionally, the Los Angeles County Sheriff's
    Department was exclusively responsible for designing, producing and
    distributing a pocket guide on identity theft to all of its deputies.
    This guide ensures that deputies deal appropriately and uniformly with
    victims, and provide them with information on resources they will need
    in their efforts to restore their credit history, and rectify any
    damage done to their existing accounts.
        However, not all police departments and sheriff's offices are this
    aggressive concerning these types of crimes. Many do not have
    sufficient resources to thoroughly investigate identity theft crimes,
    and jurisdictional issues often hamper the efforts of those that do.
        In order for law enforcement to properly combat identity theft,
    steps must be taken to ensure that local, State and Federal agencies
    are addressing victim concerns in a consistent manner. All levels of
    law enforcement need to be familiar with the resources available to
    combat identity theft and to assist victims in rectifying damage done
    to their credit. It is essential that law enforcement recognize that
    identity theft must be combated on all fronts, from the officer who
    receives a victim's complaint, to the detective or special agent
    investigating an organized identity theft ring. The Secret Service has
    already undertaken a number of initiatives aimed at increasing
    awareness and providing the training necessary to address these issues,
    but other similar steps could be taken to try to reach a still larger
    audience.
        Question. What resources are being devoted to training and
    providing support to them?
        Answer. The Secret Service has tried to increase awareness and
    provide training on the relevant issues to state and local law
    enforcement agencies through a variety of partnerships and initiatives:
      --Criminals increasingly employ technology as a means of
            communication, a tool for theft and extortion, and a repository
            for incriminating information. As a result, the investigation
            of all types of criminal activity, including identity theft,
            now routinely involve the seizure and analysis of electronic
            evidence. In response to this trend, the Secret Service
            developed, in conjunction with the International Association of
            Chiefs of Police (IACP), the ``Best Practices for Seizing
            Electronic Evidence Manual'', to assist law enforcement
            officers in recognizing, protecting, seizing and searching
            electronic devices in accordance with applicable statutes and
            policies.
      --As a follow-up to the ``Best Practices'' guide, the Secret Service
            and the IACP developed ``Forward Edge'', a computer-based
            training application (CBT) designed to allow officers to seize
            in a virtual environment different types of evidence, including
            electronic evidence, at various crime scenes.
      --In December of 2000, the Secret Service coordinated an Identity
            Theft Workshop in Washington, DC. This workshop was designed
            for the criminal investigator and was attended by investigators
            from agencies throughout the nation. The workshop provided
            investigators with a detailed explanation of how identity theft
            can occur, as well as an explanation of what tools are
            available to investigators.
      --In May of 2001, the Secret Service made an identity theft
            presentation to the International Chiefs of Police, Advisory
            Committee for Police Investigation Operations. During this
            presentation, the Secret Service proposed the production of an
            identity theft video geared toward police officers throughout
            the nation. The purpose of this video will be to emphasize the
            need for police to document a citizen's complaint of identity
            theft, regardless of the location of the suspects (if any). In
            addition, the video and its companion reference card will
            provide officers with phone numbers that will assist victims
            with remediation efforts. The Advisory Committee is supportive
            of this effort, and is considering providing funding for it,
            and pursuing it jointly with the Secret Service, as was done
            with the ``Best Practices'' initiative.
      --Also in May of 2001, the Secret Service detailed a Special Agent to
            the Federal Trade Commission (FTC) to assist them in funneling
            information developed through their database of victim
            complaints to the appropriate law enforcement entities. This
            agent is also involved in supporting ongoing FTC initiatives
            aimed at educating state and local law enforcement agencies
            concerning identity theft issues.
        The Secret Service is also actively involved with a number of
    government-sponsored initiatives. At the request of the Attorney
    General, the Secret Service joined an inter-agency identity theft
    subcommittee that was established by the Department of Justice. This
    group which is made up of Federal, State, and local law enforcement
    agencies, regulatory agencies, and professional agencies meets
    regularly to discuss and coordinate strategies for investigation and
    prosecution, as well as consumer education programs.
        Question. What additional Federal resources may be needed to move
    these agencies along with the ever increasing technology available for
    these types of crimes?
        Answer. It is the responsibility of government regulators, law
    enforcement agencies, financial institutions, and other private sector
    entities to work together to identify, investigate, and prosecute those
    individuals responsible for perpetrating identity theft schemes. It is
    the belief of the Secret Service that the successful investigation of
    identity theft and identity fraud, including the compromise of
    consumers' identities through electronic means, can best be
    accomplished through a task force approach. Accordingly, the Secret
    Service would like to implement five Financial Crimes Task Forces, and
    five Electronic Crimes Cooperatives, in major cities to decrease the
    incidence of identity theft and other financial and electronic crimes.
    Through the strategic placement of these specialized task forces, the
    Secret Service, working in conjunction with other Federal, State and
    local law enforcement entities, would decrease the incidence of
    identity theft and other financial and electronic crimes in the
    targeted cities through the arrest and prosecution of individuals and
    organized criminal enterprises involved in the commission of financial
    crimes.
        Question. What can we do to further educate American citizens to
    protect themselves against these crimes?
        Answer. The Identity Theft and Assumption Deterrence Act
    established the Federal Trade Commission (FTC) as the central point of
    contact for identity theft victims to report all instances of identity
    theft. The FTC has done an excellent job of providing people with the
    information and assistance they need in order to take the steps
    necessary to correct their credit records, as well as undertaking a
    variety of ``consumer awareness'' initiatives regarding identity theft.
    As mentioned previously, the Secret Service has detailed a special
    agent to the FTC on a permanent basis to support their public education
    and liaison initiatives. The Secret Service also continues to be
    involved in a variety of public education efforts:
      --The Secret Service, in conjunction with the U.S. Postal Inspection
            Service, and the Federal Reserve Bank System, produced an
            identity theft awareness video. The video, which explains how
            easily one can become a victim and what steps should be taken
            to minimize damage, has been made available to Secret Service
            offices for use in public education efforts.
      --In April of 2001, the Secret Service designed an identity theft
            brochure, containing information to assist victims on how to
            restore their ``good name'', as well as how to prevent becoming
            a victim. Upon its completion, the brochure will be shipped to
            Secret Service offices for distribution in public education
            efforts.
        However, it is important to recognize that public education efforts
    can only go so far in combating the problem of identity theft. Because
    Social Security numbers, in conjunction with other personal
    identifiers, are used for such a wide variety of record keeping and
    credit-related applications, even a consumer who takes appropriate
    precautions to safeguard such information is not immune from becoming a
    victim.
                                     ______

       Questions Submitted to the Federal Law Enforcement Training Center

             Questions Submitted by Senator Ben Nighthorse Campbell

                               WORKLOAD CAPACITY
        Question. I am told that you have agreed to take on the
    responsibility for training employees of the Air Force Office of
    Special Investigations. This will mean the integration of 25-30
    instructors and somewhere between 500 and 800 new students per year.
        Does FLETC have the capacity to handle this new workload and house
    these new students?
        Answer. Based on the current fiscal year 2003 workload projected by
    our partner organizations, the Center has the capability to meet the
    training requirements of the Air Force Office of Special Investigations
    (OSI) and house their students on Center or in Center contracted
    housing. OSI students will participate in the Center's Criminal
    Investigator Training Program (CITP). Following graduation from the
    CITP, they will participate in a three-week, OSI agency specific,
    follow-on basic program. Currently, there are five of these follow-on
    programs projected consisting of 48 students. These follow-on programs
    are not facility intensive, and will be primarily taught by OSI
    personnel. OSI currently projects that, beginning in fiscal year 2003,
    they will train 250 students annually. These same 250 students will
    attend the OSI follow-on program. OSI advanced programs have not been
    projected at this time, however, their advanced training requirements
    are not expected to be facility intensive.

                                 BORDER PATROL
        Question. The Border Patrol currently maintains a temporary
    training facility in Charleston, South Carolina while FLETC builds up
    the necessary infrastructure to meet their training needs.
         What is the status of the Charleston facility?
        Answer. The Charleston site has been in operation since 1996.
    Facility infrastructure and operational costs are being borne by the
    U.S. Border Patrol. The FLETC is providing staff support, which
    includes an on-site program coordinator and instructor detailees for
    those portions of the U.S. Border Patrol basic training program that
    are FLETC's responsibility. FLETC also pays the direct costs of basic
    training from its appropriation in the same manner as if the training
    were incorporated into one of FLETC's permanent sites. The assignment
    of FLETC staff instructors, who regularly drive the six hours roundtrip
    from Glynco to Charleston to conduct their training responsibilities,
    is a strain on the FLETC and presents numerous scheduling difficulties
    for programs conducted at Glynco. FLETC has worked closely with the
    U.S. Border Patrol and its parent organization, the Immigration
    Naturalization Service (INS), to identify facility and related
    requirements and to reabsorb all the U.S. Border Patrol training into a
    FLETC permanent site.
        A multi-year construction plan has been developed and, to date,
    more than $39 million has been appropriated by Congress to expand FLETC
    facilities. A recently updated business case study completed by FLETC
    last fiscal year, suggests that millions of dollars in cost avoidance
    for new construction and per diem savings can be realized by
    consolidating all U.S. Border Patrol training, now conducted at three
    sites, into FLETC's Artesia center. INS officials have indicated that
    they are not supportive of this FLETC plan and they have commissioned
    an independent study to review it and other possible options. President
    Bush has announced that INS will undergo a significant reorganization,
    which may also impact the decision on the future siting of U.S. Border
    Patrol training. In the meantime, FLETC will continue to work with the
    INS and the U.S. Border Patrol to adopt a plan that can be jointly
    supported.
        Question. When will FLETC be able to integrate this training
    responsibility back into permanent facilities?
        Answer. The FLETC submitted a modified five-year construction plan
    to the Congress last fiscal year. It called for the expansion of
    facilities in Glynco, Georgia and Artesia, New Mexico, to be completed
    by fiscal year 2004, to reintegrate U.S. Border Patrol training. Only
    one new construction project is being requested for funding in the
    President's fiscal year 2002 budget. Other planned project funding is
    not being requested for fiscal year 2002 and there may be a delay in
    the construction completion timetable to fiscal year 2005. However,
    depending upon the expected U.S. Border Patrol training requirements,
    and their willingness to consolidate training into FLETC's Artesia
    center, the timeline to begin reabsorbing U.S. Border Patrol training
    into FLETC could be moved forward. We will continue to keep the
    Committee advised of developments on this matter.
                                     ______

                 Questions Submitted by Senator Bryon L. Dorgan

                         RURAL LAW ENFORCEMENT TRAINING
        Question. FLETC and Minot State University jointly continue to work
    on research to determine which training, education and prevention
    strategies are required to best address problems specific to the
    Northern Plains states and rural areas. Minot is creating a
    clearinghouse for its research findings, and serves as a key export
    training site for FLETC. Minot also coordinates distance-learning
    telecasts and provides other services for the region. Minot State is
    interested in expanding its work with FLETC to deliver more needed
    training and to strengthen relationships with communities and schools
    in the region.
        What is the status of the FLETC/Minot State University
    relationship?
        Answer. The FLETC and Minot State University (MSU) relationship
    began in fiscal year 2000, when FLETC contracted with MSU to conduct a
    Northern Plains States (NPS) Law Enforcement Training Needs Assessment
    and measure the effect of the Drug Law Enforcement School for Patrol
    Officers (DLESP) on officers, supervisors, and their respective
    agencies. The MSU research methodologies, surveys, and reports have
    been professional, timely, relevant, and concise. The results of the
    research have been instrumental in developing and delivering training
    that meets the needs of the NPS officers and agencies. Through frequent
    and constant interaction, the staffs of MSU and FLETC have developed a
    professional and complementary relationship. MSU produces quality and
    useful research and data which FLETC uses to make sound and
    professional decisions that positively impact the Northern Plains
    States.
        In fiscal year 2001, the MSU/FLETC relationship expanded
    significantly. Several training programs will be delivered in fiscal
    year 2001 in the NPS region with each state receiving a fair
    distribution of training. The FLETC staff will coordinate the delivery
    of each program while MSU staff conduct surveys, pre- and post-tests,
    and longitudinal studies to measure the effect of classroom and
    distributed learning.
        Question. How well is it working?
        Answer. The FLETC/MSU relationship is working very well. It is an
    example of cooperation at its best. The balance between academia and
    law enforcement is helping FLETC to succinctly meet law enforcement
    training needs as a result of sound and professional research.

                        LAW ENFORCEMENT VEHICLE PURSUIT
        Question. FLETC led an Internet/satellite symposium in March that
    reached 14,000 participants. Topics included the future of technology
    in pursuits, the psychology of officers under stress, and the legal,
    moral, and ethical dynamics of law enforcement officers in ``hot
    pursuit'' situations. FLETC proposes to develop a multi-faceted
    approach, utilizing classroom training, Internet simulcasts and CD-Rom
    courses to raise awareness to alter current practices of conducting
    pursuits. They are developing curricula with the input from Federal,
    state, and local resources.
        What methods will be used to validate the effectiveness of the
    program?
        Answer. Training validation and measurment are important components
    of this effort. Through research and data, training programs are
    developed and modified to meet the changing and contemporary needs of
    law enforcement. The National Center for State and Local Law
    Enforcement Training (NC) intends to partner with academia to conduct
    professional research effectiveness.
        Question. What are the estimated costs for implementing and
    possibly expanding the program?
        Answer. To develop the pursuit driving related training, adequately
    deliver the training programs, and validate the effectiveness of the
    training, the National Center for State and Local Law Enforcement
    Training, Federal Law Enforcement Training Center would need
    approximately $3 million and three FTE. These positions should include
    two program specialists and one training technician. They will develop
    and review training programs and coordinate training delivery
    throughout the United States. The National Center for State and Local
    Law Enforcement Training will develop and deliver pursuit driving
    related training programs using a standard process and contracting the
    services of subject matter experts from state and local law enforcement
    around the country.

                            ACCREDITATION INITIATIVE
        Question. The Administration has requested $650,000 and 3 FTE for
    FLETC to lead a collaborative project with the DEA, FBI, and other
    Treasury Law Enforcement agencies to establish government-wide law
    enforcement training standards. It is anticipated this will be a two to
    three year project. When completed, FLETC's proposal will strengthen
    accountability in Federal agencies.
        How will these funds be used?
        Answer. A program manager with two support staff will manage and
    administer the funds to implement the accreditation process. These
    funds will be used to enhance the quality of Federal law enforcement by
    establishing and maintaining a body of standards for Federal law
    enforcement training, to administer an accreditation process based on
    those standards, and to ensure compliance with the process in order to
    maintain public confidence in Federal law enforcement. These standards
    will be developed under the oversight of a task force comprised of
    Federal law enforcement training officials by bringing together
    subject-matter experts to develop training standards, accreditation
    procedures, assessor criteria and training, accreditation manager
    guidelines, policies and directives, self assessment criteria,
    curriculum assessment criteria, instructor certification procedures and
    on-site assessment responsibilities
        In addition, an accreditation board will be formed to provide
    policy, direction, and oversight of the accreditation process. The
    board members will be a representative group of Federal law enforcement
    agencies. Members of the board will be Federal law enforcement
    officials at the policy level with senior oversight for training within
    their respective agencies. The board shall provide direction and
    oversight for all accreditation activities. It will have approval
    authority for policies of operation, training standards, procedures for
    accreditation of academies and programs having met the accreditation
    criteria and the certification of instructors.
        The training standards, approved by the Board, will serve as the
    measurement or model for all aspects of training at the Federal law
    enforcement level. The training standards will address training
    academies, training programs, both basic and advanced, and instructor
    certification requirements. Accreditation will be awarded in two
    areas--training academy accreditation and training program
    accreditation.

                    FLETC GS-1811 POSITION RECLASSIFICATION
        Question. As a result of Congressional action, Federal employees
    with a GS-1811 (Criminal Investigator) position classification were
    granted Law Enforcement Availability Pay (LEAP) (a 25 percent premium
    over basic pay) was awarded to GS-1811s based on the expectation that
    they would work, or be able to work, an additional two hours per day on
    average during the year.
        FLETC employs GS-1811s, both temporary and permanent, who perform
    the same duties as non-criminal investigator instructors (GS-1712,
    Training Instructor, and GS-1801, Law Enforcement Specialist-
    Instructor). After LEAP legislation was enacted, non-GS-1811
    instructors perceived that they were not receiving ``equal pay for
    equal work.'' After a number of instructors filed position
    classification appeals with the Office of Personnel Management (OPM),
    OPM directed a consistency review of all instructor positions. It was
    determined that all permanent FLETC instructors should be properly
    classified in the GS-1801 series (who do not receive the 25 percent
    premium). Director Basham announced this policy in a memorandum, dated
    October 27, 1998, to all FLETC personnel. Although the policy became
    effective January 1, 1999, permanent GS-1811 personnel already on
    faculty had a 3-year period to seed or convert to the GS-1801 series.
        FLETC expects to hire the necessary number of persons with GS-1811,
    Criminal Investigator, experience into FLETC GS-1801 positions. If
    unsuccessful, the Center will make arrangements to detail experienced
    GS-1811s from other agencies. Detailed Criminal Investigators from
    partner organizations will not be adversely impacted by FLETC's
    classification policy for permanent faculty. This policy was
    implemented with the concurrence of OPM and Treasury.
        What is the status of instructors with actual 1811 experience?
        Answer. FLETC's long established practice has been to maintain a
    50-50 ratio of permanent to detail faculty. The permanent staff
    provides continuity in program development and delivery methodology,
    while the agency detailees bring current field operations experience.
    We have been successful in continuing to attract experienced law
    enforcement personnel--both criminal investigator and police--through
    position advertisements in the 1801 classification series since this
    practice was initiated in 1999. About 20 percent of the 50 percent
    permanent faculty and supervisory staff currently have prior 1811
    criminal investigative experience. These personnel are principally
    assigned to subject matter areas requiring this background experience.
    FLETC does not expect to have difficulty in maintaining 1811 background
    experienced staff on its faculty. However, when there is a shortfall in
    permanent hires in this category, FLETC will increase its detailee
    strength with 1811 experience.
        Question. What is the number of detailees?
        Answer. Currently, FLETC has 49 1811 detailed investigators on its
    faculty. This represents about 30 percent of the 50 percent compliment
    of detail instructors. These personnel have been assigned by 12
    different agencies. Recently, too, three reemployed annuitants with
    1811 experience were hired to teach in areas requiring their expertise.
        Question. Does this not detract from the quality of the instruction
    for 1811 students, in that they are not receiving the practical
    experience if trained by other than actual 1811s who have been ``on the
    street?''
        Answer. There has been no perceived diminution in the quality of
    training provided to FLETC students. All of our agencies have supported
    our approach and both student and agency surveys on the quality of
    training conducted have been high. FLETC management understands and
    endorses the notion of maintaining field experienced criminal
    investigative personnel as a continuous requirement of conducting
    training for Federal investigative agencies.

                               CHARLESTON ISSUES
        Question. In your opening statement you refer to the number of
    Border Patrol trainees at the three location GLYNCO, 16,635; ARTESIA,
    2,553; and TEMP SITE CHARLESTON, 639. For fiscal year 2002 (projected)
    the Charleston numbers go to 1,350.
        Is this based on hypothetical projected numbers at 100 percent
    capacity, or on actual reserved slots for this coming year?
        Answer. The projection of 1,350 students for fiscal year 2002 at
    the temporary Charleston facility was provided by the U.S. Border
    Patrol. The current average student capacity of the Charleston facility
    is approximately 700 students. The annual projection of 1,350 students
    equates to an average student resident population of approximately 473
    students. Therefore, the projection is approximately 68 percent of
    capacity.
                                     ______

        Questions Submitted to the Financial Crimes Enforcement Network

             Questions Submitted by Senator Ben Nighthorse Campbell

        Question. Mr. Baity, FinCEN is responsible for the registration of
    about 160,000 money service businesses across the country, and
    explaining the requirement that they start filing suspicious activity
    reports and currency transaction reports--just like banks are required
    to do. These MSBs are supposed to register by the end of this year, and
    start filing these reports in January 2002.
        What are you doing to make these businesses aware of the
    requirement?
        Answer. FinCEN has undertaken a multi-year outreach and education
    campaign that is designed to reach across a set of diverse and
    expansive MSB industries in order to ensure a full understanding of
    their obligations under the new regulations. This campaign includes,
    among other aspects, a significant effort to prepare educational
    materials that will be made available to the industry for training
    purposes.
        In addition, FinCEN will design a website devoted to the MSBs by
    the end of this summer. The site will contain relevant information,
    including guidance and frequently asked questions and answers.
        Finally, FinCEN is working on creating a database of businesses,
    that will be used to make direct contact, beginning this fall. That
    database will also be used for a baseline survey of the state of
    knowledge of the industry. This is being done to test the effectiveness
    of our campaign and will be repeated at certain intervals to provide us
    with appropriate feedback.
        Question. How are you dealing with the language problems of
    businesses located in ethnic communities?
        Answer. In conducting the outreach campaign, FinCEN is very
    conscious of the potential language barriers. Initially, the education
    materials will be prepared and distributed in both English and Spanish.
    As the outreach campaign progresses, a further determination will be
    made as to the necessity for the translation of materials into other
    languages.
        Question. Do you think they will be ready to start reporting in
    January?
        Answer. FinCEN fully anticipates that the registration deadline of
    December 31, 2001 will be met. Our initial findings from the outreach
    campaign, suggest that the second portion of the rule requiring
    suspicious reporting by these businesses, will be an even greater
    challenge. As I mentioned during testimony, we want to make sure that
    MSBs are knowledgeable about these new requirements. For these reasons,
    we believe it will be more effective to extend the implementation date
    of the suspicious reporting requirements. We are currently reviewing an
    appropriate extension period and will keep the committee informed of
    our decision.
        Question. When the Bank Secrecy Act was made applicable to tribal
    gaming operations I understand that FinCEN did significant outreach to
    tribes to educate them on the compliance rules under the statute.
    First, I commend you on this outreach and urge you to ``keep it up'' to
    ensure tribal compliance with the Bank Secrecy Act.
        Can you explain to me what constitutes ``suspicious activities''
    that would require filing under the Act?
        Answer. Treasury's suspicious activity reporting rules require the
    filing of a suspicious activity report (SAR) when a financial
    institution knows, suspects or has reason to suspect that financial
    activity occurring through the financial institution (a) involves funds
    that are derived from illegal activity or are to be used for illegal
    purposes; (b) is intended to evade Bank Secrecy Act requirements, such
    as the ``structuring'' of currency deposits to avoid the filing of a
    currency transaction report; or (c) serves no apparent lawful purpose
    and for which the financial institution cannot determine a legitimate
    reason for the financial activity to occur.
        Whether activity is suspicious activity depends upon a variety of
    factors. These include, most importantly, a financial institution's
    knowledge of its products, services, and expected transaction patterns
    and the degree to which a particular transaction or set of transactions
    is inconsistent with that knowledge in a way that can't be explained
    after inquiry. Thus, transaction activity that is not consistent with
    normal business activity or that is consistent with certain patterns of
    transactions that may be associated with money laundering activity, may
    be reportable, if the institution knows of no reason that would explain
    the transaction.
        In August 2000, FinCEN issued a SAR Bulletin (Issue 2) on patterns
    of suspicious activity reported by casinos. Over a one-year period,
    casinos located in five states filed more than 40 casino SARs
    indicating that wire transfers and cashier's checks were being used to
    deposit funds in casino accounts as ``front money'' for use by the
    customer for subsequent gaming activity at the casino. This Bulletin is
    available on FinCEN's website at www.treas.gov/fincen.
        Question. Mr. Baity, you have advised the Subcommittee staff that
    your building lease will expire in 2003.
        What steps are you taking to prepare for this matter?
        Answer. We have been engaged in discussions with GSA to move
    through the lengthy process of lease renewal or relocation to a new
    facility. GSA will have the solicitation by the fall of this year, with
    the award decision expected sometime in early 2002. We will continue to
    keep you apprised of the developments.
                                     ______

                 Questions Submitted by Senator Byron L. Dorgan

                        MONEY SERVICES BUSINESSES (MSBS)
        Question. By December 31, 2001, MSBs are required to register with
    Treasury. FinCEN contemplates an outreach program as part of the public
    awareness campaign to educate both the public and the MSBs. The
    outreach program consists of, in part, informational forms, utilization
    of different languages, and data system requirements. Your new MSB
    Branch chief came on board April 23, and the IRS is scheduled to
    conduct regulatory oversight of the MSB compliance. In fiscal year
    2002, the Administration is asking for an added $5.5 million without
    FTE.
        How will you ensure compliance?
        Answer. FinCEN's first priority in our effort to promote compliance
    is to educate the MSB industry about the registration and suspicious
    activity reporting requirements. FinCEN has undertaken a multi-year
    outreach and education campaign designed to reach across the diverse
    and expansive MSB industries. We are creating training materials that
    will include posters, brochures, videos and possibly a CD-ROM. In
    addition, we are designing a website devoted to the MSB industry. The
    new website will ultimately contain all of our training materials and
    additional guidance, including frequently asked questions and answers.
        In conjunction with this outreach and education effort, we are
    working closely with the Internal Revenue Service (IRS) to expand and
    educate its examination and compliance resources, that will be
    primarily responsible for ongoing education and compliance
    examinations. Funding for these increased efforts will be reimbursed to
    the IRS from FinCEN, beginning in fiscal year 2002.
        Question. Is any of the $5.5 million for the increased IRS workload
    to enforce the MSB compliance?
        Answer. The $5.5 million increase to the MSB program in fiscal year
    2002 annualizes efforts to implement the MSB Regulatory Program. This
    increase provides funding for the next phase of the multi-year public
    education program and provides funding to begin efforts with the IRS
    and other service providers to extend field outreach, begin examination
    of MSB for compliance, respond to public inquiries, distribute forms
    and publications, and support information processing of the BSA data.
    These oversight and outreach activities are essential to promote
    compliance with national registration and other BSA requirements.
        Question. Is there any validation of the effectiveness of the
    outreach program?
        Answer. In order to gauge the effectiveness of the outreach and
    education program, we will be surveying the industry's knowledge and
    understanding of the new regulations at various stages of the campaign,
    beginning with a baseline survey. Additional surveys will be conducted
    at various stages of the outreach program.
        Question. What is the coordination with the High Intensity
    Financial Crimes Areas (HIFCAs)?
        Answer. We have closely coordinated with the HIFCAs through the
    HIFCA Working Group comprised of all law enforcement agencies assigned
    to the HIFCAs. In addition, we have prioritized our media campaign in
    areas where HIFCAs have been designated, including New York/New Jersey,
    Los Angeles, and along the Southwest Border. This coordination will
    continue as the regulations take effect.
        Question. Have there been any problems with the MSB outreach thus
    far?
        Answer. No. We are very pleased to report that there have been no
    problems to date. We expect the program to continue to go smoothly.
                                     ______

          Questions Submitted to the Office of Foreign Assets Control

             Questions Submitted by Senator Ben Nighthorse Campbell

      NATIONAL [FOREIGN] TERRORIST ASSET TRACKING CENTER (THE ``CENTER'')
        Question. Mr. Newcomb, Congress provided $6.4 million last year to
    establish the Foreign Terrorist Assets Tracking Center at OFAC.
    Additional funds have been requested in fiscal year 2002 for the
    continued development of this Center.
        I would appreciate it if you would give us an update on this
    effort, including a timeframe for when will the Center be up and
    running?
        Answer. OFAC is working to have the Foreign Terrorist Asset
    Tracking Center up and running by October 2001. Currently, OFAC is
    hiring staff for the Center and working to establish an appropriate
    workspace to house it.
        Question. What other agencies are actively participating in the
    planning of the Center?
        Answer. OFAC sent a questionnaire, on March 30, 2001, asking each
    of the prospective agencies to describe how they would see themselves
    participating in the mission of the Center. All except the Department
    of Defense anticipate having a role in the Center, either by detailing
    a specialist to analyze foreign terrorist data, or by appointing a
    special liaison to cement the constant interaction of the member
    organizations, or both. The departments and agencies pledged to
    participate in or work with the Center are:
      --The Department of Treasury--OFAC, Customs, IRS, USSS, and FinCEN.
      --The Department of Justice--FBI, INS.
      --The CIA--Office of Transnational Issues and the DCI's Counter-
            Terrorism Center.
      --The National Security Agency.
      --The Department of State--Office of the Counter-Terrorism
            Coordinator (S/CT).
        Question. Once the center is operational, how will other Federal
    agencies participate in its activities?
        Answer. In response to the OFAC questionnaire respondents described
    their respective roles in the counter terrorism field, identified
    issues in which they would wish to be involved, offered to provide
    information related to the mission of the Center, suggested how they
    might coordinate efforts, and proposed the manner of agency
    representation with the Center.
        Analysts/specialists detailed from the participating agencies and
    OFAC Center analysts will work together in several teams--each team
    will study related terrorist groups--to evaluate terrorist fundraising,
    money movement, and funds placement. The teams will assist in the
    development of interagency strategies to impair and impede terrorist
    finances. Agency liaisons will coordinate with the Chief of the Center
    on activities and facilitate the flow of information among he
    participating agencies as appropriate.

                            KINGPIN DESIGNATION ACT
        Question. The Foreign Narcotics Kingpin Designation Act became law
    in late 1999. President Clinton named 12 significant foreign narcotics
    traffickers in June of last year. Under the provisions of the Kingpin
    Designation Act, President Bush is required to designate additional
    kingpins in June of this year. What is the process for making
    recommendations to the President for these designations?
        Answer. The Kingpin Designation Act requires that the Departments
    of Treasury, Justice, State, and the Central Intelligence Agency
    consult and provide the President with the appropriate and necessary
    information to designate significant foreign narcotics traffickers. To
    accomplish this requirement, Treasury leads an interagency group that
    meets to discuss potential names and information for later
    recommendation to the President. Justice and OFAC then coordinate to
    assess and compile information to support the recommendations, which
    the Secretary of the Treasury provides to the Attorney General, the
    Secretaries of Defense and State, and the Director of Central
    Intelligence for formal concurrence. Upon receipt of the concurrence of
    the agency heads, the Secretary of the Treasury submits to the
    President the necessary information for him to designate as significant
    foreign narcotics traffickers those persons appropriate for sanctions
    by June 1 of each year.
        Question. Under the Kingpin Designation Act, OFAC is responsible
    for naming the Tier Two individuals and entities. What is the
    difference between the Kingpin Designation and the Tier Two
    Designation?
        Answer. Specifically, Tier I, or ``Kingpin'', designations are made
    by the President and target significant foreign narcotics traffickers--
    i.e., foreign drug kingpins--worldwide. Tier Two or ``derivative''
    designations are made by OFAC and extend the sanctions under the
    Kingpin Designation Act to entities which are owned, controlled, or
    directed by designated Kingpins, or to individuals or entities which
    act for or on behalf of or which materially assist or support the
    international narcotics trafficking activities of designated Kingpins.
    Additionally, unlike the Tier One or Kingpin designation process, there
    is no statutory timetable for Tier Two designations. The timing for
    Tier Two designations is determined by the course of OFAC's
    investigations consultation with Justice, State, CIA, FBI, DEA, and
    Defense.
                                     ______

                 Questions Submitted by Senator Byron L. Dorgan

                                CUSTOMER SERVICE
        Question. The Office of Foreign Assets Control provides a valuable
    tool to protect U.S. security interests. While it accomplishes this
    task it also has a problematic customer service record. Additionally,
    it should be noted that there are many agricultural interests looking
    to export to Cuba which have expressed significant concern that there
    is no transparency and no commitment to appropriate response time from
    OFAC. Often, exporters do not know how, when, or why requests are
    either granted or denied.
        Are there any plans under consideration to streamline and clarify
    the process for U.S. exporters looking for clearance from OFAC?
        Answer. First, we note that under a long-standing interagency
    arrangement the Department of Commerce's Bureau of Export
    Administration (``BXA'') administers licensing jurisdiction with
    respect to exports to Cuba.
        With respect to the broader question of customer service involving
    programs administered by OFAC, we are acutely conscious of the
    legitimate expectations of the U.S. business community for an
    expeditious and simple process to obtain licenses. In most instances,
    financial and trade transactions are authorized by specific licenses,
    and in many cases are subject to a mandatory interagency review
    process.
        OFAC responded to over 18,500 applications over the course of the
    past year. License applications are reviewed by a staff of only 18
    individuals. In addition, OFAC's licensing staff responded to
    approximately 44,000 telephone inquiries during the same time period.
    OFAC currently administers 21 sanctions programs. Many have been added
    in the past few years, dramatically increasing the Office's workload
    and the demand of the regulated community for information and services
    from OFAC. For its own part, OFAC has done much to streamline its
    procedures and to become a part of the solution, rather than an
    impediment, to the legitimate needs of the exporting community.
    Improved customer service is a primary program goal and OFAC has
    undertaken several measures to address this issue. These include:
      --Establishing a goal to process license applications not requiring
            interagency review within two weeks;
      --Hiring additional personnel to respond to phone inquiries to
            increase the timeliness and quality of information provided to
            the public;
      --Promoting transparency of agency action by publishing interpretive
            rulings on OFAC's website;
      --Issuing implementing regulations with an opportunity for public
            comment within sixty days of the issuance of an Executive order
            or enactment of legislation;
      --Promulgating regulations to reflect internal policies regarding
            civil penalties; and
      --Adding a section of frequently asked questions (``FAQ's'') to the
            website.
        In addition, many of the concerns raised by the U.S. business
    community often pertain to underlying policy issues and the different
    national security and foreign policy objectives of the various
    sanctions programs that must be vetted with other agencies.

                      CUBAN FOOD AND MEDICINE REGULATIONS
        Question. The Administration has yet to publish regulations to
    implement the legislation passed last year to allow food and medicine
    sales to Cuba. The intent of Congress--a large majority in Congress--
    was to ease the restrictions on U.S. exporters.
        When can we expect implementation of that request?
        Answer. The implementation of the Trade Sanctions Reform and Export
    Enhancement Act of 2000 is being coordinated by the White House to
    ensure that the interagency review period, when required, is as brief
    as possible. Interagency review will be necessary in some cases as the
    legislation requires that one-year specific licenses be denied with
    respect to entities in Iran, Sudan, Libya, and Cuba determined to
    promote international terrorism.
        OFAC and Commerce have coordinated so that their own internal
    review processes can be completed within a matter of days. Time frames
    for coordination with the foreign policy community regarding the
    identity of the purchaser still needs to be worked out. Once
    interagency review periods are agreed upon, we anticipate a rapid
    turnaround of license applications to ship goods to qualified end-
    users. This coordinated approach avoids creating confusion in the
    exporting community both with respect to review procedures and by
    maintaining existing agency jurisdiction.
        We anticipate that implementing regulations may be issued by both
    agencies within the next few weeks as interim final rules, with an
    opportunity for public comment.

                              Subcommittee Recess

        Senator Dorgan. I did want to mention that on May 24, we
    will have a law enforcement technology display from two to four
    on the afternoon of May 24 in 106 of the Dirksen Office
    Building, on this floor just down the hall. This is an event
    that Senator Campbell and I look forward to and we look forward
    to seeing all of you there.
        Thank you very much. This hearing is recessed.
        [Whereupon, at 11:02 a.m., Thursday, May 10, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2002

                                  ----------

                             THURSDAY, MAY 17, 2001

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:50 a.m., in room SR-485, Russell
    Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)
    presiding.
        Present: Senators Campbell, Dorgan, and Mikulski.

                           DEPARTMENT OF THE TREASURY

                            Internal Revenue Service

    STATEMENT OF CHARLES O. ROSSOTTI, COMMISSIONER

                                Opening Remarks

        Senator Campbell. Good morning. The committee will be in
    order. I apologize for getting such a late start. We had two
    votes on the floor. Senator Dorgan will be along in just a
    minute; he was still voting.
        This morning we will be discussing the fiscal year 2002
    budget request for the Internal Revenue Service and the current
    status of changes occurring at the agency. Appearing before us
    will be Commissioner Rossotti. As usual, it is a pleasure and I
    hope we have not kept you too long, Commissioner.
        The overall mission of the IRS is to provide top quality
    service to America's taxpayers by helping them understand and
    meet their tax responsibilities, and by applying the tax law
    with integrity and fairness. The IRS should provide world class
    customer service to taxpayers who call or visit IRS offices for
    return preparation assistance. The IRS is requesting a total of
    $9.276 billion, which is an increase of $580 million, or 6.7
    percent over fiscal year 2001.
        The IRS is also requesting $146 million for earned income
    tax credits, or EITC, appropriations. That is about a $1
    million increase. We understand that we need to provide the IRS
    with the resources it needs to improve their ability to respond
    to various requests by taxpayers.
        Under your leadership, Commissioner Rossotti, which I am
    sure most of the committee members have been very happy with,
    the agency has made remarkable improvements even though there
    are still yet some things to be done. I commend you and your
    staff for doing such fine work, and I understand that it is a
    very labor intensive task.
        Additional funding in the budget request for fiscal year
    2002 is in two management categories. One is the business
    systems modernization, formerly called the information
    technology investment account, or the ITIA. They request an
    increase of $325 million for fiscal year 2001. And the second
    IRS request is for $88 million for Stable. Stable was designed
    to stabilize and strengthen tax compliance and customer service
    programs in the area where it was needed.
        I understand that this computer modernization project is a
    major undertaking. For the amount of tax dollars allocated to
    this project we expect the IRS will be as accurate as possible
    in making sure that all the equipment and changes that are
    being made will work properly. There is also a mandatory
    requirement that the different centers be able to communicate
    with each other. The final requirement is that taxpayers
    receive courteous, accurate, and expeditious service in the
    future. I know under your leadership there has been great
    improvements made and I wish you well in this coming year.
        Since we got such a late start I think what we will do is
    go ahead and start with your testimony, and if I can interrupt
    it for a minute when Senator Dorgan appears, we will do that,
    if that is okay with you.
        Mr. Rossotti. Certainly.
        Senator Campbell. So why don't you go ahead and start?

                         Statement of Charles Rossotti

        Mr. Rossotti. Certainly, Mr. Chairman. I would be happy to
    stop as soon as Senator Dorgan gets here.
        I thank you very much for your opening comments. I would
    also like to thank the President and Secretary O'Neill for
    their support of IRS since they have taken office.
        The fiscal year 2002 budget request of $9.28 billion will
    enable us to continue to improve operations and make critical
    investments in our long term modernization program. Most of the
    $325 million increase maintains the momentum that we need for
    business systems modernization and will be used to replenish
    that account, which we draw down as we begin to deliver on the
    program's milestones.
        Before the Restructuring Act of 1998 even became law it was
    clear, especially from the Presidential commission that studied
    the IRS, that a long term commitment was required to fix the
    IRS. Now that we are well into this program and have begun to
    implement some of the larger changes to our organization and
    our business systems, I think we can fully appreciate at this
    point the enormity of the challenge that has been set before
    us.
        Progress is hard won and we are just beginning to reap the
    benefits of some of the changes we have made, and especially
    the budget increases, Mr. Chairman, that you provided and the
    Congress provided in the current year budget.
        But just to recap a few things that have happened since the
    enactment of RRA 1998, we have a new mission, new strategic
    goals, and new measurement systems that allow us--that change
    the way that we value success in the agency. We have
    essentially invented a new means of quantifying success in a
    tax administration agency, without considering dollars
    collected as a measure. We have implemented and are
    administering 71 new taxpayer rights provisions, which
    represent a challenge in learning new ways of doing business
    for almost every one of our new employees.
        Should I stop, Mr. Chairman?
        Senator Campbell. Senator Dorgan, we were running so late I
    went ahead and started. Do you have an opening statement? I
    told the commissioner he might have to stop for a minute. Do
    you want him to go ahead?

                               Prepared Statement

        Senator Dorgan. Mr. Chairman, Commissioner, sorry for the
    delay. I have an Agriculture Appropriations Subcommittee that
    is happening that I have to go over to the Dirksen Building for
    in just a few moments. But welcome, Commissioner. Let me just
    add my statement to the record. We appreciate your being here.
        Mr. Rossotti. Thank you very much, Senator.
        [The statement follows:]

                 Prepared Statement of Senator Byron L. Dorgan

        Mr. Chairman: I am pleased to join you in welcoming the
    Commissioner of the Internal Revenue Service, Charles Rossotti, before
    us today as we conclude our budget oversight hearings for fiscal year
    2002. It is fitting that the agency which comprises well over 50
    percent of this subcommittee's total budget be the ``clean-up'' hitter
    for this year's hearings.
        Commissioner Rossotti, over the years we have had many
    opportunities to discuss your on-going modernization and realignment of
    the IRS. I fully understand that it is a formidable and challenging
    task. When Treasury Secretary O'Neill testified before this
    Subcommittee last month--at the opening of this year's hearings--he
    praised the work you have done and are doing to drag the IRS--sometimes
    kicking and screaming--into the 21st Century. I joined him in
    recognizing your efforts and congratulating you for the job done so
    far.
        But I come back to the issue of ``service.'' You are requesting
    over $9 billion for the IRS next year and the American people need to
    begin seeing improved service from the IRS for that $9 Billion. That is
    why I am so troubled by reports in the Washington Post last month, and
    yet again this past Monday in the Wall Street Journal, about taxpayers
    being given ``inaccurate or insufficient answers 73 percent of the
    time.'' I understand that you have strongly questioned the inquiries
    and methodology used by the Treasury Inspector General for Tax
    Administration, or TIGTA, in conducting these surveys. However, the
    fact remains that taxpayers have yet to receive improved service for
    their tax dollars.
        For instance, the Wall Street Journal noted that while the IRS used
    to have a wait-time goal of 15 minutes for assistance at walk-in
    centers, that goal was abandoned this year on the grounds that it
    ``contributed to the inefficient use of resources.'' It troubles me
    that the IRS would consider walk-in taxpayer assistance as an
    ``inefficient use of resources.''
        Similarly, Secretary O'Neill stated that the IRS and the taxpayers
    should accept nothing short of 100 percent response and accuracy for
    phone inquiries to the IRS. I replied that if the IRS is not even close
    to approaching 50 percent response or accuracy, perhaps a more
    realistic goal would be 80-90 percent. I would like you to set a new
    goal today. Your job--and our job--is too important to fail the
    American taxpayers in accomplishing this task.
        Thank you.

                         Statement of Charles Rossotti

        Senator Campbell. Go ahead. Continue, Commissioner.
        Mr. Rossotti. I will try to finish up this opening
    statement. I am just noting some of the things that have
    happened and some of the things that we hope to have happen in
    the future.
        Just continuing the recap, we have now inaugurated a new
    customer-oriented organization structure and have eliminated
    the 50-year-old structure of district service centers, regions,
    and national office staff. This means that tens of thousands of
    IRS managers and employees have new jobs and many old jobs were
    abolished. We are now going about the process of redesigning
    our business systems, everything from the way examinations are
    conducted to the way phone calls are answered.
        We are doing this while we also achieved our first clean
    opinion on our financial statements from GAO. While we still
    have significant problems in the compliance area, we did
    succeed in fiscal 2000 in stopping the decline in enforcement
    revenue.
        Finally, I should note that our recently completed filing
    season in fiscal 2001 was one of the best ever presented by the
    IRS. Our electronic filing set new records with 30 percent of
    taxpayers now e-filing. All of our records were shattered on
    our web site: 100 percent increase in forms downloaded, 50
    percent increase in hits.
        Our phone service, which is a very important area of
    service during the filing season, succeeded in answering 16
    percent more calls than last year. While it is far from where
    we want it to be, taxpayers were able to get through in person
    when they wanted to about two-thirds of the time, compared to
    62 percent last year. And in terms of accuracy of response, it
    was about 78 percent on tax law calls and about 88 percent on
    account calls.
        So these are all steps that are important, but we still
    know that we have a long way to go to reach our goal of top
    quality service for every taxpayer. We intend to accomplish
    this by making year by year improvements in performance, all of
    which are mapped out in our strategic plan, which was approved
    by the Oversight Board in January.
        I think all of this makes one very important difference
    between the IRS situation today and even a year ago when I came
    before this committee, and that is that I think the uncertainty
    about the future is reduced. We still have a great deal to do,
    but we think we have a better handle on how to do it and we
    have put in place the foundation for doing it.
        Turning to the budget request of $9.28 billion for fiscal
    year 2002, we will use these funds to address the highest
    priority gaps in our accomplishment of mission and goals, and
    put them in areas that we know we will need operational
    resources even while modernization continues. We know that
    taxpayers who are seeking to comply with the tax laws should
    receive the assistance they expect.
        Unpaid tax debts should be collected, and known areas of
    non-filing and under-reporting must be addressed and corrected.
    We are falling short in all of these areas in part, but not
    completely, because of resources. Of course, we also have to
    continue to support the key programs mandated by RRA 1998,
    including such areas as increasing electronic tax
    administration and compliance areas such as offers in
    compromise, collection, due process, innocent spouse, and
    others.
        Let me finish up a little bit on the business systems
    modernization program, because this is the biggest request for
    budget increase. For 2002, we did request an increase of $325
    million in appropriated funds for the information technology
    account. I should point out, however, compared to 2001, this
    really represents a net increase in funds available to us of
    $20 million because in 2001 we had carryover funds from prior
    year appropriations of about $300 million. So those $300
    million were available to us in 2001. They will be used up, and
    that is a major reason why we need this $325 million in 2002.
        Over the next 18 months in business systems modernization,
    we will begin to deliver projects that will help us to improve
    the quality of phone service, to provide some limited Internet
    services to taxpayers and practitioners, and to provide some
    better tools for our employees.
        In the following years, and accelerating particularly in
    2003, we will, I think, be able through business systems
    modernization to dramatically speed up the issuance of refunds,
    increase the quality and timeliness of our responses to
    taxpayer inquiries, and begin to provide much better tools to
    our employees who are collecting overdue accounts and examining
    returns. Overall, long term, through modernization we will
    dramatically improve quality, speed, and effectiveness, as well
    as protect taxpayer rights.

                               Prepared Statement

        So, in conclusion, Mr. Chairman, I believe that we know now
    in some detail what the path is. I think the path is the right
    path. It was laid out by Congress for us in the Restructuring
    Act, and we will be delivering through that path both short
    term and immediate improvements in service and compliance, as
    well as putting the foundation in place for longer term
    improvements.
        Thank you very much, Mr. Chairman.
        [The statement follows:]

                   Prepared Statement of Charles O. Rossotti

                                 budget summary
        Mr. Chairman, I want to take this opportunity to thank the
    President, and in particular, Treasury Secretary O'Neill, for their
    support of the IRS and its critical mission. I am especially grateful
    that the 6.7 percent increase contained in the IRS budget request is
    above what many other Agencies are proposed to receive for the coming
    fiscal year. The President's fiscal year 2002 budget request of $9.28
    billion for the IRS will enable us to continue to maintain current
    operations and provide the crucial investments needed for our longer-
    term Business Systems Modernization program.
        The budget includes close to $400 million in investments to
    modernize the IRS' outdated computer systems. This multi-year project
    will provide the IRS with the modern tools needed both to deliver first
    class customer service to America's taxpayers and to ensure that
    compliance programs are administered efficiently.
        In addition to our Congressional Justification, we have also
    provided the subcommittee our Annual Performance Plan. It is a direct
    result of the new IRS Strategic Planning process and complements our
    budget submission and supports the fiscal year 2000-2005 Strategic
    Plan.

                                  INTRODUCTION
        Mr. Chairman, even before the IRS Restructuring and Reform Act of
    1998 (RRA 98) became law, it was clear that a long-term commitment was
    required to fix the IRS. The barriers to better taxpayer service, fair
    and uniform administration of the tax law and greater productivity
    would not yield to short term fixes. Progress would be hard won and the
    victories would be small at first. In fact, we are just beginning to
    reap the benefits of budget increases that were provided more than two
    years ago.
        Mr. Chairman, the changes triggered by the passage of RRA 98,
    together with the need to modernize IRS's archaic computer systems, are
    all encompassing and probably unprecedented in magnitude for any
    government agency. It is perhaps only now that we have begun to
    implement some of the larger changes to our organization and business
    systems that we all fully appreciate the enormity of the challenge we
    have undertaken in partnership with Congress, the Administration and
    America's taxpayers. And that challenge is modernizing the IRS while
    still administering the largest tax administration system in the world.
        From my own perspective, I have tried to describe this process in a
    number of different ways, such as overhauling a passenger plane in mid-
    flight. I have also likened our Business Systems Modernization plan to
    reconstructing New York City from the bottom up without disturbing
    anyone and still accommodating growth and change. The mathematician
    Alfred North Whitehead once wrote that, ``the art of progress is to
    preserve order amid change and to preserve change amid order.'' And
    that sums up both the promise and challenge of making progress on
    modernization.
        But any metaphor I could suggest would not do justice to the
    magnitude and pervasiveness of the change that has occurred at the IRS
    and will take place for the rest of this decade. This is by no means a
    comprehensive list, but let me provide the Subcommittee a
    representative sample of some of these changes.
        Since the enactment of RRA 98, the IRS has a new mission and
    strategic goals. We changed the entire way we value success at the
    Agency, both individually and collectively. We invented a means to
    quantitatively measure success in a tax administration agency without
    considering dollars collected. We implemented and are administering the
    71 new taxpayer rights provisions. Many of these taxpayer rights
    provisions, such as innocent spouse protection, due process in
    collections and offers in compromise, would individually be considered
    major change projects. Collectively, they represent a challenge of
    learning new ways of doing business for nearly every one of our 100,000
    employees.
        We also inaugurated the new customer-focused organization structure
    in October 2000, eliminating a 50-year old structure of districts,
    service centers, regions and national office staffs. We are redesigning
    nearly every business process and system in the Agency, from the way
    examinations are planned and conducted, to the way phone calls are
    answered and the way facilities repairs are ordered. Tens of thousands
    of IRS managers and employees have new jobs and many old jobs were
    abolished.
        Just as importantly, we are making these changes while carrying out
    increasingly successful filing seasons for three straight years,
    achieving our first clean financial opinion from the GAO, and managing
    an extremely difficult and complex Y2K program. In fiscal year 2000, we
    were also able to stop the drop in enforcement revenue.
        These changes set the stage for year-by-year improvements in
    performance and for implementation of even more fundamental
    improvements that will be enabled by the Business Systems Modernization
    program. These improvements are carefully mapped out in a new Strategic
    plan that spells out what the Agency must do as an organization to
    improve taxpayer service and meet compliance goals while shrinking in
    size relative to the economy.
        This strategic plan, together with the implementation of the major
    parts of the reorganization and of other RRA provisions, means that
    there is one very important difference between the IRS situation today
    and the IRS situation even a year ago: namely, that the level of
    uncertainty about the future is greatly reduced. We still have much to
    do, but we know more clearly how to do it and have put in place the
    foundation for doing it.

                              FOUNDATION AND PLANS
        On January 30, 2001, the IRS Oversight Board approved the IRS
    Strategic Plan. It follows closely the letter and spirit of RRA 98 and
    reflects the new and modernized IRS. The strategic plan shows how the
    IRS can dramatically improve service to taxpayers and ensure fairness
    and compliance with our tax laws. Moreover, the Agency will meet these
    goals while continuing to shrink in size relative to the economy.
        The greatest challenge presented by the IRS strategic plan is that
    we must continue to administer the world's largest and most complex tax
    system while simultaneously reengineering and improving how the Agency
    works at its most basic level. In other words, we must operate
    effectively and modernize at the same time.
        I want to emphasize the importance of this two-pronged or dual
    approach of strategies to improve performance over the next two years
    while modernizing the Agency in the longer term. Let me illustrate how
    this approach is now working.
        In conjunction with our mission and goals, the IRS Senior
    Management Team developed 10 major strategies. For each of these major
    strategies, such as meeting the needs of taxpayers, reducing taxpayer
    burden and stabilizing traditional non-compliance areas, the Team
    defined Operational Priorities and Improvement Projects for fiscal year
    2001 and 2002. Responsibilities were then assigned for carrying out the
    projects.
        Operational Priorities are the basis for IRS staffing needs. They
    provide direction for conducting both new and current operations to
    ensure the achievement of our strategic goals. These priorities may
    change from year to year depending on changes in tax laws, the effects
    of business systems modernization and improvement projects or the
    redirection of program management.
        Improvement Projects are the basis for information systems project
    funding; they also generate savings in staffing. The projects represent
    opportunities to improve the ways that we work and involve both
    business changes and information systems improvements. These projects
    are smaller and more focused than those stemming from the Business
    System Modernization program and are selected through an agency-wide
    prioritization process.
        Let me stress, Mr. Chairman, that when making these decisions,
    senior management considered internal research and analysis,
    stakeholder input, Treasury Inspector General for Tax Administration
    and General Accounting Office recommendations and employee input on the
    key trends, issues and problems that most affect the IRS.
        This dual approach will require sustained support from the Congress
    and the public, as the change will take time and will inevitably
    include setbacks along the way. It will also require investments,
    especially for business systems modernization, and adequate funding for
    current operations, such as customer service and compliance.
       organizational modernization, strategies and program plan delivery
        Following RRA 98's directions, the IRS designed and has made
    substantial progress in implementing a new organizational structure. It
    closely resembles the private sector model of organizing around
    customers with similar needs.
        The IRS created four customer-focused operating divisions to best
    serve taxpayers: Wage and Investment, Small Business and Self-Employed,
    Large and Mid-Size Business, and Tax Exempt and Government Entities.
    There are also a number of functional units, including Appeals, the
    Taxpayer Advocate Service, Criminal Investigation, and Communications
    and Liaison. Internally, the Information Systems organization,
    including the Business Systems Modernization Office and the Agency-Wide
    Shared Service unit provide information technology and administrative
    support, respectively, to all divisions.
        The new organization focuses on providing service in three key
    program areas: pre-filing, filing, and compliance. And to succeed
    individually and collectively, all programs and organizational units
    must deliver top quality services to taxpayers through these three
    programs.
        There is also a much greater emphasis on pre-filing. We want to
    shift from addressing taxpayer problems well after returns are filed to
    addressing them earlier in the process, and in fact preventing problems
    wherever possible. This approach is also much more cost-effective and
    goes hand-in-hand with improving our program delivery in filing and
    account assistance and compliance services.
        The organizational structure is the vehicle through which decisions
    are made and actions are carried out. The modernized organization was
    specifically designed to support the new IRS' major strategies and
    programs or services. These organizational units can assess the impact
    of the strategies and programs on long-term strategic goals and
    objectives.
        The modernized organization also sets forth clear, end-to-end
    responsibility and gives a top official, supported by a small top-
    management team, the authority to serve a taxpayer segment. It is
    specifically designed to facilitate direct and meaningful two-way
    communication, both vertically and horizontally within the organization
    and with the particular taxpayer segment. The top management of each
    major division consists of a set of teams, each of which will be linked
    to the next level. In order to focus the operating units on delivering
    pre-filing services, new front-line organization structures were
    created in the each of the four operating divisions. The following are
    some examples of this new focus.
      --In the Wage and Investment Division (W&I), the Office of Field
            Assistance will provide comprehensive, person-to-person
            taxpayer assistance. To fulfill this role, a new Tax Resolution
            Representative position (TRR) was created to institutionalize
            the success of IRS ``Problem Solving Days'' into our day-to-day
            interaction with customers.
      --In W&I, the Stakeholder, Partnership, Education and Communication
            Office (SPEC) assists taxpayers by working with stakeholders to
            deliver products and services tailored to customers needing
            assistance. SPEC will deploy Account Managers and Marketing
            Specialists to cover every state and major metropolitan area in
            the United States during fiscal year 2001 and fiscal year 2002.
      --In the Small Business/Self-Employed Division (SB/SE), the Taxpayer
            Education and Communication Office (TEC) will provide tailored
            information to these taxpayers. It will conduct research and
            then develop and deliver products and services to meet their
            needs. The TEC Office will also be established during fiscal
            year 2001 and fiscal year 2002.
      --There are small pre-filing units in both Tax Exempt/Government
            Entities (TEGE) and the Large and Mid-Size Business (LMSB)
            Divisions. By using web sites, conferences, workshops and
            newsletters, the TEGE unit will reach its taxpayers and help
            them understand their tax responsibilities. In LMSB, the Pre-
            Filing and Technical Guidance Office will provide guidance on
            domestic and international tax issues, clarify core issues with
            industry experts and support industry components by identifying
            trends in tax issues.
      --The Government Entities part of TEGE is made up of three distinct
            sub-segments: Tax-Exempt Bonds; Federal, State and Local
            Governments; and Indian Tribal Governments. During fiscal year
            2001 and fiscal year 2002, TEGE will establish from the ground
            up a cohesive education, outreach and compliance program for
            these customers.
      --The Taxpayer Advocate Service has multiple missions: 1) assist
            taxpayers to resolve long-standing problems with the IRS; 2)
            solicit feedback from taxpayers about IRS problems; and 3)
            identify systemic problems and propose legislative changes.
      --Criminal Investigation's Lead Development Center will work with
            interagency task forces, the Financial Crimes Enforcement
            Network and the operating divisions to select, develop and
            assign leads.
      --Business Systems Planning is a functional group included in all
            business units. This group will plan and analyze business needs
            for new projects, develop business cases, formulate Information
            Technology plans and budgets, develop and test projects, and
            implement and oversee modernization projects for its business
            unit.
      --The Information Technology Services organization has been
            established to manage the operations, maintenance and
            enhancement of IRS installed systems. Previously dispersed into
            more than 15 different information systems support
            organizations, this new ITS organization is aimed at providing
            high quality, professionally managed services to the other IRS
            operating and functional divisions. It will also work in
            partnership with the Business Systems Modernization office to
            reengineer and replace IRS basic business systems and
            supporting technology.
      --Finally, Agency-Wide Shared Services was established to support the
            operating divisions by providing world class administrative
            service to all the operating units nationwide.
    Business Systems Modernization
        For an organization so critically dependent on technology, IRS'
    systems are woefully obsolete and inefficient. The facts cannot be
    disputed. The IRS is saddled with a collection of computer systems
    developed over a 35-year period. The most important systems that
    maintain all taxpayer records were developed in the 1960s and 1970s.
        In an age of faster and more powerful computers, taxpayers are
    shocked to hear that their most important personal financial data is
    stored and updated once a week on magnetic tape. Overlaying new
    software onto old has created a set of disparate data bases, many of
    which do not talk to one another. Until our consolidation as part of
    the Y2K program, there were 147 mainframes and 8,700 software products.
        The effect of this obsolete technology on service to taxpayers and
    productivity also cannot be disputed. As compared to what the private
    sector can offer, the IRS' services are wholly unsatisfactory.
        Many credit card companies and banks provide their customers with
    real-time account information; their phone representatives can often
    make adjustments on the spot. However, due to our archaic technology,
    IRS employees often do not have access to current taxpayer account
    information. Adjustments to a taxpayer's account may not take effect
    for up to 16 days because of delays in updating files and data among
    different systems. Payments and notices cross in the mail, often
    generating more notices and frustration. Our overall account quality
    for taxpayers requesting information on their accounts over the
    telephone is improving but this filing season is still only 70 percent.
        While the IRS Web site has proven to be an extraordinarily valuable
    source of information for taxpayers, we cannot yet use the Internet to
    provide taxpayers information about their returns or their tax
    accounts, or to exchange messages to resolve account issues. This is
    because we have not yet solved the difficult security problems required
    to provide this service while protecting taxpayer data.
        Inadequate technology and the concomitant lack of accurate data
    also seriously hamper our ability to identify and collect unreported or
    unpaid taxes. Generally, individual audits are not started until 6-18
    months after a return is filed. When they are started, the information
    available to our auditors is limited, extending the time to complete
    the audits and increasing the burden on the taxpayer. Collection of
    outstanding balances of individual and business taxes is extremely
    slow, usually taking years rather than months as is done in the
    commercial world. When cases are appealed, as is provided for in RRA
    98, the transfer of case materials is slow and cumbersome.
        The Business Systems Modernization (BSM) program was established to
    take the IRS to the next level and make longer term, fundamental
    changes to our business processes and practices while managing the
    inherent risks of the process. Over the remainder of this decade, it
    will deliver the major benefits to taxpayers and our tax administration
    system that modernization and RRA 98 are all about. And that process
    has already begun.
        Earlier this fiscal year, the IRS Executive Steering Committee
    approved the Enterprise Architecture. It is the roadmap for modernizing
    the Agency's business systems and supporting information technology
    networks. The Enterprise Architecture (Version 1.0) will guide the
    agency's business and technology improvements in the coming years. The
    approval of the architecture marks a major milestone in our progress
    towards the goals of Business Systems Modernization and will enable us
    to design and build new business and technology projects that will be
    the backbone of the modernized IRS.
        The IRS previously published a blueprint in 1997. It was the first
    comprehensive view of modernized tax systems and guided the IRS efforts
    to update technology. The new Enterprise Architecture reflects the
    lessons learned since 1997 and incorporates elements of the IRS
    reorganization into the four new customer-oriented operating divisions.
    It is an evolving document designed for constant use, with updates
    scheduled for spring and fall 2001 and regular updates thereafter. This
    new blueprint will ensure that IRS business systems' technology is
    compatible. And it will enable IRS employees to do their jobs better
    and provide taxpayers better service.
        Because of the scale, complexity and risk of BSM, we can only carry
    out the plan by defining manageable projects, which are subject to a
    disciplined methodology. Each of these projects will be carried out
    through a step-by-step ``enterprise life-cycle'' in which successively
    greater amounts of detail are defined. The process requires that a
    vision and strategy phase be completed as a first step, prior to
    commencing tasks such as infrastructure development, information
    systems delivery, or process-reengineering. The final milestone in the
    cycle is an initial ``deployment'' of a project as an operational
    system. The IRS' Enterprise Program Management Office manages this
    process.
        Also key to BSM's success is the Tax Administration/Internal
    Management Vision and Strategy Project. Through the project, we have
    instituted a practice that ensures the Operating Division Commissioners
    and staff develop and take ownership of a process and systems
    modernization approach that is consistent and integrated with the
    overall vision of the future IRS. The project's ultimate goal is to
    create an enterprise-wide view of tax administration that is reflected
    in BSM.
        The Business Systems Modernization Organization (BSMO) has now
    identified all the major initiatives for the next several years that
    link directly to our major strategies. Moreover, BSMO defined the major
    dependencies between and among projects and created a sequencing plan
    for their initiation, development, and deployment. It has also made
    rough estimates at a high level of the costs associated with each
    initiative and developed multi-year spending estimates consistent with
    this program.
        This high-level cost and schedule estimates serve as general guide
    for planning and setting overall priorities, but are not intended to be
    used to make specific spending or schedule commitments. No spending is
    actually authorized except with respect to specific milestones in which
    more reliable cost and schedule estimates are made. In short, the IRS
    now has a strategy for achieving the major goals of business systems
    modernization.
        In addition to the strategy and planning for business systems
    modernization, much emphasis has been placed on building an adequate
    program management and product acquisition capacity for this huge
    program. In the 21 months that this program has been underway,
    considerable progress has been made in building this capacity. However,
    management capacity can only mature with experience, and much more can
    and will be done to improve it.
        The risks of business systems modernization are undeniably
    substantial. Any large and complex modernization program involves
    substantial risk, and by any measure, the IRS program is large and
    complex. However, the unique aspect of this program, as compared with
    any other business systems modernization program in the public or
    private sectors, is the exceptionally old and fragile base of existing
    installed systems on which the IRS totally depends for current
    operations.
        Virtually every one of the IRS' 100,000 employees depends on these
    old, inefficient, inconsistent systems to perform their everyday job.
    There is little, if any, precedent for making a transition of an entire
    base of such large-scale installed systems on an enterprise-wide basis
    for an organization the size of the IRS. This unique situation, as
    undesirable as it is, also creates the necessity for the modernization
    program. There is no practical alternative to total replacement of this
    base of installed systems.
        Although the risks of modernization are high, this does not mean
    that the program is destined to fail. With intense and effective
    management, the risks can be identified and addressed and appropriate
    corrections made. However, the nature of this risk means that it is to
    be expected that frequent adjustments to plans and schedules will be
    made to reflect experience. Delays and even failures of some
    initiatives and projects will occur, but if properly managed these
    problems can be identified early enough to correct them with reasonable
    adjustments in costs and schedules and without undermining the overall
    success of the program.

               KEY DRIVERS OF THE FISCAL YEAR 2002 BUDGET REQUEST
        The resources provided by the fiscal year 2002 budget request will
    be used to address the highest priority gaps in our ability to meet our
    mission and goals and will be focused on areas that we know will need
    more resources even while modernization continues. Taxpayers seeking to
    comply with tax laws must receive the assistance they expect; unpaid
    tax debts should be collected; and non-filing and underreporting must
    be addressed and corrected. The IRS is falling seriously short in all
    these areas, in part because of resource limitations.
        In addition, we must continue to support key programs mandated by
    RRA 98, including Electronic Tax Administration, and must reduce the
    case backlog in programs such as Offers In Compromise, Innocent Spouse
    and Collection Due Process. Information services delivery must improve
    toward established benchmark levels, thereby boosting productivity
    throughout the organization, including the service and compliance
    programs. Progress on correcting security and financial control
    weaknesses must be made and we must fully implement some of the
    technical training programs, including those for essential occupations
    such as exam and customer service.
        Finally, modernization itself places major demands on the IRS
    operating organizations. The Business Systems Modernization Program,
    which is funded by the Business Systems Modernization Account (formerly
    the Information Technology Investment Account), provides only for
    outside contract services, not for internal IRS staff required for
    these programs. These internal demands are increasing rapidly.
        Our plan to meet the demands of these key drivers will not be
    accomplished in fiscal year 2002; however, we will make a significant
    start to meeting those goals. We will address the following strategies
    as one of the significant steps on the road to IRS modernization.
    Fill New Front-line Pre-Filing and Taxpayer Assistance Positions in the
            Organizational Design
        In order to provide better service to compliant taxpayers, we must
    complete the staffing of our pre-filing organization that aids
    taxpayers in filing correct returns, as well as resolving issues with
    payments and correction of tax returns. The need for this service was
    highlighted during Congressional hearings and through the success of
    our ``Problem Solving Days.'' Once our in-person taxpayer assistance
    offices are adequately staffed, we will be also able to reduce our
    reliance on work details from the compliance function during the filing
    season--a necessary, but inefficient practice. This will enable us to
    provide more effective compliance coverage.
    Increase the Level of Service (LOS) Access for Telephone Service
        The strategy for increasing LOS for toll-free telephone is two-
    fold: (1) increase staffing slightly and (2) install management,
    process and technology changes to increase the effectiveness and
    efficiency of telephone operations; these changes include both
    technology changes and improved management specialization and training
    of assistors. With these changes, the IRS has set an aggressive goal to
    improve the level of service--the success rate for callers connecting
    to an IRS representative--to 71 percent. System and productivity
    improvements will raise Toll-Free Level-Of-Service the equivalent of
    hiring 1,474 additional live assistors.
    Replace Attrition in Front-line Compliance Positions
        External factors, however, are affecting our ability to meet this
    plan. In fiscal year 2001, the IRS is experiencing a higher than normal
    attrition rate of 6.05 percent versus the 4.5 percent average annual
    rate. This rise is due to a number of factors, including an aging
    workforce. Since much of this attrition is among our senior front-line
    staff, our productivity measures in fiscal year 2001 and 2002 may be
    affected. Replacement of staff lost to attrition with qualified
    personnel will be a major challenge over the next several years.
    Increase Front-Line Compliance Services Staffing for Document Matching
            and Telephone Collections
        In fiscal year 2001, sixteen Electronic Collection sites will be
    divided between W&I and SBSE. At those sites, Customer Service
    Representatives (CSR) will answer specific calls based on the
    taxpayer's needs. In fiscal year 2002, calls will be routed to CSRs
    based on additional characteristics. For example, a specialty site will
    be in place for taxpayers who have defaulted on installment agreements.
    These and other service improvement efforts will be enhanced with the
    addition of staff from the STABLE (Staffing Tax Administration for
    Balance and Equity) initiative.
        Also, in fiscal year 2001, six Automated Underreporter (AUR) sites
    will be divided between W&I and SBSE. In fiscal year 2002, specialized
    service will be provided to target groups identified through feedback
    from compliance audits. Through both of these approaches, taxpayers
    will receive better service that addresses their specific tax problems
    and provides a basis for more efficient tax administration.
    Reduce the Number of Compliance FTE Diverted to Filing Season Details,
            Thereby Increasing Net FTE for Compliance
        In recent years, the IRS has detailed approximately 1,200 FTE from
    Examination and Collection duties to Customer Service to meet filing
    season workload peaks in the Toll-Free Telephone and Walk-In assistance
    programs. The STABLE initiative was designed, in part, to reduce by 50
    percent the Customer Service reliance on short-term details of
    compliance staff. By reducing the diversion of revenue agents, tax
    auditors and revenue officers from enforcement casework, audit coverage
    and collection effectiveness are expected to increase.
    Centralize Processing of Most Offers in Compromise (OIC) to Reduce the
            Drain on Front-Line Collections Staff
        Over the past several years, the Offer in Compromise program
    continued to show an increase in its over-age inventory even while
    resources used have continued to increase. Recent tests proved that
    using a bulk processing methodology to process low-dollar cases
    resulted in productivity gains. OIC Centralized processing will be
    divided between two SB/SE sites responsible for processing
    determinations and case building. This centralization will allow
    Revenue Officers to concentrate on collecting overdue accounts while
    improving the timeliness of processing OICs.
    Move Most Innocent Spouse Cases to W&I to Reduce the Drain on Front-
            Line SB/SE Exam Staff
        To improve efficiency, the ``Innocent Spouse'' program has been
    centralized at one W&I service center location. SB/SE field staff will
    continue to work through their current inventory, but most new cases
    will be resolved in the W&I service center or taxpayer assistance
    centers. New cases forwarded to field compliance staff are expected to
    decline in fiscal year 2001. With the shift of work to W&I, there will
    be a reduction of Field Compliance resources in SB/SE dedicated to
    Innocent Spouse activity allowing a redirection of these resources to
    compliance activities.
    Fill Out the TEGE Government Entities Organizational Design
        TEGE designed its Government Entities (GE) organization to reach
    taxpayer segments that have been historically underserved: Tax-Exempt
    Bond-Issuers, Federal, State and Local Governments (FSLG) and Indian
    Tribal Governments. The size and complexity of the tax-exempt bond
    market requires ongoing attention to address emerging economic issues.
    Indian Tribal government gaming and related economic development are
    expanding rapidly nationwide. For FSLG, the objective is to identify
    emerging employment tax issues and provide guidance.
    Initiate Document Matching for K-1s
        Trust and partnership return filings have steadily grown since
    1995, increasing 7.4 percent and 26.2 percent respectively. Trust
    return filings constitute the largest business filing population at 3.5
    million filers, while partnerships surpassed two million filers in
    fiscal year 2000. Research suggests that up to 20 percent of pass-
    through income is not being reported. And it is further estimated that
    unmatched K-1s equate to up to $500 billion in pass-through income.
    These pass-throughs are not being identified by IRS and therefore are
    not available for compliance reviews. Abusive tax shelters are taking
    advantage of IRS' inability to match, regulate or analyze this
    information. Over 350 FTE are to be hired from the STABLE initiative in
    fiscal year 2001 to ensure that greater effort is placed on this
    problem. These FTE will provide for the essential data entry, not the
    actual casework to follow up on matches.
    Improve Operational Efficiency Through Modernized Business Systems
            Coming On Line
        In its fiscal year 2001 budget request, the IRS stated: ``Our
    modernization program relies on improved management, business practices
    and technology. Because the basic IRS strategy is to meet increased
    workload and service demands by reengineering business practices and
    technology, freeing up positions through business systems investment is
    a critical requirement. By investing in technology and improved
    business practices, the fiscal year 2001 budget request avoids the
    traditional staff increases that would otherwise be required.'' And in
    fiscal year 2002, we will begin to deliver on that promise.
        Operational efficiencies and improved customer service will be
    evident as early as fiscal year 2002 in two programs. The first,
    Electronic Tax Administration, will make submission processing more
    efficient through electronic filing. The second program, Customer
    Communications 2001, will provide increased toll-free telephone service
    to taxpayers. Let me describe these initiatives in greater detail.
      --The e-Services project will foster easy-to-use electronic products
            and services. It is targeted at specific practitioner segments
            that inform, educate, and provide service to taxpayers. In
            addition, e-Services will provide the foundation for providing
            safe and secure electronic customer account management
            capabilities to all businesses, individuals, and other
            customers. This project will help the IRS meet the
            congressionally-mandated goal of 80 percent of tax returns and
            information filed by electronic means by 2007, while achieving
            a 90 percent customer and employee satisfaction rate.
          --Research has shown that third party preparers filing complex
            returns have been slower to adopt electronic filing. In
            conjunction with our efforts to allow all forms and schedules
            to be filed electronically, the e-Services 2002 release is
            designed primarily to encourage paid preparers to e-file on
            behalf of their clients.
      --The Customer Communications 2001 project will improve the
            efficiency and effectiveness of IRS' systems for responding to
            taxpayer calls on our toll free lines. Hardware and software
            improvements will be made to the telephone system that is used
            to receive, route, and answer more than 95 million taxpayer
            telephone calls each year. The efficiencies derived through
            modernizing will allow the IRS to improve its level of service
            without commensurate increases in the number of FTE handling
            calls. This project will not only deliver direct benefits by
            increasing the number of calls that can be answered with
            available staff, but will also be a critical foundation element
            for subsequent projects, since virtually all major systems
            require communication with taxpayers.
    Plan for Normal Workload Increases
        In fiscal year 2001, the IRS will handle a total workload--greatly
    increased by an expanding economy--with 15,000 fewer FTE than in fiscal
    year 1993. Staff reductions since fiscal year 1993 are due to
    downsizing efforts and internal reprogramming to meet essential non-
    labor needs. We estimate that the IRS overall workload increases at the
    rate of approximately 1.8 percent per year, slightly greater than the
    rate of growth of returns filed. At the same time, RRA 98 created very
    significant additional resource demands. Expanded programs such as the
    innocent spouse provisions, offers in compromise and due process in
    collection required more than 4,200 IRS staff annually to administer.

                FISCAL YEAR 2002 RESOURCE REQUEST AND OBJECTIVES
        To ensure that we meet these requirements, the IRS requires a
    minimal increase in funding in fiscal year 2002, as set forth in the
    President's budget. With the new organization in place, new technology
    improvements beginning to come on line, and the staffing provided by
    the STABLE initiative, the declines in compliance activities, such
    audit and collection actions, will stabilize while customer service
    indicators will continue to improve.
        In fact, as demonstrated in the performance and workload measures
    included throughout our Congressional Justification document, we expect
    some improvement in performance over fiscal year 2000. For example,
    service improvements can be seen in the expected level of service
    increase to 71 percent. In addition, while still low by historical
    standards, the number of returns audited is projected to rise by 28
    percent. Equally important, key areas of non-compliance, such as trusts
    and passthroughs, higher income returns, corporate returns and
    employment tax collections will receive more focus.
        The fiscal year 2002 request is $9.276 billion (without the Earned
    Income Tax Credit Account), $580 million more that the fiscal year 2001
    appropriated level of $8.696 billion. Most of this increase, $325
    million, maintains the momentum needed for the Business Systems
    Modernization technology effort underway at IRS.
        Let me stress Mr. Chairman, that the $325 million increase will be
    used to replenish the Information Technology Investment Account (ITIA)
    which has been drawn down as the IRS begins to deliver on the BSM
    program benefits. In fiscal year 2001, in addition to the $72 million
    in the fiscal year 2001 appropriation, the IRS had use of $305 million
    in ITIA funds carried over from prior years' appropriations. Thus, the
    total ITIA funds requested for fiscal year 2002 of approximately $397
    million represent a net increase in actual funds available to the
    program of $26 million or 6.5 percent even though the requested
    increase in appropriations is $325 million. Apart from this technology
    investment, the remaining increase is only 2.9 percent greater than
    fiscal year 2001 and is necessary to maintain current operations.
    Program Changes
        Our budget request has two broad categories: Maintaining Current
    Operations and Modernization. Program increases to maintain current
    operational levels include FTE for the STABLE initiative and the
    Counter Terrorism Initiative. Decreases in our operational levels
    include program offsets in costs for non-labor resources that support
    activities of the IRS. Modernization includes increases for our
    investments in new technology to continue the momentum of business
    systems modernization and decreases in funds for organization
    modernization that are no longer needed.
    Maintaining Current Operations
        Modernization of the IRS includes modernizing the organization
    structure as well as the technological base. On October 1, 2000, the
    structural reorganization of the IRS was completed with the standup of
    the final operating units. However, there will be a period of
    adjustment over the next two years as the new business units assume
    their new roles and responsibilities. In particular, the service
    improvements in telephone operations and compliance depend on further
    workload redistribution, increased specialization and retraining of
    approximately 4,000 to 6,000 employees in Accounts Management and
    Compliance Services programs.
        The IRS is also requesting $325 million to fund the estimated cost
    of non-pay inflation and statutory pay and benefit increases. The IRS
    is a labor-intensive organization. Our mission is accomplished through
    people, and stabilization of the workforce is critical. To maintain
    current operations, protect the integrity of the filing season, oversee
    tax administration programs and implemented organization modernization,
    the IRS must have the resources to pay for the increased costs
    associated with statutory pay increases.
        Congress provided funding in fiscal year 2001 for the STABLE and
    Counter Terrorism Initiatives. The STABLE initiative was designed to
    stabilize and strengthen tax compliance and customer service programs.
    In addition, the annualization of the Counter Terrorism Initiative will
    complete funding for the IRS Criminal Investigation portion of the
    National Counter Terrorism Initiative.
        There are program offsets too--$57 million in projected inflation
    for non-pay expenditures. It is believed that such costs can be offset
    through improved resource management.
    Modernization
        Most of the costs to America's taxpayers of administering our tax
    system are not in the IRS budget. Each taxpayer must invest time and
    money in preparing a return and must bear the intangible cost of
    dealing with an agency that attempts to help using extraordinarily old
    and poorly integrated systems. The IRS has been endeavoring to
    reengineer the entire way it does business to ensure that its customer,
    the American taxpayer, receives world class service.
    Business Systems Modernization
        For fiscal year 2002, we are requesting $397 million to continue to
    invest in the modern technology necessary to improve customer service
    delivery. Compared to fiscal year 2001, this represents a net increase
    in available funds of $26 million, taking into account funds available
    in fiscal year 2001 that were carried over from prior years. A specific
    list and description of the projects to be funded from this request are
    contained in our Congressional Justification; a summary of these can be
    found in the Appendix to our testimony. Funding to improve these Core
    Business Systems is necessary for full compliance with RRA 98 mandates.
    Full funding will allow for the following benefits:
      --Short Term.--Improved access to IRS support, information and tax
            data through multiple, easy-to-use channels; more accurate
            information provided by IRS; greater speed of response to
            taxpayers; and improved timeliness of IRS-initiated actions;
      --Mid-Term.--A set of business systems and practices more nearly on a
            par with the private sector, and that provides a single point
            of access to all information relating to taxpayer account
            information for both taxpayers and IRS employees;
      --Long-Term.--A flexible and adaptable environment that meets the
            Nation's tax administration requirements and taxpayer needs in
            the ever-changing technological landscape of the future.
    Organization Modernization Non-Recur
        Funds have been requested in the past three years to cover special
    costs that are related to IRS modernization. Some of these resources
    were for design work, space alterations and contract movers to
    physically realign employees with their new operating divisions. The
    remaining funds were for employee buyouts, recruitment, relocations,
    employee training, equipment, services and supplies, telecommunication
    moves and installations, and modification of information systems to the
    new organizational structure. Costs for organizational modernization
    are peaking in fiscal year 2001, and will decline by $101 million in
    fiscal year 2002 and end in fiscal year 2003. In fiscal year 2002, the
    $101 million non-recur reflects reduced costs for modification of
    information systems, employee buyouts and moving expenses, and some
    contracts, training and operating travel.

                                   CONCLUSION
        Mr. Chairman, in conclusion, I believe that the IRS is on the right
    track. We have demonstrated both the ability to make some short-term
    improvements in service, and more importantly, the ability to produce a
    viable and cogent strategic plan that will guide our efforts to make
    changes in the entire way we do business and provide service to
    taxpayers. With your continued support and the support of the American
    people, I am convinced more than ever that we can succeed.

                                   APPENDIX A
        The Business Systems Modernization Organization (BSMO) has now
    identified all the major initiatives for the next several years that
    link directly to our major strategies. Moreover, BSMO defined the major
    dependencies between and among projects and created a sequencing plan
    for their initiation, development, and deployment. It has also
    estimated the costs associated with each initiative and developed
    multi-year spending estimates consistent with this program. It now has
    a strategy for achieving the major goals of business systems
    modernization. The following are some of the key projects we will be
    working on during the next three years and beyond.
      --Deployment of the Customer Communications 2001 Project.--The
            Customer Communications Project is the first deployment of a
            business capability under the BSM effort. It is now in final
            testing before deployment in the third fiscal quarter. The IRS
            will greatly improve the efficiency and effectiveness of IRS'
            Automated Call Distributors (ACDs) and provide customer service
            levels on a par with the private sector. Hardware and software
            improvements will be made to the telephone system that is used
            to receive, route and answer more than 150 million taxpayer
            telephone calls each year. At a later date, Internet access
            capabilities will be added. This project will deliver direct
            benefits by increasing the number of calls that can be answered
            with available staff and will be a critical foundation element
            for subsequent projects, since virtually all major systems
            require communication with taxpayers.
      --Development of the Customer Relationship Management Exam (CRM Exam)
            Project.--Development has already begun. Through CRM, the IRS
            tackles some of the most complex tax calculations, including
            carryback/carryforward, the Alternative Minimum Tax, and
            Foreign Tax Credit. This initiative will enhance the revenue
            agent's capabilities, reduce exam time, produce consistent
            results and reduce the burden on taxpayers who must deal with
            the IRS on these complex tax issues.
      --Development of the Security and Technology Infrastructure Releases
            (STIR).--The design for STIR was approved and development was
            initiated. This project provides the essential underlying
            security infrastructure for the planned project deployments of
            the Customer Account Data Engine (CADE), Customer
            Communications (2002), and e-Services and Customer Account
            Management System. Development, testing and first release are
            expected by 2001.
      --The Customer Account Data Engine.--(CADE) is the cornerstone of the
            data infrastructure. It is designed to provide a modern system
            for storing, managing, and accessing records of taxpayer
            accounts. CADE will create applications for daily posting,
            settlement, maintenance, refunds processing, and issue
            detection for taxpayer accounts and return data. The database
            and applications developed by CADE will also enable the
            development of subsequent modernized systems.
          --CADE is scheduled to be released in stages, beginning first
            with simple tax returns being moved into the new CADE system,
            followed by increasingly complex taxpayer returns. As more
            taxpayer account information is moved into the new CADE system
            through these staggered releases, other modernized applications
            will be put in place to provide the interfaces necessary for
            IRS employees, and affected taxpayers, to access and carry out
            transactions. System development, testing and initial
            deployment of some returns is expected to be completed during
            2002.
      --Development of the Enterprise Data Warehouse/Custodial Accounting
            Project (EDW/CAP).--Today, the IRS has a variety of dedicated
            research databases, and also uses its operational databases for
            operations research/analysis. The timeliness, consistency and
            standardization of the data in these separate systems do not
            support integrated analysis and corporate-wide decision making.
            The inconsistent and redundant data in stovepipe systems can
            result in inconsistent management and reporting data.
          --Through EDW/CAP project, the IRS will develop an integrated
            enterprise data warehouse to support organizational data needs,
            such as those that are critical to managing our new compliance
            initiatives. For example, it will provide a single integrated
            data repository of taxpayer account and payment/deposit
            information, fully integrated with the general ledger. And it
            will identify payment and deposit information at the point of
            receipt. The operating divisions will be given access to
            pertinent revenue, assessment, disbursement, and seized asset
            information. In addition, it will provide the IRS with the
            capability to maintain financial controls over the $2 trillion
            of tax revenue received annually.
      --The e-Services project will support our ability to meet the overall
            goal of conducting most transactions with taxpayers and their
            representatives in electronic format, as required by RRA 98. By
            2002, the e-Services will: (1) provide the capability to
            register new electronic return originators over the Internet;
            (2) permit delivery of transcripts to authorized parties
            electronically; and (3) allow third parties who are required to
            provide certain forms 1099 and information returns to check the
            taxpayer identification numbers for accuracy before submission.
          --An important aspect of e-Services project is that it will be
            one of the first projects to provide a practical and limited
            application to define and test the design of our critical
            security infrastructure for sending and receiving taxpayer data
            internally and externally.
      --Customer Account Management (Individual Assistance and Self-
            Assistance Operating Models).--In today's environment,
            taxpayers are often unable to receive timely and accurate
            responses to requests and inquiries. These operating models
            will provide improved technology and business processes that
            will enable the IRS to: better manage customer service
            functions; maintain and utilize customer data to improve
            taxpayer interactions with the IRS; provide comprehensive
            account and tax law assistance to taxpayers and practitioners;
            and manage the case work flow of customer inquiries. There is a
            separate release strategy for each of the operating models
            based on the customer segment that benefits the most from the
            new capabilities.
      --Tax Education (Direct and Indirect) Operating Models.--These models
            address improving business processes and operational systems
            within the pre-filing business area (i.e. before a return is
            filed). In the past, there has been minimal investment in pre-
            filing activities, such as making educational materials,
            information and forms more readily available. With the
            organizational modernization, pre-filing activities will become
            more prominent. The Tax Education Operating Models will help
            taxpayers reduce or eliminate errors before they become
            compliance problems by developing proactive and targeted
            educational materials that are available 24/7 in various
            formats from web-based products to published documents.
            Utilizing third-party partnerships, the IRS will develop and
            make available in plain language reliable educational
            information, guidance and advice.
      --Individual Assistance Operating Model for Reporting Compliance.--
            The current compliance environment has produced a number of
            problems, such as extended cycle times, reduced coverage and
            decreased customer and employee satisfaction. This project will
            have a significant impact on the present Reporting Compliance
            operational environment by providing: (1) robust, issue driven
            compliance planning that utilizes outcome-based improvement to
            ensure fair and effective selection of cases; (2) highly
            automated decision engines for risk-based case selection,
            treatment assignment and resource allocation to decrease cycle
            time; (3) electronic case files with pre-identified issues to
            support productivity gains and increased coverage; (4) case
            working tools, workflow management and remote access to
            critical data; and (5) new technology and processes to
            establish collectability, secure payments and facilitate
            payment agreements at the closure of cases.
      --Filing and Payment Compliance Operating Model.--This is an end-to-
            end strategy to resolve collection issues quickly and fairly.
            It augments, refines and replaces existing processes and
            technology to enable the IRS to interact with taxpayers in a
            seamless and efficient manner. Protection of taxpayer rights at
            all times is an important component of this strategy. Taxpayers
            who are able to resolve their cases with no direct IRS contact
            are provided various self-correct options. Field or Collection
            Call center staff will assist taxpayers who need help to
            resolve their delinquent tax cases. They will have access to
            real-time data to ensure that appropriate actions are taken and
            taxpayer rights are protected. The operating model will
            decrease cycle time to approximately six months.

                    GAO Clean Audit of IRS for the Year 2000

        Senator Campbell. Thank you, Commissioner. I do not have a
    conflict for about an hour and-a-half and Senator Dorgan does,
    so I think I will yield to him, if you have some questions you
    would like to ask before you go?
        Senator Dorgan. Mr. Chairman, thank you very much. Again,
    Commissioner, thank you for being here. Without belaboring the
    point, all of us serve on many committees. I think I am in four
    committees and I think 12 subcommittees, and 3 of them are
    meeting right now. One of them I have to stop at quickly and I
    do not know that I will get back in time. So what I would like
    to do is submit a list of questions to you, and just mention
    two areas.
        I understand that in fiscal year 2000, for the first time
    the GAO gave the IRS an unqualified or clean audit opinion for
    the year 2000. Congratulations.
        Mr. Rossotti. Thank you.
        Senator Dorgan. That obviously suggests that the financial
    management systems have been improving and you have been taking
    the right kind of steps and providing the right kind of
    leadership. I congratulate you for that.

                           IRS Modernization Program

        I do want to ask a question about the Washington Post
    report that I think I had mailed to you and certainly you have
    seen, and also a report in the Wall Street Journal. It is a
    problem that has existed prior to your coming to the IRS, but
    continues, and I suspect it is a vexing problem for the
    Service. That is, people calling in to get taxpayer assistance
    and getting the wrong advice. And at least in one in five
    circumstances, in addition to the wrong advice, getting
    somebody who is not very friendly or not treating them
    properly.
        I assume that you are treating this as a priority and
    struggling to try to deal with it. Could you give me your
    reaction to both of the reports?
        Mr. Rossotti. Yes. First of all, it absolutely is a
    priority to provide first quality service to taxpayers who
    either call in or actually come and visit, and let me take them
    separately because they are similar in some ways, but they are
    actually distinct.
        Most taxpayers that contact the IRS do so by phone. We are
    getting about 100 million calls now across the whole year.
    About 30 percent of them are tax law calls, where people call
    in to ask information about tax law. This is a very, very high
    priority for us to improve. It is also a very difficult one
    because of the wide range of things that people can call in and
    ask about, so we are tracking this very carefully.
        In the phone service area, but not yet in the in-person
    service, we do have a quality measurement system that we began
    to put in about a year and-a-half ago, which actually monitors
    real taxpayer calls and scores every call both in terms of
    accuracy of answer, as well as the more soft variables of how
    well they were treated. We have improved, and I cited some of
    the statistics. But it is still well below what we need to do.
        The things that we are doing to fix this and to improve
    this have partly to do with training of employees, and that is
    probably the main thing that we have done to improve so far.
    But frankly, if you look at the things that people can call in
    about about tax laws and accounts, it is an enormously wide
    range of subject matter.
        So one of the most important things that we are doing
    longer term is reorganizing--we have about 9,000 full-time-
    equivalent employees that answer phones, but in the filing
    season it goes up to maybe 13,000. Obviously, what we have to
    do is we have to divide them into specialized subsegments, so
    that an employee can reasonably be expected to learn about a
    particular area of tax law, and then we have to use technology
    to direct the calls to the people who have that particular
    expertise. That is the basic strategy.
        We began to implement some of it even last year. We will be
    implementing considerably more of it next year. That is
    actually the very first project that is coming out of business
    systems modernization--call service that will direct those
    calls. We are also doing some other things in terms of the way
    that the place is organized, so that we can train people in
    these specialized subjects.
        The net effect of this is that I really believe that--as we
    have already done and we have made some progress, over the next
    two years we will see continued improvement in both the
    accessibility and the quality of phone service for taxpayers.
        On the other side of it--and we have spoken about this in
    person, is the in-person service. Some people just cannot cope
    over the phone or do not want to cope. They want to come in and
    deal with an IRS person face-to-face. This kind of service,
    this in-office service was treated very ambiguously by the IRS
    for many, many years. It was never clear whether it was really
    a priority or it was not a priority, and as budgets were cut,
    the staff was cut. We have talked about North Dakota. As of
    about 18 months ago, there were only five full-time employees
    in the entire State of North Dakota that were assigned to
    specific offices so that people could come in and get service.
        We made a determination as part of our strategic plan in
    our reorganization that, unambiguously, we do need to provide
    that kind of service for those taxpayers who need it. We have
    reorganized so that now that is all under one management
    structure. As part of the STABLE initiative we will be, and are
    at the present time, right as we speak, recruiting higher
    graded and additional employees. When it is fully effective, we
    will have 17 permanent employees in four different locations in
    the State of North Dakota.
        I am using this because I know this will mean more to you
    than the thousands across the country. I am sorry, Mr.
    Chairman, I should have gotten the ones for Colorado too, but I
    will get them for you. It just occurred to me that I should not
    neglect Colorado in this discussion.
        But I figured just using it to illustrate the fact that we
    are going to have a professional set of people managing it,
    they will be assigned full-time, and then they will be trained
    to offer reasonable services.
        I will also say that we have further to go, I believe, in
    measuring the quality of service in our in-person sites than we
    do in the phone service because in the phone service, we have
    been at this for a couple years and it is easier to monitor
    traffic because you can do it electronically. We are still
    working on how to get our quality measurement system for the
    walk-in sites. That is one of our top priorities for this year
    and we will be, we hope, by the end of this year, putting in
    place some sort of a quality measurement system.
        So I think you can see that we are putting a high priority
    on this. It is not a simple task, nor is it a low cost task,
    but it is one that I think the taxpayers need.
        [The information follows:]

                     COLORADO TAX ASSISTANCE CENTER STAFFING
                                 [Filing Season]
    ------------------------------------------------------------------------
                                               2000    2001    2002    2003
    ------------------------------------------------------------------------
    Denver:
        Full time...........................       4       9
        Seasonal............................  ......       1
        Details-in..........................   \1\ 3       2
        P/T details-in......................   \2\ 2       2
                                             -------------------------------
          Total.............................       9      14      14      14
                                             ===============================
    Colorado Springs:
        Full time...........................       2       3
        Seasonal............................       1       2
        Detail-in...........................       1  ......
        P/T detail-in.......................       1  ......
                                             -------------------------------
          Total.............................       5       5       5       5
                                             ===============================
    Ft. Collins:
        Full time...........................       2       2
        P/T details-in......................       2  ......
        Seasonal............................  ......       1
                                             -------------------------------
          Total.............................       4       3       3       3
                                             ===============================
    Grand Junction:
        Full time...........................       1       1       2
        Detail-in...........................       1  ......
        P/T detail-in.......................       1       1
                                             -------------------------------
          Total.............................       3       2       2       2
                                             ===============================
          Colorado: Total...................      21      24      24      24
    ------------------------------------------------------------------------
    \1\ Details in are from Compliance.
    \2\ Part time details-in are for periods of peak demand only.

        Senator Dorgan. Commissioner, thank you. Would you submit
    to the committee your benchmarks of expectations with respect
    to busy signals, quality and so on?
        Mr. Rossotti. Yes.
        [The information follows:]
                          Telephone Service Benchmarks
        IRS establishes goals and expectations for a number of discrete
    aspects of its telephone operations. For fiscal year 2001, the key
    objectives included an Assistor Level of Service (the percent of
    customer calls answered by our major nonautomated telephone services)
    of 63.4 percent, a Tax Law quality rate of 74 percent, and an Accounts
    quality rate of 63 percent. Actual performance for January 1, 2001
    through May 18, 2001, for Level of Service is 64.91 percent (an
    increase of 5.2 percent from the same period in the prior year), Tax
    Law quality of 73.83 percent (an increase of 2.73 percent), and
    Accounts quality of 69.77 percent (an increase of 18.03 percent).

        Senator Dorgan. Again, largely because the issues raised in
    the two news stories describing the studies raise questions
    that you are concerned about I am concerned about, and I would
    like to get a sense of what you aspire to achieve in terms of
    your goals.
        Mr. Rossotti. I would be pleased to do that.
        Senator Dorgan. Again, Mr. Chairman, let me, submit my
    questions for the record, and thank the Commissioner. We can
    have opportunities to visit outside of this hearing if other
    issues arise. Mr. Chairman, I am going to run over then to the
    Agriculture Appropriations Subcommittee. Thank you very much.
        Senator Campbell. Along that same line, Commissioner
    Rossotti, I think one of the complaints was also about
    preprogrammed messages and not being able to talk to a live,
    human being. You said you get 100 million calls a year, 9,000
    people answer those calls, but it goes up to 13,000 during the
    busy season, spring filing season. Here on the Hill when we
    hire people, usually the one that comes in the door last is the
    one that has to answer the phones, because we know a lot of the
    calls are going to be just very simple they will not be asking
    a lot of technical questions, and half of them are just going
    to be venting at us about something anyway and anybody can
    record that.
        What are the qualifications of the people that answer those
    phones?
        Mr. Rossotti. We do not treat it that way, as just taking
    the first person that comes in, because these are very
    professional jobs that are very important. We do have a grade
    structure. The top grade for the phone assisters is currently a
    GS-8, which is certainly, I think, reasonably competitive with
    what the private sector is. Of course, they come in at a lower
    level to start and work their way up. They are trained to
    answer calls of particular kinds.
        So they are full-time. They are there to answer people in
    person, and they answer very technical tax law questions, as
    well as deal with taxpayer accounts.
        The difficulty is that there is such a large variety of
    questions that can come in, given the breadth of the tax law.
    And not just the tax law, but all the different accounting
    things that can happen, when somebody sends in a payment and it
    does not get credited to the right account, or they want to
    maybe have an installment agreement.
        So the real challenge that we have is how to group these
    assisters and line up what specialized subject matter they
    should be trained in. You cannot train 9,000 people in
    everything.
        Senator Campbell. Sure.
        Mr. Rossotti. What we are really going to have with the
    technology is for people to be able to be directed through the
    phone prompting so that they get to the right person. So that,
    for example, if you want to ask a question about your
    dependent, whether you can take your son as a qualifying child
    as a dependent, you can push a button and it will give you to a
    person who is trained in that particular subject. That is
    really the critical thing that we have to do to make this work.
        Senator Campbell. If I ever call, I am going to call you. I
    just want you to know that.
        Mr. Rossotti. Yes, sir.
        Senator Campbell. If I have a problem, I will call you.
        Mr. Rossotti. And you will not be routed. I can promise
    you, you will not be routed through a routing system. You will
    come to me directly.
        Senator Campbell. That is good. We are joined by Senator
    Mikulski. Senator Mikulski, did you have an opening statement?
    We were asking some questions here.
        Senator Mikulski. Thank you very much, Mr. Chairman. I will
    put my opening statement in the record, because I know we were
    delayed because of the votes. I want to welcome Mr. Rossotti to
    the committee. As you know, IRS is headquartered in Maryland. I
    think we are very blessed to have someone of his competence
    really trying to reform IRS while we formulate tax policy.

                               Prepared Statement

        I will be asking questions about the pace of modernization,
    particularly technological, to really enhance consumer service
    and the collection of our taxes. So I will just put this in the
    record and come in after you, sir. Thank you very much.
        [The statement follows:]

               Prepared Statement of Senator Barbara A. Mikulski

        Thank you Chairman Campbell, Senator Dorgan. Welcome Commissioner
    Rossotti. It's a pleasure to be here today to discuss the
    Administration's Internal Revenue Service budget request for fiscal
    year 2002.
        Just a few weeks ago, you and I attended a groundbreaking ceremony
    in New Carrollton, Maryland for a new facility being built by the
    Computer Science Corporation. This building will house the private
    sector employees that will support the IRS' Business Systems
    Modernization project. I am so pleased that you joined us for this
    event because it signals your commitment to the success of modernizing
    IRS' outdated computer systems.
        We are all familiar with the failed efforts to modernize technology
    at the IRS prior to your arrival. Billions of dollars were wasted.
    Dozens of outmoded computer systems were built. Little of which helped
    the IRS achieve the two objectives it must accomplish--improved
    customer service and fair and accurate tax compliance. This failure
    frustrated Congress, but even worse, it frustrated the front line IRS
    workers on the front lines. They work hard trying to help taxpayers get
    accurate and timely information but did not have they tools they need
    to do their jobs.
        This legacy has also made the Congress skeptical the success of the
    current modernization effort. I am concerned that funding for this
    modernization has been inconsistent. Once we have appropriated funds, I
    know there is beauracracy before the funds can be released. I know that
    the 4 layers of review contributed to program's shutdown last year. I
    also know that it has made it difficult to attract and retain the best
    and the brightest to help solve one of the most significant information
    technology challenges in the Federal government
        I hope that this year we can work together--the House, Senate and
    the Administration, to stabilize this program. I know that the computer
    infrastructure must work for IRS to move forward with other taxpayer
    services. The two are indelibly linked. So we must be reliable
    partners. We must ensure that IRS has the resources it needs to
    complete their mission. And, that the money gets to the contractors on
    time, so they can complete theirs.
        Why is the IRS in such desperate need of new technology? The
    current database of tax files used by the IRS was created in 1962.
    We've come a long way since 1962. Americans have come to expect the
    highest level of customer service from VISA or MasterCard or American
    Express. They should expect no less as taxpayers from the IRS: getting
    questions answered quickly and accurately; receiving refund checks in
    two days instead of a month or six weeks; and having a system that
    eases the audit burden on our agents and allows them to pursue the
    billions of dollars lost each year to tax cheats. Taxpayers who pay by
    the rules should have safe, secure, and reliable customer service when
    they have questions about their tax returns
        Building new computers from the group up is not an easy task. It
    requires the IRS to fundamentally change its organizational structure,
    its business practices, and its information systems. I commend you for
    your efforts to date to change the way the IRS does business. I look
    forward to the continued progress of the Modernization hope you know
    you can count on me to be an ally in this transformation effort.
        Thank you Mr. Chairman.

                         Innocent Spouse Relief Program

        Senator Campbell. All right. Let me ask a couple of
    questions we will just go back and forth here, Commissioner.
        The innocent spouse relief as it is called, that provision
    was enacted in 1998. Have the claims for the innocent spouse
    relief decreased or increased since 1998?
        Mr. Rossotti. They have increased very substantially, Mr.
    Chairman.
        Senator Campbell. And we are keeping up with those?
        Mr. Rossotti. Well, we are now. It took us a while to get
    caught up. And really more than getting caught up, to learn how
    to adjudicate them. There are four different subsections of the
    law, Section 6015. I know these because this is a very
    important section. We had to really determine how we could
    train our employees and how we could set forth policy to
    determine, for example, which spouse knew what about a tax
    return when they filed it so we could separate these
    liabilities.
        We have set up a special center, based in the Cincinnati
    area, that adjudicates most of these claims, except for the
    more complex ones. We are, I think, doing much better in the
    innocent spouse area. This was one of our priorities. I think
    by the end of this fiscal year we will be able to claim that we
    are caught up on a reasonably current basis, and are reaching
    some reasonable goals. So that is one area that was definitely
    a difficult one, but one that I think we have made some very
    good progress in. I feel very confident about that one now.
        Senator Campbell. When you came to Denver we had an
    opportunity to visit and listen to some innocent spouses and
    they had some really heart-rending stories about what had
    happened to them.
        Mr. Rossotti. They did, and I would like to believe that--
    even though I am sure not everyone will be satisfied--that if
    you were to ask today about people that have that particular
    problem, they would be getting a lot better treatment and a lot
    better service in that area.

                           Taxpayers Advocate Office

        Senator Campbell. Thank you. What is the overall progress
    of the Taxpayers Advocate Office? Do taxpayers appear to be
    satisfied with that?
        Mr. Rossotti. I think that probably most of the Members of
    Congress would be our best source of that evaluation. I have
    talked to many of them and I would have to say that I believe
    that they are satisfied, or at least a lot more satisfied.
        We have an outstanding person that has recently come in to
    be the National Taxpayer Advocate, Nina Olson. If she has not
    already been over, I would be glad to bring her over to meet
    you, Mr. Chairman. She has long experience, not only as a
    practitioner, but in dealing with low income taxpayers and
    testifying before Congress.
        Prior to her arrival, we had already reorganized the
    Taxpayer Advocate service into a distinct organization as
    called for by RRA. That is now operational. We have recently
    completed some additional delegations of authority for that
    service, and I think it is fair to say that they are operating
    very effectively in dealing with difficult cases that are not
    otherwise handled.
        Now, the other role of the Taxpayer Advocate is to come up
    with legislative and other administrative proposals to make it
    easier for taxpayers in the longer term, and Ms. Olson has
    already testified this year before Congress. I think you will
    find that she has many valuable suggestions on how to make life
    easier for the average individual or small business taxpayer.
        Senator Campbell. The IRS, I guess is a different kind of
    an agency because if you are making progress, I guess you
    cannot measure it by the number of calls that are increasing by
    people that say they love you, because you will not get many of
    those. But you have to measure it by the decrease of the people
    that are not as angry as they were.
        Mr. Rossotti. That is part of it. I think that measuring
    dissatisfied taxpayers is part of what we try to track. We
    would like to reduce them as much as possible. But I think more
    qualitatively or anecdotally, which is not unimportant, I have
    talked to many Members of Congress and members of their staff,
    and most of them report to me that the number of really bad
    cases that they run into that cause them a great deal of pain,
    such as the ones that you identified in your hearing, have
    decreased substantially. Of course, they have not decreased
    completely, but they have decreased substantially.
        Senator Campbell. Good. I understand also the audits and
    collections have decreased. In fact I read something in the
    newspaper about that about a month ago. How do you explain
    that, that there has been a decrease in audits since 1998, and
    as I understand that news article I read, a decrease in
    collections, too?

                       Decrease in Audits and Collections

        Mr. Rossotti. There has indeed been a decrease, not just
    since 1998, but going back to the early 1990s, in the
    percentage of audits. As a matter of fact, last year compared
    to 5 years earlier, the percentage of people audited of all
    types had gone down about two-thirds. So it is a very
    substantial decrease. A lot of that is traced simply to
    resources because there have been a continuing decrease in the
    number of staff in the IRS since the early 1990s.
        Senator Campbell. So you have fewer staff in auditing and
    collections both?
        Mr. Rossotti. Fewer staff, yes, we do. We provided some of
    those numbers in our answers to your questions, but we can
    provide more of them. I do not want to say it is all resources
    though, because the other thing that has happened is that
    demand for services has been up.

                         Innocent Spouse Relief Program

        Let's take innocent spouse, which we just discussed. A very
    important program, very important to do, and was a focus of
    RRA. But in order to administer that program, we have had to
    add hundreds of staff years, and they have all been taken out
    of our exam function, for the most part, and allocated to
    adjudicating these claims. So as a result of the Restructuring
    Act there were additional responsibilities that were added on
    top of other ones, and therefore, the number that were
    available to do exams has gone down.
        Now in the budget for 2001, which you passed and gave us
    for this year, we did, for the first time in 6 years, get some
    additional money to add staff to be able to do some of these
    things. That is the short term approach that we are taking to
    turn it around.
        Also, as a result of our reorganization and some of our
    management improvements, we hope that we will be able to
    somewhat improve productivity in those functions to get more
    quality work, as well as more exams out, as well as in the
    collection area.

                           IRS Modernization Program

        Finally, of course, modernization is very important. In the
    long term, there is a lot of time that our examiners and our
    collectors spend that could be relieved by modernization. In
    other words, the amount of time they spend just handling paper,
    and closing and opening cases, looking up information, that
    kind of function can be off-loaded, to some degree, through
    modernization, and that is part of our strategy.
        So we have had a definite problem in the decline in audits
    and collection activity over an extended period of time. We
    think it will begin to level off this year, partly as a result
    of the resources we were given. We hope it will not continue to
    go down as it has, but it will take some years to get it back
    up again.
        Senator Campbell. The IRS used to be accused of being too
    punitive, I know for years and year. I wonder now if some of
    that decline is because they are being too nice.
        Mr. Rossotti. I do not think it is a question of--my view
    is it is not a question of being--I really do not accept the
    idea that we need to be nasty to people in order to collect
    money. I think that we can do it professionally and effectively
    and protect taxpayers' rights, and yet still be effective. That
    is the essence of our challenge, but it is part of our entire
    approach.
        I think with the right training, with the right resources,
    with the right tools, with the right management we can be very
    effective as a collection organization and still provide good
    service. After all, most taxpayers are compliant anyhow. Most
    people are calling us and they are willing to comply if we give
    them a little assistance.
        The others that do not want to comply, we need to use
    enforcement means. But even that can be done in an appropriate
    way.
        Senator Campbell. Tell the committee something about the
    electronic filing that is projected to start in the year 2007.
    What steps are being taken by the IRS to meet that 80 percent
    projection by 2007, and what types of security measures are in
    place to make sure that personal information is protected by
    the e-filers?

                        IRS Electronic Tax Return Filing

        Mr. Rossotti. That is also another very important program
    that was laid out in RRA. This year we are going to get about
    40 million out of about 125 million returns electronically, so
    we are on the road. That is about 30 percent.
        Senator Campbell. Forty million?
        Mr. Rossotti. Yes, 40 million. We have gotten almost 40
    million already. We are still getting a few more through
    extensions and so forth. So that is up significantly from last
    year and the year before.
        We know that we have to do a lot more to get from 40
    million, which is a little more than 30 percent of the returns,
    to 80 percent, which is the goal that the Congress set for us.
    Some of those things have to do with technology.
        For example, right now, one of the impediments is we cannot
    accept all the different kinds of forms and schedules that can
    be filed on paper. So by next year we intend to solve that
    problem; we will have an ability to accept them all.
        The second thing is we have to make it simpler and easier
    for people, and make it more attractive. Not only for
    individuals, but especially for practitioners, because
    practitioners file about 55 percent of the returns. So one of
    the things we are doing is we are trying to work with them. We
    had some progress this year, we will make more next year, to
    eliminate some of the ancillary paperwork that is associated
    even when you file electronically and pay electronically. There
    was still some ancillary paperwork and we are trying to
    eliminate that.
        Finally, I think some of it is what, in the private sector,
    we would call good old-fashioned marketing. We have to go out
    and explain to people why this is better. It is better for the
    taxpayer, but people have habits. They have certain things that
    they do the way that they have always done them, and the way
    that you file your tax return traditionally is you put a stamp
    on it and you send it in.
        We have to explain to people that they can get their
    refunds faster, that they can get their acknowledgements so
    they know that we have got it. There are fewer mistakes, so
    they do not get follow-up letters from us, which nobody likes
    to get follow-up letters from the IRS.
        So we have to communicate those things effectively, and
    those are some of the steps that we are taking.
        There are also some longer-term things that the business
    systems modernization will provide. With the eventual advent of
    a new taxpayer database we will be getting refunds out to
    taxpayers who file electronically within a matter of days,
    rather than a matter of weeks. We think that will be extremely
    attractive as an incentive for people to file.
        Senator Campbell. I am sure it will be. Let me yield to
    Senator Mikulski for a few questions and then we will get back
    to some of mine.
        Senator Mikulski. Thank you very much for the courtesy, Mr.
    Chairman. We are also holding a hearing on the nursing shortage
    which I would like to be able to get up to.
        First, I would like to compliment you on holding it in this
    room. What a beautiful room.
        Senator Campbell. Most of the Indian Affairs hearings are
    in this room.
        Senator Mikulski. The sculpture and so on is quite
    stunning, and inspirational.
        Senator Campbell. If you had to buy that sculpture now you
    would need the personal support of Commissioner Rossotti and
    the IRS because that was an expensive one.
        Senator Mikulski. I bet. Mr. Rossotti, as you know, we have
    been through many failed efforts to modernize the technology at
    IRS and there were a variety of reasons, but now we are on
    track. Could you tell me, do you feel that you have sufficient
    funds in this appropriations request to really complete or to
    continue a timely, well-paced effort on the technological
    modernization, which of course, is crucial to both collection
    and customer service?

                           IRS Modernization Program

        Mr. Rossotti. First, Senator, I appreciate your comment
    about it being on track. I believe that we have made a great
    deal of progress and put in a forthright management approach to
    make this successful, although it is a very challenging
    program.
        With respect to funding, as I mentioned in my opening, the
    request is for $325 million additional funding over the 2001
    appropriation. That is very, very important to get because that
    will give us----
        Senator Mikulski. But is it in your request?
        Mr. Rossotti. The $325 million is in our request, and
    Secretary O'Neill went to bat for us to get that money in the
    request. That is really the minimum that we need, because we
    had $300 million of carryover funds--in the current fiscal year
    we had available to us $300 million that the Congress had
    appropriated from prior years. That money is no longer
    available because it was used, will be used this fiscal year.
    That is why we need the additional $325 million.
        If we get that money, that will keep us on an up trend.
    Obviously, I think any agency head would like to move faster
    and to get more funds, but getting $325 million increase is
    really a very, very important thing in order to keep this
    program on track.
        Senator Mikulski. Mr. Rossotti, I understand that in order
    for you to have the approval process for the release of funds
    you have got to go through four layers of bureaucracy: your
    own, Treasury oversight board, OMB, and GAO, before the
    approval process is sent to the House and the Senate. Now do
    you have any suggestions on how we can either streamline this
    process or are these really not the barriers to modernization?
    It seems like, one, there is the need for money. But then there
    is a need for you to be able to get the approval to spend the
    money.

                   Approval Process for the Release of Funds

        Mr. Rossotti. There indeed is, and that is indeed a rather
    complicated process.
        Senator Mikulski. Did you know that, Mr. Chairman, four
    bureaucracies?
        Senator Campbell. No.
        Senator Mikulski. Your staff will be able to brief you
    after the hearing.
        Senator Campbell. I knew there were several.
        Mr. Rossotti. I do not have any specific proposals right
    now to change that process. It is imbedded in the law and in
    the statute. I think that in the immediate future what we would
    like to do is to work with all those groups to figure out how
    we can overlap some of these things. Not necessarily
    eliminating them, but if we could overlap them so they were not
    all in sequence, this would be very helpful and it would cut
    down some of the time.
        Senator Mikulski. Would you consider some management ways
    of dealing with this, meeting statutory requirements? We are
    not going to change the statute. We need to address tax policy
    now rather than IRS structure and organization. But perhaps you
    can make some recommendations to the chairman and the ranking
    and myself to reduce the length of time it takes to release the
    appropriation.
        I agree that oversight is necessary because there has been
    a tendency to buy gizmos, gadgets, and a lot of other stuff
    that just did not work. I think we have got the right plan, the
    right contractor, and the right commissioner. So we look
    forward to working with you on this.
        Mr. Chairman, I just wanted to bring that to your
    attention, and Mr. Rossotti, because we want you to be able to,
    if you will pardon the expression, just move it.
        Mr. Rossotti. Senator, I appreciate that a lot, and I
    understand. We fully understand the need for oversight, and I
    have to say that GAO, which is a key agency for Congress, in
    particular really worked very constructively on this. They have
    been critical and pointed out areas, but constructively.
        I think that the biggest thing right now would be to just
    shorten the time. Even if we have the same oversight, if we
    could shorten the time so that it did not have to go all
    through these steps in such a sequential fashion.
        Senator Mikulski. Either doing some together, or even in
    report language perhaps we could give them some deadlines.
        Mr. Rossotti. That would be helpful.
        Senator Mikulski. Thank you very much, Mr. Chairman. You
    have been most generous.
        Senator Campbell. Thank you. Commissioner Rossotti, let me
    ask something about tax fraud. That has always been a problem,
    but as we move more and more to the high tech fields some have
    said that the Internet has really elevated the problem of tax
    fraud to a new level. Do you have a procedure in place to
    detect tax fraud on the Internet?

                           Tax Fraud and the Internet

        Mr. Rossotti. I think, Senator, you put your finger on
    something. In fact there was a recent Senate hearing that
    focused on this and identified the fact that the Internet
    provides a vehicle to promote schemes, actually, is primarily
    what it does. It is not so much that fraud is on the Internet,
    although there is some of that, but it is just to promote. In
    other words, to try to entice taxpayers into believing that
    there are easy ways to put your money into some kind of a trust
    or some kind of a device, in some cases offshore.
        So we have been working on that for a number of years. A
    couple of years, ago, actually we started to focus on this. We
    call it abusive trusts and abusive schemes. A lot of our
    strategy is aimed at promoters there, Mr. Chairman. We have had
    some success in putting some of these promoters in jail and
    getting--in fact recently we got another injunction against one
    set of these promoters to shut them down.
        Senator Campbell. Do people within the IRS do the
    investigations or are they just turned over to the FBI or some
    other agency?
        Mr. Rossotti. No, we have a very effective internal
    criminal investigation organization. That is another thing that
    we have reorganized and refocused on this area. They have been
    the ones that have done these investigations. We do go to the
    Justice Department to actually prosecute the cases, but we do
    the investigations and we have, in the last two years, begun to
    refocus them on these particular areas.
        The one that you noted, these abusive schemes that are
    promoted through the Internet. Not exclusively through the
    Internet. They have a whole variety of promotional ways. That
    is a top priority for our criminal investigators as well as our
    civil enforcement people.

                             IRS E-Learning Method

        Senator Campbell. Tell me a little bit about the e-learning
    method the IRS plans to use to train new employees. I
    understand there are about 3,000 employees in accounting
    courses over the next 18 months that will be trained that way?
        Mr. Rossotti. Yes.
        Senator Campbell. Is that the training of new employees or
    does that include those already employed by the IRS?
        Mr. Rossotti. It is both, but it is largely for existing
    employees. We have put in place some opportunities for
    employees to advance but with a requirement that they obtain
    some additional accounting credits. So we think this is a way
    to make them more effective. You talked about quality of
    answers to tax code----
        Senator Campbell. Do you have a method of tracking if they
    are becoming more successful with that training?
        Mr. Rossotti. There are going to be assessments when they
    complete these courses. So they are going to have a variety of
    ways to take these kinds of accounting credits and to obtain
    the additional accounting education that they need. That
    includes the e-learning method.
        Senator Campbell. Is that a less expensive way of training
    them than the old-fashioned method of a class?
        Mr. Rossotti. Certainly, yes, it is.

                            Earned Income Tax Credit

        Senator Campbell. The earned income tax credit which is
    designed to help working families has turned out to be a real
    success. I understand there is a 54-page booklet explaining how
    it works, but the booklet is pretty complex, and some eligible
    families do not apply because they do not understand the
    booklet. Do you have a method of simplifying that or is there
    anything in progress to try to simplify it?
        Mr. Rossotti. I think the difficulty, we are constantly
    working on the EITC to help people understand it better, and we
    have simplified some forms and so forth. But I think we do have
    to acknowledge, as the Joint Committee on Taxation here in the
    Congress recently reported, that the underlying tax law is
    surprisingly complex in this area because there have been many
    tests applied as to what determines a qualifying child and who
    supplies the support for that child.
        For example, there is a test in there that if there are two
    earners in the household, only the higher earning income one
    can be the custodian of the child and things of that kind. So
    these get to be rather--there are income limits, and they
    depend on certain things. So there is some complexity there.
        I must say that the Joint Committee that recently reported
    for the Senate Finance Committee had some interesting
    suggestions as to how some of this could be simplified. So we
    can do some on our end, but I think we are up against the stops
    as to the fundamental constraints of the tax law in this area.

                           IRS Modernization Program

        Senator Campbell. We have appropriated so far $578 million
    for the business systems modernization. How is that coming
    along? Do you have a completion date?
        Mr. Rossotti. This is a program, Mr. Chairman, that will be
    going on for many years, so we have a lot of interim dates, but
    the program will go on. We have recently come out with a
    multiyear program that lays out what we are going to be doing
    for the next several years, subject to funding availability.
        Just to note a few of the things that are underway now. The
    funds that you noted would include all the funds for the
    remainder of this fiscal year, including $128 million that we
    now have before the Committee that we are waiting to get
    released. With that money we have basically addressed three
    major areas.
        One is laying the foundation, in terms of management, to
    manage this whole program because Senator Mikulski noted, as
    you have noted, as others noted, these have not always been
    successful, these programs, in the past. Having the right
    management process in place is important, and that has to be
    done over a period of time and become mature as we get
    experience with it. But we have made significant progress in
    that area with more still to come.
        Secondly, we did have to lay out the plan, or the
    architecture as it is called, so that these pieces fit
    together. We completed the first version of that recently. We
    will be coming up with a second version later this year. That
    is very important.
        And finally, of course, the real payoff is actually
    delivering individual specific projects. Those things that will
    improve our productivity and our efficiency. Because of the
    scale of this it is not one project, Mr. Chairman. It is
    divided up into individual projects that will be delivered
    every year. It is much too big to do it all at once.
        We have two projects that will be coming out this year--
    really over the next few months. One of them to improve phone
    service, as I was discussing with Senator Dorgan. The other
    one, giving some better tools to our examiners that examine
    corporate tax returns so they will be more efficient in looking
    at corporate tax returns. Those are the first two coming out.
        Then next year, in 2002, we will get significantly more
    additional features to direct calls on the phone service, some
    initial Internet capability so that taxpayers and practitioners
    will be able to deal with us in a secure way over the Internet,
    which so far we have not done because of security issues.
        And most importantly, most critically, the first update of
    our taxpayer database since the 1960s. We still are using a
    1960s technology, believe it or not, to maintain our taxpayer
    records. This is the key foundation element of the whole thing.
    We hope that in 2002 we will deliver the first increment of
    taxpayers converted over to a new taxpayer database. Those are
    some of the highlights.
        As each of those projects is implemented, we have a
    business case, as we call it, that shows----
        Senator Campbell. Is that what is called the customer
    account data engine?
        Mr. Rossotti. Yes, it is.
        Senator Campbell. What is the schedule for that? I know you
    have some different milestones. I understand it is behind
    schedule however.
        Mr. Rossotti. We have delayed slightly, a few months, the
    completion of a key milestone to make sure that we have all of
    the issues resolved here. That is the piece of this entire
    structure, if you will. If you thought about it as a building,
    this is the piece that holds up the whole building. We want to
    make sure that we get that absolutely right. It has defied
    solution for 30 years. We are still using a tape system that
    was built in the 1960s. So we need to make sure we get this
    right.
        We hope to complete that milestone over the next few
    months. Then, once we do that, that will give us the design
    that we need, and the modeling that we need to lay out the
    precise dates that we will begin to implement. We still believe
    that we will begin to implement the first segment of taxpayers
    over to the new database in 2002, but we are being a little
    cautious about what the precise date is until we finish this
    design.
        Senator Campbell. 2002. Okay, Commissioner, I have no
    further questions. I want to thank you for being here. I am
    sure you have met both Pat and Lula who are sitting over here,
    haven't you, on different occasions?
        Mr. Rossotti. I certainly have, and I want to express my
    appreciation----
        Senator Campbell. They work very hard. Lula in fact set up
    this hearing. And I know, as you do, that if it was not for
    staff we would not be doing very much that is effective around
    here.

                         Additional Committee Questions

        Mr. Rossotti. I just want to express my appreciation to
    both Pat and Lula as well as Chip, Nicole and Matt. They have
    all been fantastic to work with. They make it easy for us by
    letting us know what is expected and being very cooperative,
    and they are just great.
        [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 Ben Nighthorse Campbell

                                 BUDGET REQUEST
        Question. To date, we have appropriated and released a total of
    $578 million for the Business Systems Modernization.
        How is the IRS doing in modernizing its computer systems?
        Answer. We established the Business Systems Modernization (BSM)
    program to manage our longer term, fundamental changes to business
    processes and minimize the inherent risks of the process. Over the
    remainder of this decade, BSM will deliver major benefits to taxpayers
    and our tax administration system. To date, the IRS has made the
    following significant accomplishments:
      --Approved the Enterprise Architecture. The architecture is the
            roadmap for modernizing the Agency's business systems and
            supporting information technology networks. It will guide the
            agency's business and technology improvements in the coming
            years and is a major milestone in our progress towards the
            goals of Business Systems Modernization. It will enable us to
            design and build new business and technology projects that will
            be the backbone of the modernized IRS and will ensure that IRS
            business systems' technology is compatible.
      --Established a Systems Engineering Board run jointly by the IRS and
            PRIME. This board provides additional and ongoing engineering
            guidance to the enterprise architecture effort.
      --Created the 2002 Release Architecture that identifies the
            configuration items that we can trace to the Enterprise
            Architecture and allocate to specific modernization projects.
      --Required architectural certification for every project before
            exiting Milestone 3, which is before the systems development
            phase. Through these reviews, compliance with the Enterprise
            Architecture is ensured. These reviews evaluate each project
            on:
        --Design consistency with the technical reference model in the
                Enterprise Architecture
        --Compliance with architectural standards
        --Systems interfaces as defined in the Enterprise Architecture
        --Compliance with meeting architectural security and privacy
                requirements
        --Systems Design alignment with the transition strategy
      --Defined manageable projects, which are subject to a disciplined
            methodology, and are carried out through a step-by-step
            ``enterprise life-cycle'' in which successively greater amounts
            of detail are defined. The process requires that a vision and
            strategy phase be completed as a first step, prior to
            commencing tasks such as infrastructure development,
            information systems delivery, or process reengineering. The
            final milestone is an initial ``deployment'' of a project as an
            operational system.
      --Completed the Tax Administration/Internal Management Vision and
            Strategy Project. This project instituted a practice to ensure
            the Operating Division Commissioners and staff develop and take
            ownership of a process and systems modernization approach
            consistent and integrated with the overall vision of the future
            IRS.
      --Identified all the major initiatives for the next several years
            that link directly to our major strategies.
      --Identified major dependencies between and among projects and
            created a sequencing plan for their initiation, development,
            and deployment.
      --Estimated, at a high level, the costs associated with each
            initiative, and developed multi-year spending estimates
            consistent with this program. This estimate serves as a general
            guide for planning and setting overall priorities, but is not
            intended to be used to make specific spending or schedule
            commitments.
      --Placed more emphasis on building an adequate program management and
            product acquisition capacity for this huge program. In the 21
            months that this program has been underway, considerable
            progress has been made in building this capacity. However,
            management capacity can only mature with experience, and much
            more can and will be done to improve it.
      --Made significant progress implementing rigorous configuration
            management practices across the portfolio of modernization
            projects. In early July, we will complete a detailed report
            summarizing the development of the configuration management
            processes, the identification of the configuration items, and
            the establishment of the configuration baselines.
      --Implemented the IRS Enterprise Lifecycle (ELC) which guides systems
            through five phases of conceptual development, technical
            development, and deployment.
      --Partnered with the IRS' Business Operating Divisions to ensure
            modernized systems deliver needed business results.
      --Scheduled multiple projects for near term delivery.
        Although the risks of modernization are high, this does not mean
    that the program is destined to fail. With intense and effective
    management, the risks can be identified and addressed and appropriate
    corrections made. However, the nature of this risk means that it is to
    be expected that frequent adjustments to plans and schedules will be
    made to reflect experience. Delays and even failures of some
    initiatives and projects will occur, but if properly managed these
    problems can be identified early enough to correct them with reasonable
    adjustments in costs and schedules and without undermining the overall
    success of the program.
        Question. How much has it cost to date?
        Answer. To date, the Business Systems Modernization Program has
    committed $31,234,563, and obligated $334,139,235, for a total of
    $365,373,798 of the $577,263,148 appropriated. You are requesting $86
    million to annualize the STABLE initiative.
        Question. How do you plan to distribute these funds?
        Answer. The table below identifies the distribution of resources
    for STABLE in fiscal year 2002.

                                         FISCAL YEAR 2002 STABLE INITIATIVE FTE
    ----------------------------------------------------------------------------------------------------------------
                                                                          Service
                            Type Description                          Centers & Call       Field           Total
                                                                           Sites
    ----------------------------------------------------------------------------------------------------------------
    Pre-Filing Services:
        Taxpayer Education and Assistance...........................  ..............           1,039           1,039
        Rulings and Agreements......................................  ..............              26              26
                                                                     -----------------------------------------------
          Subtotal..................................................  ..............           1,065           1,065
                                                                     ===============================================
    Filing and Account Assistance Programs:
        Accounts Management--Telephone Assistance...................             768  ..............             768
        Accounts Management--Field Assistance.......................  ..............             727             727
                                                                     -----------------------------------------------
          Subtotal..................................................             768             727           1,495
                                                                     ===============================================
    Post-Filing Compliance:
        Payment Compliance--Telephone Collection....................             504  ..............             504
        Tax Reporting Compliance--Document Matching.................  ..............             288             288
        Field Examination--Revenue Agent............................  ..............             128             128
                                                                     -----------------------------------------------
          Subtotal..................................................             792             128             920
                                                                     ===============================================
    Submissions Processing and Information Reporting: Information                378  ..............             378
     Reporting......................................................
                                                                     -----------------------------------------------
          Subtotal..................................................             378  ..............             378
                                                                     ===============================================
          Total.....................................................           1,938           1,920           3,858
    ----------------------------------------------------------------------------------------------------------------

                             SYSTEMS MODERNIZATION
        Question. Modernization is one of the main objectives of the
    Internal Revenue Service. There are several milestones that will have
    to be completed and the Customer Account Data Engine (CADE) is one.
        Will CADE be able to get back on schedule or will there just
    continue to be a slippage? Question. What are we talking about in time,
    3 months or longer?
        Answer. Although we will not meet the January 2002 date for CADE,
    it will deploy during the summer of 2002. This delay is necessary to
    ensure CADE's logical design is complete, traceable to the current
    Enterprise Architecture, and under configuration management control. We
    are progressing in a prudent manner to ensure that future releases are
    not impacted. After the deployment of Release 3, and based on the
    experience gained, we will evaluate whether we can accelerate the
    remaining releases while limiting the risk to ongoing tax processing.
    Question. Will the modernization project be able to move ahead at this
    particular juncture or will it be delayed?
        Answer. IRS is continuing to work on CADE. We are putting all the
    modernization projects under configuration control. We will baseline
    the technical solutions, the schedules, and the budget. We are in the
    process of baselining the projects that are in the 2002 release now. By
    July 15, we plan to have all projects under configuration control. At
    that time, we will be able to identify any delays.

                             AUDITS AND COLLECTIONS
        Question. How do you respond to the sharp decline in tax collection
    enforcement taken by the IRS the past year?
        Answer. In comparison with fiscal year 2000 results, the IRS is
    experiencing both positive and negative trends in Collection activity
    during fiscal year 2001. Enforcement actions are increasing in fiscal
    year 2001, with positive trends in the number of liens filed and levies
    issued in both Automatic Collection Systems (ACS) and Field Collection.
    Through March 2001, both delinquent notice yield and Taxpayer
    Delinquent Account (TDA) dollars collected have increased. However, the
    number of TDA dispositions has decreased slightly in fiscal year 2001.
    This decline is due to the need to redirect resources from TDA work to
    handle the dramatic increase in the numbers of Offers in Compromise.
        The IRS is taking several steps to increase resources applied to
    collection compliance activities. First, through the IRS Strategic
    Planning and Budgeting process, we are focusing our enforcement
    resources on those areas most in need of attention. In addition, we are
    reengineering and realigning work processes, with the goal of improving
    the effectiveness of our compliance activities. Finally, a new
    recruiting and hiring strategy will assure a more constant and stable
    workforce.
        In the Strategic Planning and Budgeting process, new compliance
    strategies are being developed and current strategies are being updated
    to better focus collection compliance resources on those areas most in
    need of attention. For example:
      --The National Nonfiler Strategy is a broad-reaching, multifunctional
            effort to bring nonfilers back into the system and to keep them
            there. It is supported by a continuing research effort aimed at
            identifying the most egregious taxpayer groups and determining
            causes of the noncompliance. By using information from State
            and private sector data sources, we expect to improve our case
            selection criteria and provide useful case file information to
            our Collection employees. In addition to direct enforcement
            efforts, we will develop education, outreach, and alternative
            treatment programs to address noncompliance of those taxpayer
            groups likely to respond to such programs.
      --We are also developing a strategy to reduce Accounts Receivable. As
            part of that strategy, we are piloting an effort to address
            trust fund pyramiding problems with in-business taxpayers
            through the use of the general civil injunction provision.
            Through the IRS Office of Government Liaison and Disclosure,
            and in partnership with the Federation of Tax Administrators
            (FTA), we are seeking 100 percent participation in the State
            Income Tax Levy Program (SITLP) with the 41 States that have an
            income tax. We also are working with the Financial Management
            Service (FMS) and other Federal agencies to expand and enhance
            the Federal Payment Levy Program (FPLP). IRS has instituted a
            number of reengineering and redesign projects designed to
            improve the efficiency of its operations and to provide a
            higher level of consistency in its treatments.
      --The Collection Reengineering project will address a number of
            mainline collection functions. For example, we will examine the
            assignment of trust fund cases from the Collection notice
            stream to Collection field enforcement to minimize delays
            between assessment and compliance contact. We will seek to
            simplify our policy and procedures for referrals to Appeals,
            the pyramiding of trust fund liabilities, and case
            documentation and managerial review requirements. In the long
            term, we will be examining and rethinking all of our
            fundamental collection processes with the goal of improving
            efficiency and consistency in our treatment of taxpayers.
      --To address the growing number of Offer in Compromise cases, we are
            reviewing and reengineering our work processes and centralizing
            those cases most effectively worked in a service center
            environment. As part of that effort, we will be addressing the
            backlog in inventory and implementing actions to improve
            efficiency.
      --A project to enhance the Automated Collection System (ACS) will
            explore the use of the predictive dialer technology to commence
            outcall campaigns to targeted inventories. This improvement
            will allow the ACS outcall process to route answered calls back
            to employees dedicated to answering calls. It will also route
            no answer and busy calls to a research function designed to
            determine suspended or deferred status.
      --The Compliance Risk project will identify and assign those cases
            that have the greatest impact on compliance. Through behavioral
            and application scoring of cases, high-risk cases will be
            identified and assigned earlier in the collection process.
      --Our Vision Migration Strategy will centralize and consolidate the
            support services associated with case processing, workload
            delivery, and technical support. This will streamline support
            services, resulting in efficiencies and the potential for
            reassigning enforcement personnel to front line activities.
        We are also trying to address continuing concerns expressed by
    compliance personnel on their exposure to taxpayer complaints even when
    they exercise their enforcement responsibilities appropriately. The
    approval process in place for seizure action, in particular, has been
    emphasized as a protection against unfounded allegations of
    impropriety. Appropriate case direction by managers is an issue we are
    trying to address as well.
        To assure a constant and stable workforce, we have developed a
    recruiting and hiring program that will result in hiring approximately
    550 new Revenue Officers this fiscal year. In addition to increasing
    our Revenue Officer staffing levels, the IRS is decreasing the amount
    of Revenue Officer time applied to filing season activities. The
    institution of the Staffing Tax Administration for Balance and Equity
    (STABLE) initiative will serve to replenish the Customer Service
    workforce and allow Compliance enforcement staff to again focus on
    appropriate collection enforcement activities.
        Question. Are you at a full staff in the auditing and collection
    departments?
        Answer. Since our last hiring initiative, we have experienced a
    steady decline in the number of field audit and collection staff
    available to examine returns, collect delinquent taxes, and secure
    delinquent tax returns. Hiring an additional 100 Tax Compliance
    Officers (formerly known as Tax Auditors), 558 Revenue Agents, and 550
    Revenue Officers this fiscal year will allow IRS to stabilize its
    workforce and to assign resources to the areas of concentrated
    workload. Additional hiring of Customer Service staff through the
    Staffing Tax Administration for Balance and Equity (STABLE) initiative
    also will allow us to utilize more appropriately our audit and
    collection employees.
        A key objective of the fiscal year 2001/2002 STABLE budget
    initiative is to reduce reliance on compliance and enforcement staff
    for taxpayer assistance. In fiscal year 2001, 40 percent fewer
    Compliance FTE will be diverted to assistance programs. A second
    reduction of nearly 50 percent will occur in fiscal year 2002, and by
    fiscal year 2003, we expect that detailees from Examination and
    Collection will be nearly eliminated.
        Question. There have been growing concerns over the past several
    years that the IRS audit coverage rate is declining and that higher
    percentage of low-income taxpayers are being audited.
        What is your view on this?
        Answer. Rather than rely strictly on the traditional audit to
    assure reporting compliance, the IRS has for many years relied on a
    range of techniques to verify certain items on tax returns. These
    include correcting math errors on tax returns, matching tax return data
    to information obtained from third party reporting, and corresponding
    with taxpayers by mail to verify questionable items reported. These
    efforts, taken in conjunction with the traditional face-to-face audit,
    comprise the IRS strategy for assuring that taxpayers file accurate tax
    returns.
        With the use of document matching, as well as other return
    verification techniques that new technology will eventually enable, it
    is our view that there is no need to return to the levels of individual
    audit coverage that existed even five years ago, which was three times
    the fiscal year 2000 level. The IRS strategic plan does not call for
    this approach. In the long run, we will rely on our business systems
    modernization program to increase the effectiveness and efficiency of
    these activities.
        One of the real concerns about the decline in audits is fairness to
    the majority of taxpayers, whose income is reported and can be readily
    verified. It is relatively easy for the IRS to verify the returns and
    reported income of the majority of taxpayers, whose income results from
    wages, interest ,and dividends, and who take the standard deduction. It
    is harder, and often requires audits, to verify the income of taxpayers
    with other forms of income and deductions or more complex returns, who
    are often higher income taxpayers. To the extent that the IRS uses more
    and more document matching and less and less auditing, the effect may
    be perceived as, and will in fact be, unfair because higher-income
    taxpayers will not have their returns verified to the same degree as
    middle-income taxpayers.
        Hence, we are taking steps to use our traditional audit resources
    more efficiently and effectively. The IRS Strategic Plan sets forth an
    approach, in the short run, to stabilize our level of traditional
    compliance activities, such as individual audits, at or slightly above
    current levels and to focus them on the areas where they are most
    required. Efforts to free up Examination resources, which can be
    redirected to increasing the audit coverage of higher income taxpayers,
    include:
      --Reducing Examination resources applied to customer service work
            over the next two years.
      --Making third party matching data available earlier. Assembling all
            available data about a taxpayer case for our employees will
            avoid the need to get duplicate data from taxpayers.
      --Selecting most individual tax returns for audit within the same
            year they are filed and completing those audits more rapidly
            through Business Systems Modernization improvements.
      --Reengineering the examination and administrative support processes.
      --Centralizing the ``Innocent Spouse'' program to improve efficiency
            and allow the redirection of front-line Examination resources
            to audit activities.
        Question. Offer in Compromise is a way to make it easier for
    taxpayers to settle their tax liabilities for less than the amount owed
    to the IRS. This has become a lengthy process and in some cases it is
    taking up to a year or longer to settle.
        How does the IRS plan to reduce the time it takes to resolve these
    cases?
        Answer. To shorten the time frames for processing offers in
    compromise (OIC), the IRS will realign field resources to increase the
    number of staff assigned. In fiscal year 2000, we increased the revenue
    officer, paraprofessional, and clerical staff assigned to OIC from 762
    to 1,230 FTEs, and we project an increase to 1,267 by the end of fiscal
    2001. We also reviewed our processes and procedures in an effort to
    shorten processing timeframes. As part of that effort, we will be
    addressing the backlog in inventory and providing additional
    recommendations to redesign the Offers in Compromise (OIC) process.
        To address the increasing workload in the OIC program, we conducted
    a pilot project in two service centers to test the feasibility of
    processing offer in compromise cases of less than $50,000 in a
    centralized environment. Based on the results of the test, we expect
    centralized bulk processing of OICs to produce gains in both staffing
    and time per case closure. Beginning in July 2001, all new OIC receipts
    will be sent to one of two service centers, depending on where the
    taxpayer resides. A staged implementation is planned between July and
    November, with actual casework beginning in August 2001.
        Question. Let's say a taxpayer dispute has been resolved and the
    taxpayer has agreed to pay the tax liability, but requests that the
    penalties be waived. How does the IRS determine whether to waive
    payment of the accrued penalties?
        Answer. Employees are required to follow specific internal
    procedures regarding penalty relief. As a general rule, the Service's
    policy does not provide abatement for taxpayers who agree to pay their
    tax liabilities on the condition that penalties are removed.
        While different rules apply to different penalties, certain
    penalties can be abated for reasonable cause--for example, the
    penalties associated with failure to pay tax and failure to file a
    timely return. In order to minimize subjectively diverse judgment calls
    in the determination of reasonable cause, and to help ensure that
    taxpayers in roughly identical situations are given consistent
    treatment, the Service is currently phasing in use of the Reasonable
    Cause Assistor (RCA). The RCA is a computer program that guides the
    penalty examiner through a system of rules assuring a consistent
    application of reasonable cause provisions.

                               ELECTRONIC FILING
        Question. Electronic Filing is projected to be the method of choice
    by year 2007.
        What type of security measures do you have in place to protect
    personal information of e-filers?
        Answer. During the last year, the IRS initiated timely actions to
    strengthen important e-filing security controls, including completing
    actions to improve critical access controls and to complete the
    systems' security certification. The electronic filing systems meet
    critical Federal information security requirements to provide strong
    controls to protect taxpayer data. We have strengthened our systems'
    security, and we will remain vigilant to keep our e-fling process the
    safest possible. As the General Accounting Office (GAO) has previously
    noted, the IRS does have an aggressive and effective security program.
    This program--along with our privacy program--is actively focused on
    safeguarding the confidentiality of taxpayer records. Since 1997, we
    have implemented many corrective actions to improve our computer
    security infrastructure since, and we are placing a strong emphasis on
    designing security safeguards into new systems.
        The IRS has further enhanced its security program by focusing on
    mission assurance, risk management, and measurable corrective actions.
    The program continues to improve the Service's security infrastructure,
    approaches and processes--while overseeing and managing risks. Of
    special note, the IRS has been focused on enhancing its computer
    security incident reporting and analysis capability for the last few
    years to better detect system and network intrusions. In this regard,
    the IRS is continuing to shift considerable resources to support its
    security program approach. Many planned and needed improvements are
    highly dependent on continuing our systems modernization efforts to
    adequately mitigate the risks and weaknesses associated with our
    existing systems infrastructure. These weaknesses are consistent with
    many of those that continue to be reported by GAO and the Treasury
    Inspector General for Tax Administration (TIGTA).
        Because e-file transmitters, along with Electronic Return
    Originators (ERO), are considered trusted partners, if tax return
    information is misused, the transmitter may be subject to criminal
    penalties under Sec. 301.7216-1(a), or civil penalties under Sec. 6713
    for unauthorized disclosure or use of tax return information.
    Additionally, they undergo an annual suitability check, which includes
    a review of tax returns filed, and tax liabilities.
        The IRS also monitors authorized e-file providers for compliance
    with the revenue procedure and program requirements. Monitoring may
    include reviewing IRS e-file submissions, investigating complaints,
    scrutinizing advertising material, checking Form 8453 submissions,
    visiting offices, examining files, observing office procedures, and
    conducting annual suitability checks. Violations may result in warnings
    or sanctions for the authorized e-file provider. Sanctioning may be a
    written reprimand, suspension or expulsion from the program, or other
    sanctions depending on the seriousness of the infraction. Because EROs
    and transmitters have access to taxpayer data, stringent suitability
    requirements are monitored and enforced for the duration of their
    participation in the e-file program. In the processing year 2000, 224
    new applications to participate in the program have been rejected and
    703 program participants have been suspended based on these screenings.
    Because of these controls, we believe the risk of taxpayer data coming
    through transmitters is no greater than that of the risk of taxpayer
    data coming through the mail in paper format.

                                   E-LEARNING
        Question. E-learning is the method IRS plans to use to train about
    3,000 employees in accounting courses over the next 18 months. This
    massive number of employees is the first step in a comprehensive effort
    to use technology by way of the Internet and e-mail to train employees.
    This method is supposed to hold done the cost of employee education.
        What do you estimate the cost per student enrollment to be through
    e-learning?
        Answer. We estimate the costs to be $1,500 for a 3 semester hour
    course from a major University under the IRS consortium.
        Question. Is there a procedure in place to track the success or
    failure of this training?
        Answer. The IRS tracks the success or failure of its training on
    three levels:
      --Level 1.--learner reaction--determines how the trainee feels about
            the training;
      --Level 2.--learner achievement--determines whether or not the
            trainee learned the skills and acquired the knowledge that
            formed the learning objectives of the course, and;
      --Level 3.--job performance--determines whether or not the trainee
            used, on the job, the skills and knowledge presented in
            training. A Level 3 evaluation consists of on-the-job
            instructor (OJI) or coach and/or manager assessment of trainee
            performance of job tasks during on-the-job training (OJT) and
            trainee self-assessment at the end of OJT.

                     LIFE INSURANCE COMPLIANCE VERIFICATION
        Question. Does the IRS audit life insurance contracts to determine
    if they meet the requirements of the rules Section 7702, which was
    enacted in 1984, or whether they constitute modified endowment
    contracts under section 7702A, which was enacted in 1988?
        (In general, it should be noted that extensive guidance on the
    examination of Life Insurance Companies is contained in the Internal
    Revenue Manual (IRM 4.4.2 (May 19, 1999)). This particular section is
    known as the ``Insurance Industry Handbook''. An Industry Guide on the
    Life Insurance Industry (July 2000) further supplements this manual
    section).
        Answer. During an examination, IRS Agents ask questions related to
    IRC Sec. Sec. 7702 and 7702A compliance. These sections contain
    specific rules for determining the amount of cash that is able to
    accumulate tax-free (``inside build up''). In the event the
    accumulation exceeds the allowable amount, a taxable distribution is
    deemed to occur to the policyholder/recipient.
        When an excess accumulation occurs, either the IRS and/or the
    taxpayer will usually seek to enter into a closing agreement at the
    National Office level. Any amounts at issue are usually assessed
    against the insurance company rather than the individual policyholders.
    This is accomplished by entering into a closing agreement in which the
    insurance company agrees to pay taxes and interest due to the excess
    accumulation. Penalties may be assessed based on the particular
    circumstances.
        Closing agreements are executed through the Office of Chief Counsel
    in Washington. This process saves resources by avoiding the time and
    cost of separately contacting each policyholder individually. Although
    the agreements usually result in an assessment against a party that is
    technically not liable for the tax (insurance companies), they are
    designed to insure that the proper amount of tax due is, in fact,
    ultimately paid to the IRS. This closing agreement process reduces
    burden on the individual taxpayers and allows for early resolution of
    the issue.
        Violations of Sec. Sec. 7702 and 7702A do not directly affect the
    1120L Life Insurance tax return. The only area of concern that would
    directly relate to the insurance company's 1120L tax return is the
    claimed deduction for life insurance reserves. Since the excess cash
    accumulation generally remains in the policy as a result of the closing
    agreement, the value of the policy increases and the related reserves
    remain unchanged. Policies are generally not disallowed under Sec. 7702
    since exiting mechanisms exist that would permit the reinstatement of
    policies. The Modified Endowment Contract rules codify this practice.
        Question. Does the IRS audit annuity contracts to determine whether
    they contain the distribution on death language that Congress mandated
    in section 72(s)?
        Answer. Yes. The IRS examines annuity contracts to determine
    whether the proper amount of premium income has been recognized, and
    whether the reserves are properly computed in accordance with
    provisions of the Internal Revenue Code. In general, due to the
    voluminous number of contracts sold, individual annuity contracts are
    sorted into groups with similar characteristics. An analysis of
    individual contracts is then conducted on a test sample basis.
        Question. Does the IRS audit annuity and life insurance contracts
    to determine whether they comply with the diversification rules in
    section 817(h) and the investor control rules?
        Answer. Yes. In general, the examination of a large life insurance
    company will consider the formation of a separate account, which must
    meet the adequate diversification requirements of IRC Sec. 817(h).
        In addition, before being permitted to engage in the sale of units
    in a separate account, a life insurer must seek approval from the
    Securities and Exchange Commission. The SEC imposes a set of similar
    diversification rules on a life insurer seeking approval. As an
    examination tool, Revenue Agents examine the application of the
    Sec. 817(h) diversity rules and also consider any SEC requirements.
        With respect to the investor control rules, the IRS is currently
    conducting a study to determine how a violation of Rev. Proc. 99-44 may
    be occurring through the sale of life insurance products. The Service
    is also examining issues involving Bank Owned Life Insurance (BOLI) and
    Trust Owned Life Insurance (TOLI) and other offshore insurance
    opportunities. It should be noted that certain sections of the Code
    dealing with pension plan contracts are considered exempt under Rev.
    Proc. 99-44.
        Question. Which department within the IRS is responsible for
    conducting such audits?
        Answer. The Large and Mid-Size Business Operating Division
    (``LMSB'') is currently responsible for conducting these audits. LMSB
    is further aligned by industries, in order to provide an industry-
    focused organization that will improve business practices, processes,
    and training. The Financial Services and Healthcare Industry of LMSB
    serves taxpayers related to commercial banking, savings and loans,
    securities, healthcare, insurance, and other financial services.
        Since the taxation of insurance companies is a highly specialized
    field, LMSB has trained specific employees within the Financial
    Services and Healthcare Industry to work exclusively on insurance
    cases. These specially trained employees are primarily responsible for
    the examination of taxpayers in the insurance industry.
        Question. Does the IRS have the actuarial expertise and technical
    systems to conduct such audits?
        Answer. In the past, the Service has generally conducted such
    audits internally without the use of outside experts or systems.
    However, from time to time, the IRS has hired outside actuaries to aid
    in the examination of large life insurance reserves claimed by
    taxpayers. As a result, substantial adjustments have been made
    resulting in increased tax liability.
        Although actuaries are part of the examination team, they do not
    generally work directly with the taxpayer. The outside actuary helps in
    the development of Information Document Requests. Any questions or
    requests for documents from the actuary are submitted to the IRS Team
    Manager or Team Leader for formal issuance by the examination team. Any
    information received by the Team Leader is reviewed with the outside
    actuary. The Team Manager and/or Team Leader propose any changes to the
    tax return. The Revenue Agents apply any actuarially developed data in
    accordance with the requirements of IRC Sec. 807.
        Outside Experts are only used in special situations such as cases
    involving high impact precedent setting issues, high dollar unagreed
    issues, high impact compliance issues, and significant issues where in-
    house expertise is limited or not available.
        The Service does not currently employ a professionally qualified
    actuary. However, the Service is currently in the process of attempting
    to hire several professionally qualified actuaries. A job announcement
    has been placed both internally and externally in industry
    publications.
        Question. Has the IRS estimated the potential tax revenues that
    would be raised if these audits were conducted, and compared that
    estimate to the cost of conducting those audits?
        Answer. The IRS does currently conduct examinations of the above
    issues and, when necessary, uses outside experts to enhance the quality
    of any resulting adjustments. However, specific estimates of potential
    revenue or costs relating to these issues are not available.
        During an examination of a large insurance company, the Service
    also considers other important issues including issues involving whole
    life, permanent life, industrial life, pensions, accident and death,
    disability (active--retired lives), or Guaranteed Investment Contracts
    (GICs) with permanent purchase rate guarantees. In addition, the Office
    of Tax Shelter Analysis (OTSA) is currently developing issues involving
    Bank Owned Life Insurance (BOLI) and private placement insurance.
                                     ______

                Question Submitted by Senator Richard C. Shelby

        Question. In the report to accompany last year's Treasury and
    General Government Appropriations bill (S. Rept. 106-500), the
    Committee raised concerns about Technical Advice Memorandum 199918001
    and directed Treasury to reconsider the TAM in view of its impact on
    recycling and report back to Congress. Please provide the Committee
    with the status of that review and the timeline for providing the
    Committee your report.
        Answer. Technical Advice Memorandum (TAM) 199918001 concluded that
    bonds issued to finance the facility under examination did not satisfy
    Code section 142(a)(6), which permits tax-exempt financing for solid
    waste disposal facilities. The TAM applied Income Tax Regulations
    section 1.103-8(f)(2)(ii)(b), which defines solid waste as waste
    material that has no market value at the place where the waste is
    located. The facts of this case indicated that on the relevant dates,
    the waste being processed in the bond-financed facility had a market
    value at the place where the waste was located. This TAM applied only
    to the facts under examination. Since the issuance of this TAM, other
    waste recycling facilities have been examined and found to comply with
    the Code and regulations.
        The Senate Report noted that the Committee was concerned with the
    apparent direction that the IRS is taking with respect to the use of
    tax-exempt bonds for recycling as evidenced in Technical Advice
    Memorandum 199918001. The Committee believed the position in the TAM
    was inconsistent with the Administration's Executive Orders and with
    the nation's effort to promote recycling. The Committee was concerned
    further that the TAM will act to chill recycling efforts and increase
    the amount of materials going to landfill or to waste incineration.
    Accordingly, the Committee directed the Treasury Department to
    reconsider the TAM in light of the Administration's and Congress'
    policy to increase recycling and report to the Committee on its
    findings.
        We have not yet completed our review of the TAM in question. Our
    initial review indicates that the TAM is consistent with existing rules
    and regulations, and is based on the application of those rules and
    regulations to facts that show the waste material in question had value
    on the relevant dates.
        We are, however, aware of Congress' interest in this issue.
    Moreover, in late March, we received a letter from the National
    Association of Bond Lawyers, which included a comprehensive ``Report on
    Solid Waste Regulations.'' We are in the process of reviewing this
    report and arranging a meeting with industry representatives to discuss
    their concerns. We hope to have the meeting in late June. Once we have
    completed this task, we will report back to the Congress.
                                     ______

                 Questions Submitted by Senator Byron L. Dorgan

                                 BUDGET REQUEST
        Question. Regarding the overall IRS budget request, the Oversight
    Board recommends $800 million more for the IRS for fiscal year 2002
    than requested in President Bush's budget.
        What was the total IRS budget request to OMB for fiscal year 2002?
    How does it compare with President Bush's request?
        Answer. While a formal budget process was started between the
    Department and bureaus under the previous Administration, there was not
    a formal Department to Administration fiscal year 2002 budget call.
    Regardless of what may have been requested within the Treasury
    Department, there was not an opportunity to transmit these requests to
    OMB due to the nature of the fiscal year 2002 budget process. The
    current Administration has not validated the previous Administration's
    estimate.
        Question. As part of the budget request, the IRS is expected to
    cover the costs of non-pay inflation ($56.7 million) through ``improved
    resource management.''
        What types of improved resource management will allow the IRS to
    achieve this level of savings? Question. If you can achieve these
    savings, would you not already be doing so in the current fiscal year?
        Answer. Improved resource management is an ongoing process in the
    IRS that began with the inauguration of the customer-focused
    organization structure in fiscal year 2000. Business processes and
    systems have been redesigned and the old structure of districts,
    service centers, regions, and national office staffs has been
    restructured and streamlined.
        The proposed plan to absorb the non-funding of non-labor
    inflationary costs is for organizations to leverage the newly
    streamlined IRS organizational structure, as well as business systems
    improvement projects, to realize efficiencies in managing travel,
    contracting, and procurement.
        Though appearing to be a simplistic solution, the Service expects
    sufficient offset in these discretionary spending areas so as not to
    decrease program levels of effort (i.e. FTE).
        Since the reorganization process continues through fiscal year
    2001, these resource management efforts are still being implemented in
    the current fiscal year, so savings are not yet realized.

                                  IRS STAFFING
        Question. For the IRS staffing plan known as STABLE (Staffing Tax
    Administration for Balance and Equity) for which Congress initially
    provided funds in the fiscal year 2001 bill, your budget claims that
    STABLE is fully funded at $227 million and will allow for the hiring of
    approximately 3,800 new employees to improve service and enforcement.
    However, the Oversight Board notes that as a result of reductions and
    existing cost absorptions mandated elsewhere in the IRS budget, the IRS
    will hire 1,300 fewer new employees than claimed in your budget.
        How can IRS provide the ``service'' to taxpayers that they expect
    and deserve if there are not enough employees to correctly answer the
    questions, process the claims and enforce the laws?
        Answer. The President's fiscal year 2002 Budget Request of $9.28
    billion for the IRS will enable us to continue to maintain current
    operations and provide the crucial investments needed for our longer-
    term Business Systems Modernization program. With the new organization
    in place, new technology improvements beginning to come on line, and
    the staffing provided by the STABLE initiative, the declines in
    compliance activities, such as audit and collection actions, will
    stabilize while customer service indicators will continue to improve.

                             SYSTEMS MODERNIZATION
        Question. Your budget requests $297 million as the next
    replenishment of the systems modernization account known as ITIA
    (Information Technology Investment Account). This account is critically
    important for the IRS to be able to accurately and efficiently access
    customer tax records and provide them with timely and valid information
    about their accounts.
        Because of past failures by the IRS in upgrading their information
    systems, Congress and the General Accounting Office have closely
    monitored the IRS planning and expenditures. Things seem to be on
    track--although there have been a number of required delays in
    implementing critical parts of the system. As previously appropriated
    funds are released from this account, a number of stakeholders are
    concerned that the account will be drawn down to zero this fall--likely
    before the fiscal year 2002 budget has been signed into law.
        Indeed, the Oversight Board has recommended that $1 billion be
    infused into the account and made available over the coming two fiscal
    years. They argue that it makes good business sense to have a
    significant reserve of funds from which to draw--under the current
    management and congressional oversight and conditions--so that there
    can be some continuity to the program and an avoidance of wasteful and
    costly ``stops and starts.''
         Leaving aside the specific amount of funding, as a businessman who
    had to manage large sums of funds in an earlier life, don't you think
    this makes good business sense?
        Answer. With a program of Business Systems Modernization's (BSM)
    magnitude and complexity, any ``stops and starts'' due to a lack of
    funding, could cause serious delays and likely cause a ripple effect on
    progress in other ongoing, interdependent projects. Prudent planning
    for major capital investments through fully funding projects or
    ``useful segments'' of projects makes good business sense and is
    required by the Office of Management and Budget.

                            IRS HARDWARE REPLACEMENT
        Question. The Oversight Board notes that the Administration's
    budget request makes no accommodations to begin replacing out-of-date
    laptop and desktop computers. It makes no sense to spend hundreds of
    millions of dollars to develop much needed new software and then not
    provide the hardware to the IRS employees who operate the software. The
    Board recommends initiating an annual program, funded at approximately
    $54 million, to begin replacing computers on a rotational basis. Most
    private companies regularly upgrade their computers every three years
    or so as new generations are developed.
         Doesn't it make good business sense for one of the Federal
    government's most business intense agencies to do likewise?
        Answer. The timely replacement of hardware is needed to capitalize
    on the efficiencies that can be derived from a modernized environment.
    However, older hardware is currently operating newer software. Given
    the competing demands on resources, the Administration's budget
    proposes a balanced approach to addressing this issue.
        The Administration's budget contains funding for hardware
    replacement, which will allow the IRS users to capitalize on new, more
    effective software, heightened security, and dramatically more
    efficient end-user support. It also allows the IRS to move its older
    machines to volunteer centers where taxpayer assistance can be
    enhanced. The IRS recognizes that the Administration's budget attempts
    to balance multiple demands and will distribute replacement equipment
    to IRS employees in areas that would get the most benefit from the
    replacement.

                              TELEPHONE ASSISTANCE
        Question. Last year, you agreed with me that a 65 percent telephone
    assistance rate--the rate of people trying to get through on the phones
    in order to obtain an answer to their tax questions--was ``short'' of
    the optimal goal. In fact, you testified that a 90-95 percent rate was
    what was needed. Setting aside the surveys performed by TIGTA and
    others, your press release of April 26 states that taxpayers who wished
    to speak with an IRS assistor got through on the phones 66.5 percent of
    the time--a 4.3 percent increase over last year.
        Clearly, telephone assistance continues to be ``short.'' Why?
        Answer. There are a number of factors that contribute to the
    telephone assistance rate, including staffing, work processes and
    technology. We are working to improve all three. We allocated a staff
    of approximately 8700 FTE to respond to a projected 85 million
    telephone calls on the IRS' principal toll-free lines during fiscal
    year 2001. Additional staffing will come in fiscal year 2002 from
    STABLE. Two additional factors make it especially challenging to
    provide service at a world-class rate:
        1. The highly peaked seasonal nature of customer demand, requiring
    us to answer just as many calls during the filing season as we answer
    in total for the rest of the year; and,
        2. The wide and complex range and changing scope of the subject
    matter. For example, between January and April, tax law calls, which
    can be extremely complex, comprise 52 percent of the calls, while the
    rest of the year tax law calls comprise only 29 percent.
        To address these factors, the IRS is taking the following steps:
      --increasing FTE from STABLE;
      --focusing on improving resource utilization;
      --shifting significant volumes of refund status callers to automated
            services;
      --improving and expanding the scope of current automated self-service
            applications for account service and refund status callers;
      --redirecting FTE savings realized through use of enhanced automated
            services to account services and tax law services; and,
      --continuously identifying initiatives to further reduce telephone
            demand.

                               WALK-IN ASSISTANCE
        Question. According to the recent Treasury Inspector General for
    Tax Administration (TIGTA) report, taxpayers seeking assistance at IRS
    walk-in sites often had to wait for long periods of time to get help,
    and in some instances these taxpayers were given insufficient answers
    to their questions.
        Why? What is needed to resolve this issue? Is more staffing and
    training the answer?
        Answer. There were very few TIGTA reviewers posing as taxpayers who
    were required to wait more than 30 minutes. In 83 percent of their
    contacts, the reviewer was assisted in 30 minutes or less. Since these
    reviews were conducted during the period of peak filing season demand,
    we are confident that in the post-filing season, the percentage of
    people who are assisted in 30 minutes or less is even higher.
        With regard to the quality of answers provided, we began this
    fiscal year with about 1000 technical employees and recruited an
    additional 504 by mid-March. The new hires started too late in the
    filing season to receive more than minimal tax law training. However,
    during the post-filing season we have a very aggressive training plan
    to ensure that all of our technical employees receive appropriate
    training. In addition to the increased emphasis on training, we have
    collaborated with the National Treasury Employees Union (NTEU) to
    identify another means to improve the quality of tax law service. We
    intend to integrate the methodology utilized in the Probe and Response
    guide into IRS publications and, make their use the standard tool for
    all Field Assistance technical employees. We also plan to include
    Integrated Case Processing (ICP) terminals for every Tax Resolution
    Representative (TRR). ICP is an automated system that significantly
    enhances employee research tools to improve the quality and timeliness
    of account assistance.
        Question. What are the most common errors that IRS employees make
    regarding tax law assistance at these walk-in sites?
        Answer. From our observations, most occur when employees answer
    technical tax law questions that are beyond the scope of their training
    level. Often employees were reluctant to refer those questions to other
    employees with more experience or a higher level of training. The need
    for employees to seek assistance or refer questions beyond their skill
    level will be emphasized in our training for filing season 2002.
    However, it is important to note that technical tax law questions, such
    as the questions asked by the TIGTA reviewers, represent a small
    portion of the total workload, which also includes return preparation,
    account assistance, and forms distribution.

                             ENHANCING PRODUCTIVITY
        Question. One of your strategic goals is to increase productivity
    by providing a quality work environment.
        From the perspective of a front-line employee who deals with
    taxpayers, what near-term and longer-term changes do you plan that will
    directly affect the productivity of front-line employees?
        Answer. The single most important factor affecting our ability to
    provide the quality of services that taxpayers expect in the most
    effective and efficient manner is our ability to recruit, retain, and
    develop talented personnel. Replacing the significant number of
    employees who will retire over the next five years is just one of the
    challenges that make it crucial for us to improve our ability to
    attract new and retain essential employees who have the right skills.
    Although organizational units needs may vary, similar strategies can be
    applied to ensure a fully qualified staff to efficiently accomplish the
    IRS mission. Some of the ways we are addressing this in both the short
    and longer term include:
      --a customer-focused organizational structure and increased
            specialization for our employees
      --improved front-line employee training
      --enhanced managerial and leadership training
      --implementation of a strategy to stabilize and improve our
            traditional compliance programs in the near term, while working
            through the business systems modernization program to use
            information and computer assisted tools more effectively to
            manage our compliance activities for longer term and more
            fundamental improvements
      --targeted skills assessments to determine the current skills of our
            workforce and what will be needed for the future
      --support for advanced degree and education programs
      --quality of worklife policies, such as consistent and appropriate
            compensation, reasonable accommodation, adequate space and
            equipment, clear career paths, and consistent and clear lines
            of authority and responsibility
      --a nationally coordinated program to hire, and train highly
            qualified people for STABLE positions, including an aggressive
            college recruiting campaign, and
      --implementation of new Senior Executive and senior manager
            performance appraisal systems driven by individual commitments
            directly tied to our strategic and program plans.

                           LADUCER CONTRACT WITH IRS
        Question. Two months ago you traveled to North Dakota for the
    ribbon-cutting ceremony at Laducer Associates in Mandan. We were
    pleased you were able to join us as they launched their work on a major
    five-year contract with the IRS. Just last year, Laducer--which is an
    8(a) firm--was named the IRS Small Business of the Year.
        As you know, they process about 20,000 cash transaction receipts
    each day for the IRS. This amounts to about 9 million key strokes at an
    accuracy rate of 99.5 percent. Their workforce is nearly 40 percent
    American Indian and 22 percent of their employees are single mothers.
    Most of the data entry staff came from jobs where they earned, at most,
    $6 an hour. Under this contract, depending on their ability and
    seniority, they can earn up to $18 an hour.
        I commend you and your agency for the partnership you have
    established with Laducer Associates. In addition to providing an
    excellent work product for the IRS, Laducer has been able to make a
    real difference in the lives of many North Dakotans.
         Would you provide us with a status report on this particular
    contract?
        Answer. IRS is pleased to have established such a positive and
    productive partnership with Laducer Associates. The IRS Director of the
    Detroit Computing Center visits the Laducer facilities regularly and is
    quite impressed with the quality of the work environment. We are
    currently in the fourth year of a five-year contract and are very
    pleased with the quality service Laducer provides. The contract with
    Laducer is worth $5.3 million for 2001. The IRS was able to offer a
    cost of living increase to Laducer Associates, which increased the
    contract by approximately $300,000 this year. Laducer has grown their
    business significantly during the four years they have been working
    with IRS. They have been able to skillfully use the experience they
    gained with IRS to expand their business with other Federal agencies.

                               ELECTRONIC FILING
        Question. You have testified that it will be difficult for the IRS
    to meet the 80 percent electronic filing goal it has been required to
    achieve by 2007 under the IRS Reform Act of 1998.
        What are the consequences of not meeting that goal? What are the
    budget implications?
        Answer. The primary consequences and budget implications of not
    meeting the 80 percent goal by 2007 are: (1) the IRS would not achieve
    the efficiencies inherent in a predominantly electronic environment as
    quickly as envisioned, and (2) the IRS would have to be prepared and
    funded to process a paper return volume in excess of 20 percent of all
    returns filed in 2007. However, it is important to understand that the
    IRS plans for our campuses, formerly known as service centers, and our
    plans for increasing resource availability in critical program areas,
    are based upon continuing growth of electronic filing and ultimately
    achieving the 80 percent goal.
        Question. What steps is the IRS taking to expand electronic filing
    for business taxpayers?
        Answer. The IRS has made significant strides over the last couple
    of years toward expanding electronic filing for business taxpayers. In
    2000, the Electronic Federal Tax Payment System (EFTPS) processed more
    than 63 million Federal tax payments, totaling more that $1.5 trillion.
        The IRS also introduced new business e-file options for Forms 941,
    940 and 1065. Employers can file their quarterly employment tax
    returns, Form 941, electronically either through a payroll service
    provider or on-line from their home or office computer. Selected small
    businesses can use the 941TeleFile system to file over the telephone.
    Employers can also file their Annual Unemployment Tax Return, Form 940,
    electronically. In 2001, Congress mandated and IRS implemented the
    electronic filing of Form 1065, Partnership Returns, for Partnerships
    with 100 partners or more.
        In 2002, the IRS will continue to expand electronic filing for
    business taxpayers by allowing them to pay their tax obligation with
    Forms 941, 940 and 1065.
        Question. Telephone tax return filing, or TeleFile, has decreased
    by 14 percent from last season. Why?
        Answer. Over the past several years, the TeleFile program has
    experienced an overall decline in receipts. This year, TeleFile
    receipts decreased by approximately 14 percent from the prior year. The
    IRS is currently analyzing the reasons for the decrease. Initial
    findings indicate that the redesign of the TeleFile tax package, a
    reduction in the number of packages issued, a system problem in the
    TeleFile script, and taxpayer eligibility contributed to the overall
    decrease.
        As part of our ongoing initiative to reduce taxpayer burden, the
    IRS redesigned the TeleFile tax package to condense the number of pages
    from 20 to 12 this year. Unfortunately, the booklets were folded in
    half for mailing purposes, which gave the appearance of junk mail. This
    was confirmed by participants in a TeleFile focus group held this
    spring. Further, IRS received twice as many taxpayer inquiries this
    year as compared to past years, stating that they did not get their
    booklet or that they had misplaced it. For next year, the booklet will
    continue to be folded. However, in the focus group, the IRS tested a
    new cover that clearly indicates that the booklet is a TeleFile tax
    package. The revised cover received positive feedback from the focus
    group participants.
        Also, the IRS restructured the criteria for issuing the TeleFile
    package to those filers who were more likely to use TeleFile versus a
    practitioner. This modification resulted in removing approximately 6.8
    million taxpayers from our TeleFile database that qualified to use
    TeleFile, but used a practitioner in previous years.
        Another contributing factor was that for 2 days (January 31st and
    February 1st) during the TeleFile peak, taxpayers calling TeleFile
    received an erroneous message that they were filing their return late.
    Many of the taxpayers attempting to use TeleFile called Customer
    Service concerned about the message. It is believed that many of the
    taxpayers that heard this message used an alternative method of filing
    for fear of their return being considered late. This problem was
    corrected immediately and the system worked well for the balance of the
    filing season.
        Finally, the IRS's greatest obstacle with TeleFile is user
    eligibility. Research has indicated that approximately one-third or
    more of TeleFile eligible taxpayers in one year become ineligible to
    use it in the following year because they move or their filing
    requirement changes (e.g., single to married, etc.). The IRS is
    currently exploring methods on how this can be rectified.

                              COST OF A TAX REBATE
        Question. As part of the tax cut discussion, the option of a 2001
    tax rebate remains a real possibility. However, there have been
    concerns expressed that this will result in increased, and un-budgeted-
    for, costs to the IRS as well as the Financial Management Service.
        Given the current state of affairs, what do you estimate will be
    the additional costs to the IRS associated with a tax rebate?
        Answer. The President has submitted a $115.8 million supplemental
    Appropriations request to Congress to cover the costs associated with
    administering the rebate.
        Question. Is there a preferred method to provide the rebate--if the
    Congress and the President decide to go down this path?
        Answer. The IRS will be able to administer the law as passed by
    Congress.

                                   GAO AUDIT
        Question. For the first time, the General Accounting Office gave
    the IRS an ``unqualified,'' or clean, audit opinion for fiscal year
    2000.
        What is the significance of this? Do managers now routinely have
    the financial data they need?
        Answer. The accounting systems at the IRS are divided between the
    systems that record tax revenue activity (collections and
    disbursements) of the IRS for the Federal government and the system
    that accounts for the funds appropriated by Congress each year to
    perform tax administration within the IRS.
        The IRS first received an unqualified opinion on its reporting of
    tax revenue activity from the GAO in fiscal year 1997. Each year since,
    IRS has had a clean opinion on this part of its financial statement
    reporting. For appropriated funds, IRS received its first unqualified
    opinion from GAO on all of its financial statements in fiscal year
    2000. This means that for the beginning of the year until the end, at a
    summary level, IRS was able to fairly and accurately present its
    financial condition and the changes that occurred during the year.
        In GAO's audit report on the fiscal year 2000 financial statements
    of IRS, the GAO audit team noted that while the year-end summary
    information was fairly presented and the IRS made notable progress in
    both revenue and administrative activity, there were still deficiencies
    in the systems that needed to be corrected.
        In relation to tax revenue activity, the current system uses
    technology from the late 1960's, it does not produce information that
    will satisfy the requirements of a Standard General Ledger established
    by statute and OMB, and has limitations on the extent of financial
    management information that is available.
        For administrative accounting, GAO noted the delays in processing
    financial data which prevented providing managers with timely
    information. However, the GAO also noted significant progress in fiscal
    year 2000.
        In both revenue and administrative accounting, we are working to
    make our financial systems better each year. At the outset of fiscal
    year 2004, we plan to have a new administrative accounting system that
    will correct most of the deficiencies noted by GAO. Due to the
    uniqueness of revenue systems, the current plan to modernize the
    accounting systems for tax revenue will take up to 10 years to
    complete. Both of these efforts are contingent upon IRS continuing to
    receive Information Technology Investment Account funding.

                             Conclusion of Hearings

        Senator Campbell. They usually make it easy for me too.
    Thanks for appearing. The subcommittee is recessed.
        [Whereupon, at 10:36 a.m., Thursday, May 17, the hearings
    were concluded, and the subcommittee was recessed, to reconvene
    subject to the call of the Chair.]

                 MATERIAL SUBMITTED SUBSEQUENT TO THE HEARINGS

        [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 Agencies and 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 these witnesses.]

                                RELATED AGENCIES

     Prepared Statement of Patrick E. McFarland, Inspector General, Office
                            of Personnel Management
        Mr. Chairman and members of the subcommittee: Thank you for
    providing me with this opportunity to discuss the President's fiscal
    year 2002 request for appropriations for the Office of the Inspector
    General. The total request for the Office of the Inspector General is
    $11,414,000, which is an increase of $333,000 above the amount
    appropriated in fiscal year 2001. Of this amount, $1,398,000 is from
    the salaries and expenses/general fund and $10,016,000 is from the
    trust funds. In addition, we plan for $150,000 in advances and
    reimbursements.
        The Office of the Inspector General recognizes that oversight of
    the retirement and insurance trust funds administered by the Office of
    Personnel Management (OPM) is, and will remain, its most significant
    challenge. These trust funds are among the largest held by the United
    States Government. Their assets totaled $551.9 billion in fiscal year
    2000, and their annual program and operating expenses were $127.9
    billion. The amounts of their balances are material to the integrity of
    the government's financial position. I continue to allocate the vast
    majority of the Office of the Inspector General's efforts and resources
    to trust fund oversight, and I believe that we remain as fully
    committed to trust fund activities as is possible within the context of
    our current resource structure.
        Outlays from the OPM Retirement Trust Funds are made in the form of
    payments to millions of annuity recipients. The health insurance trust
    fund provides payments to approximately 291 health insurance plans
    nationwide. In turn, the health insurance carriers pay millions of
    claims for services filed by their enrollees and health care providers.
    Our experience shows that such health insurance payments are at risk
    for being improper, inaccurate or fraudulent. We are obligated to
    Federal employees and annuitants to protect the integrity of their
    earned benefits. We accomplish this though our investigative and audit
    work, thereby reducing losses due to fraud and impropriety and
    recovering misspent funds whenever possible. We owe this especially to
    the Federal agencies and American taxpayers who provide the majority of
    the funding.
        Working with the level of resources provided, the Office of the
    Inspector General has achieved an impressive record of cost
    effectiveness. Audits and investigations of the OPM administered trust
    fund programs have resulted in significant financial recoveries to the
    trust funds and commitments by program management to recover additional
    amounts. In fiscal year 2000, these recoveries and commitments totaled
    approximately $105.2 million. This equates to approximately $11 of
    positive financial impact for each direct program dollar spent. In
    addition, Office of the Inspector General audits and investigations
    provide a significant deterrent against future instances of fraud,
    waste, and abuse.
        The Office of the Inspector General's fiscal year 2002 request
    includes additional resources totaling $333,000. Specifically, this
    increase will be used to off-set the impact of the anticipated January
    2002 pay raise and inflation.
        The Office of the Inspector General continues to seek inclusion of
    the FEHBP as a full participant in the Health Insurance Portability and
    Accountability Act of 1996 (HIPAA). The Federal employees health
    benefits program (FEHBP) was excluded from remedial and civil
    enforcement authorities for health care fraud which were made
    applicable to all other Federal health care programs. With support from
    the Department of Justice in the last administration and the Inspector
    General at the Department of Health and Human Services, we have been
    working to amend HIPAA to Include the FEHBP in its definition of the
    Federal health benefits program. As a result of this exclusion, the
    FEHBP is the only Federal health program without benefit of most of
    HIPAA's anti-fraud provisions, despite its standing as the third
    largest Federal health insurance program. Removal of the FEHBP's
    specific exclusion from this definition would enable OPM to take
    advantage of enhanced sanctions, such as mandatory exclusion of
    individuals and entities that have been convicted of a felony relating
    to health care fraud or controlled substances, and mandatory minimum
    duration of certain discretionary exclusions. We could also take
    advantage of HIPAA's revised standard of proof in civil monetary
    penalty cases, increasing penalties per false claim from $2,000 to
    $10,000, and new administrative penalties for incorrect coding,
    medically unnecessary service, and anti-kickback provisions. This
    legislation would enable the Inspector General to work more effectively
    and on an equal footing with other Federal agencies in fighting fraud
    against the nation's largest employer-sponsored health insurance
    program.
        Thank you for this opportunity to state once more my resource
    request for fiscal year 2002.
                                     ______

         Prepared Statement of Beth S. Slavet, Chairman, Merit Systems
                                Protection Board

        Chairman Istook, Ranking Member Hoyer and Members of the
    Subcommittee: I am pleased, on behalf of the U.S. Merit Systems
    Protection Board, to submit to the Subcommittee our fiscal year 2002
    appropriations request and this statement explaining its importance in
    permitting the Board to fulfill its statutory missions.

                            OVERVIEW OF THE REQUEST
        The President's fiscal year 2002 request for the MSPB is
    $30,375,000 plus a $2,520,000 limitation on reimbursements from the
    Civil Service Retirement and Disability Trust Fund. It is a lean budget
    request; all amounts requested are essential to enable the Board to
    fulfill its statutory mission. The increases of $1,002,000 over the
    fiscal year 2001 appropriation, adjustment for the rescission, and
    $96,000 in the Trust Fund limitation cover only the mandatory pay
    increases of January 2001 and January 2002 along with the higher space
    rental charges that will be incurred in fiscal year 2002. Focussing our
    efforts on fulfilling the Board's adjudicatory and merit studies
    functions, we have not included a request to fund any new initiatives
    during this budget cycle.

                                  ADJUDICATORY
        The Merit Systems Protection Board has a record of excellence in
    deciding 9,000 to 10,000 cases per year, involving serious personnel
    actions taken by Federal agencies. Approximately half of the appeals
    are adverse actions, including removals; and just over 25 percent
    involve retirement matters. More than half of our initial appeals not
    dismissed are resolved through settlement techniques, saving resources
    for all of the parties and producing a negotiated, rather than a
    mandated disposition of the case. Our decision-making pace stands out
    among adjudicatory agencies. In fiscal year 2000, the MSPB moved cases
    through two stages of processing in just under nine months, on average.
        Rather than resting on our laurels, we are constantly striving to
    enhance the efficiency of the agency in order to better serve our
    customers. In this regard, we have raised the bar by which we evaluate
    our timeliness in processing cases at headquarters. In the past, we
    emphasized resolving or reaching a final disposition on cases that have
    been pending in headquarters for over 365 days. We now place special
    emphasis on cases that have been pending in headquarters for more than
    240 days in an effort to prevent them from reaching the 300-day mark.
        This past year, the Merit Systems Protection Board has taken a
    proactive stance in improving the effectiveness of our compliance
    program. We have met with representatives of the Defense Finance
    Accounting Service (DFAS), the National Finance Center (NFC) and the
    U.S. Postal Service (USPS) to develop mutually beneficial systems for
    achieving full compliance with Board orders in a timely manner. As a
    result of those meetings, the agencies have developed checklists and
    other tools that advise agencies and appellants of the information
    required in order to process payments agreed upon in settlement cases
    or as ordered by the Merit Systems Protection Board. The DFAS and NFC
    Checklists are now posted on the Board's website. The USPS is
    developing a handbook for this purpose. When it is completed, we will
    work with the Postal Service to make it accessible to our customers.
        In June 2000, the Board expanded our pilot program at headquarters
    to expedite the processing of certain petitions for review (PFRs) of
    administrative judges' initial decisions. Its purpose is to identify
    non-meritorious PFRs that can be disposed of quickly so that the Board
    can then focus its resources on more complex and precedential cases. An
    experienced attorney from the Board's Office of Appeals Counsel
    conducts these initial reviews. During the first 6 months of this
    program, approximately 8 percent of the 724 PFRs processed under this
    procedure resulted in expedited decisions. The average time for
    processing the expedited cases--from receipt of the PFR to issuance of
    the decision--was 60 days. Unquestionably, this initiative has been a
    significant factor in the Board's ability to meet key case processing
    targets. This pilot program is being evaluated during fiscal year 2001.
        The Suspended Case Pilot Program, initiated in November 1999, has
    allowed the Board to be more responsive to the needs of our customers
    who are attempting to settle cases outside of the litigation arena.
    Under this program, the administrative judge will grant a joint request
    from the parties for a 30-day suspension in the processing of a case in
    order to permit them to pursue settlement efforts or engage in
    additional discovery. Additionally, the administrative judge may grant
    a joint request for a 30-day extension of the case suspension. We
    believe the ``Suspended Case'' pilot program has been a success. As of
    early April 2001, the Board's administrative judges have granted 457
    case suspensions at the parties' request. Additionally, the Board's
    administrative judges settled 197 of the 362 ``closed'' appeals where
    they had granted suspensions. This rate of settlement, 54.5 percent, is
    consistent with the 55 percent overall average rate of settlement in
    the regions. Initial feedback from the Board's administrative judges
    indicates that the appeals involved in the pilot program are generally
    more complex than most appeals filed with the Board. Consequently, we
    believe that the pilot program has led to a significant optimization of
    the Board's limited resources by facilitating settlements in the type
    of complex appeals that cause our administrative judges and
    headquarters attorneys to expend the most time and effort. We intend to
    continue implementation of this program in the next year. However, we
    would like to first formally seek feedback from our constituents.
        The Board encourages the use of alternative dispute resolution
    techniques at all levels of its adjudicatory process. Two years ago,
    the Board implemented a new regulation under which employees may be
    granted an extension of time to file an appeal with the Board if the
    employee and the agency are attempting to resolve the issue through
    ADR. This has encouraged parties to engage in settlement discussions
    before they get to the Board.
        During fiscal year 2000, the settlement rate for initial appeals
    not dismissed was 55 percent. The Board also enjoys a respectable
    settlement rate for cases before it on Petition for Review. During the
    preceding 5 years, the settlement rate for those cases in which
    settlement was attempted has ranged from 21 percent to 29 percent.
    These rates are impressive given the fact that the initial decision has
    already been issued in these cases, resulting in a disincentive for the
    prevailing party to engage in settlement negotiations.
        The Board plans to continue the use of ADR techniques to resolve
    cases at the earliest possible stage. Additionally, the Board expects
    to conduct outreach efforts targeted at agency decision-makers to
    encourage them to make greater use of ADR at the early stages of an
    employment dispute. Finally, the Board anticipates training more of its
    employees within this fiscal year and fiscal year 2002 on the broad
    range of alternative dispute resolution techniques available to
    facilitate case settlements. Our objective is to incorporate these
    techniques into existing settlement programs. If this effort is
    successful, we will require additional funding in future years to train
    more of our staff in ADR techniques and to expand the use of ADR within
    the Board's adjudicatory and case management processes.

                      MERIT SYSTEMS STUDIES AND OVERSIGHT
        Building on research efforts that yielded two major study reports
    and five editions of the ``Issues of Merit'' publication in fiscal year
    2000, the Board expects to complete work on five additional studies
    during fiscal year 2001 \1\ and publish four new editions of the
    ``Issues of Merit.'' The Board's studies and newsletters present new
    data and analyses as well as recapping and updating MSPB positions on
    critical issues that are still pertinent in the current Federal
    environment.
    ---------------------------------------------------------------------------
        \1\ This includes the triennial Merit Principles Survey
    administered to a representative sample of over 17,000 Federal
    employees government-wide, and studies of the Presidential Management
    Intern Program, the variety of employee selection methods used by
    Federal agencies in making new hires, the Federal merit promotion
    program, and a 20-year retrospective review of the U.S. Office of
    Personnel Management.
    ---------------------------------------------------------------------------
        The Board also supports an active outreach program to increase the
    constructive impact of its work products. During the last 12 months,
    over 100,000 copies of the Board's reports and newsletters were
    downloaded from the MSPB web site and other web sites that make copies
    available as a service to their users. The Board's studies staff
    responded to almost 250 requests for additional studies-related
    information, data, advice, or public presentations. These requests came
    from other Federal agencies, Congressional staff, academicians, and
    others seeking objective and authoritative information and analyses on
    Federal sector human resources management. For example, in fiscal year
    2001, at the request of the Department of Justice and as a follow-up to
    earlier MSPB studies, we agreed to conduct a survey of over 17,000
    employees throughout the Department on the issue of sexual harassment.
    Additionally, the results of the Board's recent survey of applicants
    for Federal employment served as the basis for a request from the
    Senate Committee on Governmental Affairs that the General Accounting
    Office conduct a study of the hiring processes of selected Federal
    departments and agencies. During fiscal year 2002, the Board will
    continue to add new and relevant information and analyses to the
    ongoing public dialogue and growing concern regarding the perceived and
    very real ``human capital'' crisis in the Federal government. This will
    include a review of the degree to which Federal contracting officers'
    technical representatives (COTRs) have the experience and competencies
    needed to adequately oversee the work of Federal contractors and a
    study of the impact of the major downsizing in the Federal human
    resources profession on the delivery of human resources management
    services--including the ability to maintain a merit-based hiring
    system.

                               MANAGEMENT SUPPORT
        The MSPB has implemented major organizational changes during the
    past several years to save resources and to directly focus them on
    mission-critical objectives. At 228 FTE, the MSPB is 30 percent smaller
    than it was in 1993,\2\ has fewer management layers, and has made
    innovative use of technology in adjudication and administrative
    matters.
    ---------------------------------------------------------------------------
        \2\ The reduction in staff is not without some downside. For
    example, the decrease in adjudicatory staff impacts the number and
    speed of our case processing in headquarters. Additionally, agency
    headquarters, in particular, was left with virtually no clerical
    support staff. Consequently, time that the attorneys could be devoting
    to research, analysis and other substantive case processing activities
    is being diverted to the accomplishment of necessary clerical tasks.
    ---------------------------------------------------------------------------
        The Board is committed to strengthening the agency's internal
    systems and processes to support continuous improvements and the
    achievement of the highest degree of efficiency while maintaining the
    flexibility necessary to meet program needs. For the first time in the
    Board's history, each office head was required to submit business plans
    during fiscal year 2000, and to update those plans as warranted.
    Managers are being held accountable for obtaining results as specified
    in the plans.
        The Board has also begun to place great emphasis on the
    professional development of its employees. To this end, the Board seeks
    to promote efficient and effective accomplishment of its statutory
    mission by providing a work environment with workplace policies and
    programs that enable its employees to excel. During fiscal year 2001,
    each employee will be required to conduct a self-assessment to identify
    strengths, weaknesses, experience, training and education. Each
    employee, together with his or her supervisor, will then design an
    Individual Development Plan which will include short- and long-term
    goals and the training and additional work experience necessary to help
    the employee to achieve his or her career objectives. We would like to
    make these opportunities available to a greater percentage of the
    staff, however, to do so would require additional funding.
        fiscal year 2002 will be the fourth year of our 5-year information
    technology (IT) initiative, which is aimed at increasing our use of
    information technology to enable us to continue processing cases
    efficiently despite the reduction in staff resources the agency has
    experienced in the past 8 years. The Board adopted ambitious goals at
    the inception of this initiative. As implementation of the initiative
    has evolved, we have learned that to be successful in this effort, we
    must take a more systematic approach to integration of the new
    technologies into current processes and that integration of the new
    technologies much be accomplished at a more gradual pace. Because
    electronic filing of appeals with MSPB offices and electronic
    distribution of Board decisions are key components of the IT
    initiative, its completion on schedule will support the Board's
    compliance with the Government Paperwork Elimination Act of 1998
    (GPEA), which mandates that agencies provide their customers the option
    of submitting and receiving information electronically by October 2003.

                                   CONCLUSION
        It has been my distinct honor and pleasure to serve the Board,
    first as Vice Chairman, now as Chairman. I want to extend my
    appreciation to you and your staff for the support and courtesies you
    have accorded us during my tenure. Your guidance and assistance have
    been invaluable as we worked to perform the critical functions of the
    agency.
        The information contained in this statement provides a mere
    snapshot of the Board's success in carrying out its mission of
    safeguarding the Federal merit employment system. The Board is a small
    but precious jewel amongst Federal agencies. The agency has maintained
    an enviable record of effective management but, suffering from a lack
    of a clear constituency and political interest, it has been hampered
    with limited resources. Our limited budget has made it difficult for
    the Board to implement new initiatives such as ADR and enhanced
    outreach efforts. While we have been largely successful in meeting our
    goals and operating efficiently within the parameters of our
    appropriations, we could enhance our adjudicatory and merit studies
    functions with additional funding.
        I want to stress that this budget request reflects the minimum
    level of funding necessary to enable the Board to perform all of its
    mission-related functions. With your continued support, the Board can
    build upon its record of excellence in service to the Federal
    government and to the American public. The MSPB staff and I are
    available to provide you with any additional information or assistance.
    Thank you.
                                     ______

                           NONDEPARTMENTAL WITNESSES

          Prepared Statement of the National Treasury Employees Union

        Chairman Campbell, Ranking Member Dorgan, and other distinguished
    Members of this subcommittee, my name is Colleen Kelley and I am the
    National President of the National Treasury Employees Union. As you
    know, NTEU represents more than 155,000 Federal employees across the
    Federal government, including most of the employees who work at the
    Department of Treasury. I want to thank you for giving me the
    opportunity to present testimony on behalf of these dedicated men and
    women who keep our democratic government running.
        I would like to highlight some of NTEU's priorities and concerns
    contained in President Bush's fiscal year 2002 budget request for the
    Department of Treasury and other agencies under this Subcommittee's
    jurisdiction. Too many times, our nation takes for granted the work
    performed by the men and women at the U.S. Treasury Department. It is
    these dedicated individuals who work to ensure that the taxes and
    tariffs due to the Treasury are paid; they are the ones standing on the
    front lines of our borders and ports in keeping illegal drugs out of
    our country; they ensure the integrity of our government's revenue
    payment and collection systems; they work with local law enforcement
    agencies to protect the public from dangerous explosives and illegal
    trafficking of alcohol and firearms; they print and distribute Social
    Security checks that are so important to so many of our families. Every
    day, the men and women who work for the Federal government make
    countless contributions to our nation's stability, security, and
    prosperity.
        That is why it is incumbent upon Congress and President Bush to
    ensure that these dedicated employees have the tools and resources they
    need to do their jobs. And it is incumbent upon Congress and President
    Bush to provide these employees--who selflessly provide for our nation
    day in and day out--with the pay and benefits that are, at a bare
    minimum, on par with those in the private sector. Below I have
    highlighted NTEU's views on some of the most important issues facing
    the Treasury Agencies' workforce. I would welcome the opportunity to
    provide additional views at a later date.

                            INTERNAL REVENUE SERVICE
        Total staffing levels at the IRS decreased by 18,000 between 1992
    and last year and the number of revenue agents declined by more than
    twenty percent between 1995 and 2000. Notwithstanding these staffing
    decreases, during the past decade, Congress made hundreds of changes to
    the tax code (801 changes in the Taxpayer Relief Act of 1997 alone),
    our nation experienced unprecedented economic growth, which led to the
    filing of more complex tax returns, and the total number of tax returns
    processed by the IRS increased by nearly 10 percent. Simultaneously,
    IRS toll free phone services and web-based services for taxpayers were
    expanded and improved, taxpayers can visit IRS officials at more
    convenient locations during longer hours of operation, and taxpayers
    have more options for filing their returns. IRS employees have
    successfully done more with less over the last decade.
        Unfortunately, NTEU does not believe that President Bush's budget
    for fiscal year 2002 provides the IRS with the resources necessary for
    the Service to continue to perform current operations, while
    simultaneously meeting its modernization goals. The budget does not
    adequately take into account tax compliance staffing shortfalls due to
    the shifting of many IRS examination staff, revenue agents, compliance
    officers, auditors and others to help improve customer service, answer
    taxpayers' questions, and provide walk-in assistance to taxpayers. And
    the Bush budget does not recognize the requirements necessary to bring
    IRS information technology systems into the 21st century. In fact, the
    newly created independent IRS Oversight Board pointed out that the
    budget fails to provide funding for an additional 1,300 employees
    needed to stop the decline in staffing levels which has led to a drop
    in audits and enforcement activities. And the Oversight Board, in its
    report on President Bush's 2002 budget for the IRS, points out that the
    budget fails to provide funding for new laptop and desktop computers to
    accommodate new computer programs, even though the IRS has spent
    millions of dollars developing new software.
        President Bush's budget proposal for the IRS indicates that this
    Administration is not willing to make the long-term commitment
    necessary to modernize the IRS, and is not willing to provide the
    Service with even a reasonable fraction of what is required to carry
    out its mission.
        The Bush Administration and Congress need to do more than merely
    fund band-aid repairs to address immediate needs at the IRS. The IRS
    needs adequate funding for day-to-day operations and maintenance, but
    it also needs a commitment from President Bush and Congress to invest
    in long-term improvements that will modernize tax compliance and
    customer service to meet the demands of the American taxpayers.
    Improving customer service, enhancing tax return processing, and
    increasing tax compliance can only happen if President Bush and
    Congress support increased funding for staffing, more advanced
    technology and equipment, training and innovation. Employees at the IRS
    have responded to the mandates from Congress contained in the IRS
    Restructuring and Reform Act and are making tremendous progress.
    However, the current IRS workforce can only do so much with its limited
    resources. Further progress in making the IRS more efficient and more
    effective will only be achieved if President Bush and Congress provide
    more funding.
        The IRS needs to maintain current staffing levels, be able to hire
    new staff and retain them for longer than one year, and completely
    modernize outdated IRS technology and equipment. Without a long-term
    commitment to provide adequate funding, the IRS will be forced to
    shuffle resources from one account to another, with the end result
    being an IRS less responsive to the needs of the American taxpayers.
        For example, the President's budget does include funding for the
    IRS Staffing Tax Administration for Balance and Equity (STABLE)
    initiative. The STABLE initiative was first proposed by the previous
    Administration and funded in the current year's budget. If fully
    implemented, the original initiative would enable the IRS to hire
    nearly 4,000 new employees to help increase compliance and improve
    customer service.
        Unfortunately, the amount of funding in President Bush's budget
    would only allow the IRS to ``complete'' the hiring of roughly two-
    thirds of the required 4,000 new employees. Because the Bush budget
    fails to provide funding to account for inflation and routine pay
    increases for the IRS to maintain its current workforce, the IRS will
    be forced to cut back on its plans to hire additional employees. This
    is simple math: if we want to maintain the current levels of staffing
    and hire additional employees, the IRS needs enough money to pay those
    currently working at the IRS and the IRS needs enough money to recruit
    additional qualified individuals. Both cannot be funded under the
    proposed budget.
        The President's budget will provide $400 million in investments to
    modernize IRS's outdated computer systems. This is less than half of
    the Oversight Board's recommendation of $1 billion for systems
    modernization. NTEU supports the Board's recommended funding allocation
    so that IRS employees will have the systems infrastructure they need to
    more efficiently process, store, analyze, and manage taxpayer records,
    and so that taxpayers can be assured that their taxpayer information is
    secure and kept confidential.
        While NTEU supports an increased budget for more advanced
    information technology systems and better equipment, we do not believe
    that these improvements have to come at the expense of reduced funding
    for staffing.
        As you know, audit rates are down. One reason is the lack of staff;
    another is an issue which has had a chilling effect on employees, and I
    believe has contributed to the declining rates of audits and tax
    compliance. IRS employees continue to work in fear of section 1203 of
    the IRS Restructuring and Reform Act, which sets out ten infractions,
    known as the ``Ten Deadly Sins,'' for which IRS employees face
    mandatory dismissal. One of those infractions is the untimely filing of
    Federal income taxes.
        IRS employees violating the IRS Rules of Conduct have always been
    subjected to discipline, including dismissal, and rightly so. However,
    RRA's requirement for mandatory dismissal of employees who violate
    these infractions, is unduly harsh, especially in light of the fact
    that many IRS employees are being terminated for filing returns late,
    even when they have refunds due. Section 1203 is having a negative
    effect on collections and morale at the IRS, and must be repealed or
    modified.

                              U.S. CUSTOMS SERVICE
        The President's fiscal year 2002 budget requests a funding level of
    $1.96 billion for salaries and expenses and 17,849 FTEs for the United
    States Customs Service. This represents an additional $97 million and
    370 additional FTEs from last year's appropriations. NTEU feels that
    this budget is woefully inadequate to meet the needs of this country's
    oldest law enforcement agency.
        The workload of the Customs Service employees has dramatically
    increased every year including more commercial entries that must be
    processed, more trucks that must be cleared and more passengers that
    must be inspected at the 301 ports of entry. There has been a
    relatively small increase in personnel worldwide, despite the dramatic
    increases in trade resulting from NAFTA, the increased threat of drug
    smuggling and the opening of new ports and land border crossings each
    year. In 2000, Customs Service employees seized over 1.5 million pounds
    of cocaine, heroin, marijuana and other illegal narcotics--as well as
    over 9 million tablets of Ecstasy, triple the amount seized in 1999.
    Customs also processed nearly 500 million travelers last year,
    including 140 million cars and trucks and over $1 trillion worth of
    trade. This number continues to grow annually, and statistics show that
    over the last decade trade has increased by 135 percent.
        In addition, Customs employees have become responsible for
    preventing international money-laundering and arms smuggling. Yet, the
    Customs Service has confronted its rapidly increasing workload with
    relatively static staffing levels and resources. In the last ten years,
    there have not been adequate increases in staffing levels for
    inspectional personnel and import specialists--the employees who
    process the legitimate trade and thwart illegal imports.
        It's very clear that funding must be increased to allow Customs to
    meet the challenges of the future. In recent years Customs has seen a
    decrease in the level of funding, relative to other Federal law
    enforcement agencies, even while having significantly higher workloads
    and threats along America's borders. Customs' recent internal review of
    staffing, known as the Resource Allocation Model or R.A.M., shows that
    Customs needs over 14,776 new hires just to fulfill its basic mission
    for the future. Congress must lead by example in showing the men and
    women of the Customs Service they respect and support the difficult and
    dangerous work these officers do 365 days a year by providing increased
    funding for the Customs Service.
        NTEU recommends deploying the new hires to our nation's ports of
    entry along the busy Southwest land border where wait times hinder
    trade facilitation and drug smuggling is at its peak, and in the busy
    area ports on the Northern Border where ports are unmanned, while the
    trafficking of ``B.C. Bud'' marijuana and the threat of international
    terrorism has changed the landscape. In addition to the busy land
    borders, NTEU recommends focusing attention on the bustling seaports
    and airports across the country. The understaffed and overworked
    inspectors at the U.S. seaports and airports currently contend with
    corruption, theft and safety issues that are a direct result of the
    lack of staffing. As one Southwest Border Senator aptly phrased it:
    ``U.S. seaports and airports are under siege by smugglers, drug
    traffickers and other criminals, yet law enforcement agencies that
    regulate them are understaffed and outgunned.''
        Last year, Congress acknowledged the shortage of staffing and
    resources by appropriating $13.7 million for staffing and other
    resources for the Southwest Border. We hope that this Congress will
    again increase the funds available for additional inspectors and
    equipment in all areas around the country that are experiencing the
    most severe shortages.
        Another issue, which is of extreme importance to the front line
    employees of the U.S. Customs Service, is the COBRA account. This user
    fee account funds all inspectors and canine enforcement officers'
    overtime pay as well as approximately 1,400 Customs positions across
    the country. This account is funded with user fees collected from Air/
    Sea Passengers except from the Caribbean and Mexico, Commercial
    Vehicles, Commercial Vessels/Barges and Rail Cars.
        The history of collections and obligations for COBRA over the last
    5 years shows a significant drawing down of reserve money available in
    the COBRA fund for overtime and additional positions, to the point
    where a significant ($40 to $60 million) shortfall is expected in 2001.
    Customs anticipates collecting $300 million in COBRA fees during fiscal
    year 2001, well below the $350 million they project in COBRA
    obligations during fiscal year 2001.
        Based on the projected shortfall in the COBRA funding account,
    Customs has cut back on overtime and held off filling hundreds of new
    positions, thereby decreasing services to all taxpayers and
    exacerbating the long delays at many border crossings. It is imperative
    that the COBRA fund be reauthorized. It is currently set to expire in
    September 2003. Along with the reauthorization of COBRA there must be
    significant increases in appropriated funds to enable Customs to
    properly staff all ports of entry across the United States, and to
    ensure that shortfalls in the COBRA account prevent undue reliance on
    the unpredictable COBRA account.
        It has become increasingly more difficult to recruit the best and
    the brightest into the ranks of Customs Service employees including
    inspectional personnel and import specialists. Import specialists have
    yet to be recognized for their increased responsibility for determining
    the classification, appraisal value and admissibility of products
    coming into the United States. In response to the recent explosive
    growth in trade, and the enactment of the Customs Modernization Act in
    1994, the responsibilities and necessary technical abilities of
    Customs' import specialists have increased tremendously, yet their
    salary structure and position description have not reflected the GS-12
    graded workload they must perform regularly. Customs conducted a pilot
    audit of import specialists' work that showed the higher graded work
    that they perform, yet Customs has not provided the resources to effect
    these upgrades. NTEU will continue to pressure legislators and the
    agency to comply with the classification standards and provide GS-12
    journeyman levels for the Customs Service's import specialists.
        The Customs Service employees assigned to the Customhouse at the
    Los Angeles Seaport (Terminal Island, CA) have endured years of
    environmentally unsafe working conditions, including exposure to
    particulate matter from the nearby petroleum coke facility, asbestos,
    noxious fumes and other air pollutants. The current health and safety
    conditions are absolutely intolerable, and I urge the appropriators to
    ensure that the General Services Administration (GSA) permanently moves
    these employees as quickly and efficiently as possible. NTEU will
    continue to work with Customs and Members of Congress on a permanent
    solution, but immediate interim steps are also needed. The Customs
    Service should be provided the resources to move the remaining 150
    employees to temporary work sites pending the final permanent move.
        NTEU believes that it is also important for Congress to focus its
    attention on the failing computer system currently operated by the
    Customs Service--the Automated Commercial System (ACS). Last Year
    Customs received $130 million towards its modernization effort but
    President Bush's Fiscal 2002 budget keeps funding at the same level. At
    this current funding pace it will take 14 years to install the new ACE
    (Automated Commercial Environment). The current ACS is a 17 year old,
    outdated system that is subject to brown outs and freezes that wreak
    havoc on trade facilitation and employees' ability to do their jobs.
    Although a system upgrade is necessary for Customs to meet its
    modernization efforts, NTEU would oppose funding a new system by
    shifting funds away from the front line employees who currently
    facilitate the volumes of trade growth and enforce our laws at the
    borders.
        Quite simply, the resources have not been provided in the
    President's fiscal year 2002 for Customs Inspectors, Canine Enforcement
    Officers and Import Specialists to adequately do their jobs. These are
    dedicated, professional individuals and I urge Congress to appropriate
    more funding to increase staffing levels for Customs and to provide
    them with the resources they need to do their jobs.

                    OTHER CRITICAL AGENCY FUNDING PRIORITIES
        In addition to the work at the IRS and Customs Service, the
    Treasury Department performs many more critical functions that also
    need to be adequately funded. For example, NTEU is hopeful that
    Congress will provide funding for BATF's request for 340 new hires.
    This will enable the bureau to better prevent violent crimes and
    protect the public, while continuing to collect billions of dollars
    from license fees and tariffs. The Financial Management Service and the
    Bureau of Public Debt need at least what President Bush has proposed so
    that our government can continue to operate the Federal government's
    payment, collection, accounting services, and when necessary, borrow
    money and account for the resulting debt. And with modern technology in
    the hands of sophisticated criminals, the Bureau of Engraving and
    Printing faces great challenges in designing and printing counterfeit-
    proof currency, stamps, and other government-issued financial
    documents. Like the budget recommendations for all Treasury bureaus,
    the President's budget request for BEP should be viewed as a floor not
    a ceiling.
        Finally, with the increase in money being spent on elections by
    candidates and campaign committees, and complex problems with our
    entire election process, it is critical that the Federal Election
    Commission sees a significant increase in funding over previous years'
    budgets. FEC employees cannot possibly keep up with its increasing
    workload and ensure the integrity of our democratic voting system with
    the limited resources they have been given over the years.

                       FEDERAL EMPLOYEE PAY AND BENEFITS
        The human capital crisis facing the Federal government is an issue
    that Congress can help solve. It is no secret that the Federal civil
    service system needs fundamental changes to address retention and
    recruitment problems. The primary obstacle to retaining highly
    qualified individuals working for the government today and recruiting
    the Federal workforce of tomorrow is inadequate pay and benefits. There
    was once a time when it was the steady pay and good health care and
    retirement benefits offered by the Federal government that encouraged
    young individuals to dedicate their careers to working for the
    government. However, with the widening of the pay gap between the
    public and private sectors, and the skyrocketing costs of health care
    premiums paid by Federal employees, more and more individuals who would
    like to work for the government instead are opting for careers in the
    private sector where the pay and health care coverage are now much
    better.
        Unfortunately, the proposals in President Bush's budget will only
    make the human capital crisis worse. NTEU believes that, at a minimum,
    Federal employees should get a 4.6 percent pay raise, identical to the
    amount President Bush proposed for the military. President Bush's
    budget recommends a 3.6 percent pay increase for civilian employees.
    However, the final budget resolution approved by the House and Senate
    call for pay parity between civilians and military personnel, and we
    hope the final appropriations bill fully funds at least a 4.6 percent
    pay raise for all Federal employees. No single issue is more important
    to Federal employees than bringing the pay of Federal employees more in
    line with individuals working in the private sector.
        NTEU also was very disappointed that the Bush budget fails to
    provide additional funding to assist Federal employees afford the
    skyrocketing costs of health care coverage. In recent years, the rising
    costs of the Federal Employees Health Benefits Program (FEHBP) have put
    health care coverage out of reach for many lower paid Federal employees
    and retirees. Premiums for Federal employees went up 10.5 percent this
    year, 9.3 percent last year, and another 9.5 percent the year before
    that. Additionally, the Bush budget would drop the requirement that
    Federal health plans must pay for contraceptive health coverage if they
    pay for other prescription drugs, which will lead to further health
    care cost increases for many Federal employees. NTEU urges this
    Subcommittee to help reduce the health care costs paid by Federal
    employees.
        NTEU was very pleased that last year this Subcommittee extended the
    child care subsidy program for lower graded employees for another year.
    However, not all agencies are taking full advantage of this program due
    to a shortage of money and uncertainty regarding the program's future.
    This was confirmed recently by a report done by the Office of Personnel
    Management. The OPM report also found that employees expressed concern
    about the possible need to change child care arrangements in order to
    qualify for the subsidies without being assured that the program would
    be permanent. With additional funding and a longer-term commitment from
    Congress and President Bush, more agencies will be able to operate and
    expand this cost-effective and family-friendly program.
        The President and Congress cannot expect the Federal government to
    deliver the services and perform the necessary tasks the American
    taxpayers expect if adequate funding is not provided to retain the
    current workforce, recruit additional employees, and give these
    employees the equipment and training they need to improve the
    efficiency of their work. Day in and day out, Federal employees are
    working to improve the quality of life for all Americans. If we want
    our nation to have confidence in the Federal government, then we need
    to make sure the employees receive adequate pay and recognition for
    their work, and that they have the tools they need to have confidence
    in the work they're doing.
        Thank you for this opportunity to provide you with NTEU's views on
    the important issues under this subcommittee's jurisdiction.
                                     ______

          Prepared Statement of the Institute of Makers of Explosives

        Dear Mr. Chairman: On behalf of the Institute of Makers of
    Explosives (IME), I am submitting a statement for inclusion in the
    Subcommittee's hearing record regarding the proposed fiscal year 2002
    budget for the Bureau of Alcohol, Tobacco & Firearms (BATF).

                              INTEREST OF THE IME
        The IME is the safety association of the commercial explosives
    industry. Our mission is to promote safety and the protection of
    employees, users, the public and the environment; and to encourage the
    adoption of uniform rules and regulations in the manufacture,
    transportation, storage, handling, use and disposal of explosive
    materials used in blasting and other essential operations.
        Commercial explosives are key to the recovery from the earth of all
    raw materials that are not grown. IME member companies produce over 95
    percent of the commercial explosives consumed in the United States.
    Additionally, our products are distributed worldwide.
        The production, distribution, storage and use of explosives are
    highly regulated. BATF is one of the agencies that plays a primary role
    in assuring that explosives are identified, tracked, and stored only to
    and by authorized persons. The ability to manufacture, distribute and
    use these products safely and securely is critical to this industry.
    With this perspective, we have carefully reviewed the Administration's
    fiscal year 2002 budget request and have the following comments.

                 BUDGETARY ACCOUNTABILITY NEEDS TO BE IMPROVED
        Our industry relies on BATF to efficiently and effectively perform
    a number of functions to ensure that the legitimate commerce of high
    explosives can go forward unimpeded. Additionally, when explosives are
    stolen, lost, or used for illegal purposes, we rely on the BATF to
    recover products and investigate incidents as necessary. In this
    regard, we support all necessary resources for these essential
    services. However, the BATF budget request does not break down its
    budget authority or staffing by its programs, with the possible
    exception of firearms. Rather, the budget is broken down by the
    Bureau's strategic goals--reduce violent crime, collect revenue, and
    protect the public. While laudable, without detail on the amount of
    resources available for the Bureau's various programmatic missions, it
    is not possible to determine if adequate resources are being dedicated
    to all functions. BATF staff recently admitted that, with the attention
    to firearms issues during the last Congress, the Bureau's explosives
    program was not adequately covered as evidenced by the proportional
    number of inspections BATF was able to perform on explosives licensees
    and permittees. To BATF's credit, we are told that effort is being made
    to better balance the Bureau's responsibilities. We support resources
    necessary for this task.

                                STRATEGIC GOALS
        A key to rebalancing the Bureau's statutory responsibilities is the
    identification of performance standards that can measure BATF's
    progress or areas needing attention. In fact, such performance measures
    are demanded by the Government Results and Performance Act. Currently,
    BATF has identified six customer service standards to measure its
    delivery of services to its regulated community. None of these
    standards address the needs or concerns of the explosives industry.
    Last year, we approached BATF with suggestions of measures appropriate
    for our industry.\1\ While an interim reply acknowledged receipt of our
    suggestions, we have yet to hear from the Bureau whether our
    suggestions are appropriate, could be modified, or if other standards
    would better measure service to the explosives industry. In the
    meantime, measurable indices remain unavailable to assess Bureau's
    service to the explosives industry.
    ---------------------------------------------------------------------------
        \1\ Letter to Wayne Miller, BATF, from Cynthia Hilton, IME, July
    19, 2000.
    ---------------------------------------------------------------------------

                              RULEMAKING CONCERNS
        Currently, BATF regulations rules require domestic manufacturers to
    mark all explosive materials they manufacture for sale or
    distribution.\2\  These marks consist of the manufacturer identity and
    the location, date, and shift of manufacture, commonly referred to in
    the industry as the ``date-shift code.'' These marks are necessary for
    reasons of security and safety. The BATF has emphasized that the
    failure to apply these markings inhibits law enforcement from tracking
    explosives to the source, and proving criminal activity. The date-shift
    code enhances safety because some explosives deteriorate over time and
    the code allows users to keep inventory fresh. Additionally, the date-
    plant-shift code is the industry's ``QA/QC'' tool, allowing the
    manufacturer the ability to trace product quality problems back to the
    point of manufacture and distribution.
    ---------------------------------------------------------------------------
        \2\ 27 CFR 55.109(a).
    ---------------------------------------------------------------------------
        These marking rules, however, do not apply to licensed importers or
    their foreign manufacturers. During the last two years, we became aware
    of unusually large imports of unmarked explosives being shipped to the
    United States from China.\3\ This development prompted IME to petition
    BATF for a rulemaking to close this loophole as it applies to high
    explosives and blasting agents. Our petition would make it unlawful for
    any licensee to import such explosive materials without legibly
    identifying by marking all explosives materials in the same manner
    prescribed by the BATF for domestic manufacturers.
    ---------------------------------------------------------------------------
        \3\ Regrettably, not all countries that manufacture explosives
    maintain the same high standards for stewardship and security that
    underpin the BATF's marking requirements for domestic manufacturers.
    This disparate regulation gives rise to concerns about trade practices.
    In terms of high explosives, the United States has already lost its
    ability to domestically manufacture TNT, and only one company still
    makes dynamite. We do not think it is in the national interest to lose
    more of our high explosive domestic manufacturing capability to unfair
    trade requirements.
    ---------------------------------------------------------------------------
        While stating general agreement with our concern, BATF express
    doubt that they could go forward with our proposal without more
    information about the economic consequences to the explosives industry
    irrespective of whether or not the product was a ``high'' or ``low''
    explosive. Nevertheless, to the Bureau's credit, an advanced notice of
    proposed rulemaking (ANPRM) was issued.\4\ Although all comments to the
    ANPRM supported the need to close this loophole, the Bureau remains
    reluctant to go forward with a rulemaking because it did not receive a
    greater number of comments. It is unclear to us what additional ``me
    to'' comments would substantively add to the Bureau's understanding of
    this issue as it relates to the problem at hand, namely unmarked
    imports of high explosives and blasting agents from China. We are
    concerned about the status of this rulemaking and ask that you also
    join in asking the Bureau to close this security and safety loophole.
    ---------------------------------------------------------------------------
        \4\ 65 FR 67669 (November 13, 2000).
    ---------------------------------------------------------------------------

                                    RESEARCH
        As manufacturers of explosive materials, we have a special interest
    in doing everything possible to prevent the misuse of our products. We
    are interested in the development of new technologies to safeguard the
    public, and support efforts to develop detection and prevention
    technologies that will enhance our national security. Nevertheless,
    from time to time efforts are made to mandate technologies that are
    unproven or unsupported by sound science and cost-benefit analyses.
    Efforts to mandate identification taggants in explosives are a case in
    point. In 1996, Congress refused to bend to such demands and enacted,
    with IME support, anti-terrorism legislation that instead directed BATF
    to study the feasibility of placing identification taggants in
    explosives. BATF has informed us that the study will be completed for
    submission to Congress by the end of fiscal year 2001. IME has worked
    with BATF to ensure that they have the industry data that they require,
    and has appreciated BATF's efforts to keep us informed of the work on
    the study and preliminary findings. While we cannot believe that BATF
    will reach conclusions different from contemporary assessments by the
    National Academy of Sciences about the inappropriateness of
    identification taggants, we believe the research capabilities the
    Bureau has developed in explosives should not be disbanded when the
    congressionally-mandated study is released. Thus, we support the fiscal
    year 2002 budget request to consolidate these research assets in BATF's
    new National Laboratory center in Maryland, and will continue to
    provide industry expertise and technical information to make the
    science of solving criminal acts with explosives even more effective.

                      NEED FOR FEDERAL AGENCY COORDINATION
        According to a recently released GAO report, several Federal
    agencies, including BATF, that oversee the production, use, storage, or
    disposal of hazardous materials should better coordinate their
    requirements for worker protection and accident investigation.\5\ While
    these agencies have distinct roles for worker safety, the roles partly
    overlap, placing duplicative burdens on the regulated community. These
    duplicative rules cover substances regulated, response plans, training,
    and accident investigations. Regulatory overlap leads to confusion and
    non-compliance. To enhance worker protection and reduce the compliance
    burden associated with the hazardous material statutes and associated
    regulations, the GAO recommended that the Occupational Safety and
    Health Administration, the Environmental Protection Agency, the
    Chemical Safety and Hazard Investigation Board, and BATF work to
    establish a general protocol that sets forth the framework under which
    multi-agency incident investigations are conducted with the goal to
    minimize regulatory overlaps. We share the GAO's concern about
    redundant regulatory schemes, especially when the result is reduced
    worker safety. When we last checked, none of the affected Federal
    agencies had responded to this GAO recommendation. We believe Congress
    should insist that these agencies show progress in addressing GAO's
    findings and recommendations.
    ---------------------------------------------------------------------------
        \5\ Worker Protection: Better Coordination Can Improve Safety at
    Hazardous Materials Facilities, GAO-01-02, October 26, 2000.
    ---------------------------------------------------------------------------

                                   CONCLUSION
        The manufacture and distribution of explosives is accomplished with
    a remarkable degree of safety. We recognize the important role played
    by BATF in helping our industry achieve and maintain safe and secure
    workplaces. We, therefore, strongly recommend full funding for BATF.
        Thank you for your attention to these issues.
                                     ______

     Prepared Statement of the National Coalition Against Domestic Violence

        The National Coalition Against Domestic Violence (NCADV), which
    represents a network of approximately 2,000 battered women's shelters
    and community-based programs, as well as individual battered and
    formerly battered women throughout the nation, submits this testimony
    in support of full-funding for Violence Against Women Act programs.
        Domestic violence is an epidemic. The Department of Justice
    estimates that intimate partners commit, on average, 960,000 violent
    crimes against women every year,\1\ while another source puts the
    number as high as 3.9 million.\2\ Nearly one in every three adult women
    experiences at least one physical assault by a partner during
    adulthood.\3\ At least 3.3 million children are at risk of exposure to
    parental violence every year,\4\ and between 50 and 70 percent of men
    who abuse their female partners also abuse their children.\5\ Children
    of battered women are 12 to 14 times more likely to be sexually abused
    by their mother's partner.\6\ 1,218 women were killed in 1999 by their
    current or former partners.\7\
    ---------------------------------------------------------------------------
        \1\ Lawrence A. Greenfeld, et al., Violence By Intimates: Analysis
    of Data on Crimes By Current or Former Spouses, Boyfriends and
    Girlfriends 3 (Bureau of Justice Statistics, 1998).
        \2\ The Commonwealth Fund, First Comprehensive National Health
    Survey of American Women (July, 1993).
        \3\ American Psychological Association, Violence and the Family:
    Report of the American Psychological Association Presidential Task
    Force on Violence and the Family 10 (1996).
        \4\ Jaffe, Wolfe & Wilson, Children of Battered Women, Sage
    Publications 19 (1990).
        \5\ Lee H. Bowker, Michelle Arbitell & Richard McFerron, ``On the
    Relationship Between Wife Beating and Child Abuse,'' in Kersti Yillo &
    Michele Bograd, Eds., Feminist Perspectives on Wife Abuse 158, 162
    (1988); M.A. Strauss and R.J. Gelles, Physical Violence in America
    Families (1990).
        \6\ L.A. McCloskey, A.J. Figueredo, & M.P. Koss, ``The Effects of
    Systemic Family Violence on Children's Mental Health.'' 1239-1261,
    Child Development 66 (1995).
        \7\ Bureau of Justice Statistics, Homicide Trends in the US:
    Intimate Partner Violence 1 (2001).
    ---------------------------------------------------------------------------
        Though these numbers are profound and disturbing, NCADV recognizes
    that other issues must be weighed by Congress in prioritizing and
    determining appropriations. We are in a time of strong but uncertain
    economy, of conservative fiscal policy, of a desire to cut taxes, and
    of a need to stimulate business in order to grow economically. We seek
    to save money for companies and investors so that our country will
    bloom rather than wither with recession.
        NCADV agrees that this is important, and maintains that one of the
    best ways to save money for employers and taxpayers is to prevent
    domestic violence. Adult victims of domestic violence annually incur
    $67 billion in court, medical and other expenses.\8\ Child abuse costs
    an estimated $56 billion.\9\ It is conservatively estimated that
    employers pay between $3 and $5 billion annually to cover the cost of
    crimes against employees and their families.\10\ 94 percent of
    corporate security and safety directors and companies nationwide rank
    domestic violence as a high-risk security problem.\11\
    ---------------------------------------------------------------------------
        \8\ Ted R. Miller et al., Victim Costs and Consequences: A New
    Look, National Institute of Justice Research Report (January, 1996).
        \9\ Ibid.
        \10\ Bureau of National Affairs, Violence and Stress: The Work/
    Family Connection 2, Special Report No. 32 (1990).
        \11\ Joseph A. Kinney, National Safe Workplace Institute, Domestic
    Violence Moves Into Workplace 2 (1994).
    ---------------------------------------------------------------------------
        Economic experts such as Alan Greenspan have recognized the
    importance of worker productivity in maintaining healthy economic
    growth and preventing inflation. In a recent survey, 49 percent of
    senior executives said domestic violence has a harmful effect on their
    company's productivity, 47 percent said domestic violence negatively
    affects attendance, 44 percent said domestic violence increases health
    care costs, and one-third said domestic violence has a negative impact
    on their bottom lines.\12\ Over 50 percent of abused women lost at
    least 3 days of work due to abuse, and 70 percent reported difficulty
    in performing their jobs because of abuse.\13\ National Coalition
    Against Domestic Violence of Congress made great strides in addressing
    domestic violence by passing the Violence Against Women Act (VAWA) in
    1994 and reauthorizing it in 2000. The funds appropriated to VAWA
    programs have made a difference. In fact, after holding steady for 20
    years, the number of domestic homicides decreased from 1,581 in 1993 to
    a near-record low 1,281 in 1999.\14\ This is a positive start, and we
    must continue to fund VAWA programs in order to see greater reductions
    in the scale of domestic violence. VAWA 2000, and the funding levels
    authorized within, was passed last year with overwhelming, bipartisan,
    nearly unanimous support. However, in the fiscal year 2001 budget,
    Congress appropriated only $468 million of the $677 million that had
    been authorized for VAWA programs that year. The Bush Administration's
    recently-released fiscal year 2002 Presidential Budget requests full-
    funding for most VAWA programs administered by the U.S. Department of
    Justice. However, the President's fiscal year 2002 Budget leaves
    programs administered by the U.S. Department of Health and Human
    Services funded at fiscal year 2001 levels--$108 million lower than
    authorized levels. NCADV asks that Congress live up to the promise it
    made to constituents in passing VAWA 2000 by fully-funding all VAWA
    programs.
    ---------------------------------------------------------------------------
        \12\ Roper Starch, Liz Claiborne, Inc. Addressing Domestic
    Violence: A Corporate Response 2-3 (1994).
        \13\ Connie Stanley, Domestic Violence: An Occupational Impact
    Study 17 (Tulsa, Oklahoma, July 27, 1992); Louise Laurence & Roberta
    Spalter-Roth, Measuring the Costs of Domestic Violence Against Women
    and the Cost Effectiveness of Interventions 25 (IWPR, Victims' Services
    & the Domestic Violence Training Project, May 1996).
        \14\ See Bureau of Justice Statistics, supra note 7.
    ---------------------------------------------------------------------------

                  FAMILY VIOLENCE PREVENTION AND SERVICES ACT
        Domestic violence shelters provide essential services to millions
    of women, men and children across the United States. Over the past 20
    years, shelters have evolved to provide a wide spectrum of services.
    When a woman enters a shelter she often receives individual and group
    counseling, parenting classes, tutoring and therapy for her children,
    help getting a protective order against her batterer, and case
    management to help her meet her goals and find safe housing. Most
    shelters also provide a hotline, crisis counseling, and help for
    victims of rape and sexual assault. Shelters cannot succeed in their
    goal of providing safety if they do not help women in a myriad of ways,
    from helping a woman start a savings account to arranging
    transportation for her to get to work, from providing food, clothing
    and toiletries to offering intervention for batterers.
        In a recent mini-survey of 32 shelters for battered women, the
    National Coalition Against Domestic Violence found that in fiscal year
    2000, more than 11,740 women and children had been housed by these 32
    shelters alone. There are more than 2000 shelters in the United States,
    serving an estimated 240,000 adults and children.
        But shelters provide so much more than just an emergency place to
    stay. By far the majority of clients served are not living in the
    shelter. These same 32 shelters provided non-residential services to an
    additional 920,551 adults and children. The non-residential services
    offered by shelters included more than 50 different programs. Some of
    the most frequently provided programs included legal advocacy,
    counseling, children's programs, rape and sexual assault crisis
    intervention, substance abuse treatment, job training, transportation,
    child care, 24-hour hotlines, training for professionals, batterers'
    intervention programs, transitional housing, and preventative outreach
    in schools and communities.
        Despite the huge numbers of women being served by shelters for
    battered women, the need for shelter still exceeds the capacity of most
    programs. At least 4,743 women and children were turned away in fiscal
    year 2000 for lack of space by the 32 shelters surveyed. Considering
    that there are about 2,000 emergency shelters for battered women in the
    country, approximately 296,440 women and children were unable to access
    essential residential services last year. Here are some startling
    details:
      --In fiscal year 2000, a Winchester, Virginia program turned away as
            many people as it was able to house. Statewide, 25 percent of
            women and children seeking shelter in Virginia were turned
            away;
      --In White Plains, New York, a shelter housed 246 individuals in
            fiscal year 2000, while turning away 763. In 1998, 23,160 women
            and children across New York state were denied shelter due to
            lack of space;
      --A staff person at a shelter in San Francisco stated that 80 percent
            of women and children are turned away in that city because
            shelters are full;
      --In suburban Clearwater, Florida, a shelter turned away \2/3\ as
            many people as it was able to house in fiscal year 2000;
      --33 families were housed in fiscal year 2000 in a shelter in the
            small-town of Mount Vernon, Ohio, while 35 families were turned
            away; and
      --In a separate survey, Missouri reported that in fiscal year 2000,
            4,907 individuals were turned away statewide.
        The need for emergency shelters for battered women has increased
    over time. Though VAWA programs have done much to reduce the impact of
    domestic violence, one of the positive effects has been the increasing
    number of victims of domestic violence who now have the courage to ask
    for help and end the cycle of violence. As the need for service
    increases, so does the need for funding. For example:
      --Calls to a New York City domestic violence hotline increased 23
            percent from 1999 to 2000--from 95,000 to 117,000;
      --A Webster, Texas shelter also saw calls to their hotline increase
            20 percent in the last year;
      --In the past six months, a shelter in Chattanooga, Tennessee has
            already served as many individuals as were served in the whole
            of the 2000 fiscal year;
      --In 1999, shelters across Arizona turned away 19,775 women and
            children--nearly 3,000 more than in 1998;
      --The Rhode Island Coalition Against Domestic Violence found shelter
            programs statewide serving 13 percent more non-residential and
            12 percent more residential clients in fiscal year 2000 than in
            fiscal year 1999;
      --Total bed nights have doubled in 2 years at a Waldorf, Maryland
            shelter, indicating that they are both serving more people and
            serving them for longer periods of time;
      --The Colorado Coalition Against Domestic Violence reported a 12
            percent increase in hotline calls from fiscal year 1998 to
            fiscal year 1999, while the New Mexico Coalition Against
            Domestic Violence reported a 20 percent increase in such calls
            from fiscal year 1999 to fiscal year 2000;
      --In Chicago, Illinois, at a shelter where twice as many people were
            turned away as were housed, the number of individuals served
            through non-residential programs increased 19 percent over the
            past 2 years, from 1,612 to 1,912;
      --The Alabama Coalition Against Domestic Violence reported a 60.33
            percent increase statewide in provision of non-residential
            services from fiscal year 1999 to fiscal year 2000. Over the
            same time period, the Maine Coalition to End Domestic Violence
            saw a 20 percent increase in such services; and
      --562 women and children were turned away from a shelter in
            Louisville, Kentucky in fiscal year 2000, whereas fewer than
            100 were turned away the year before.
        Battered women's shelters overwhelming responded that they need
    more funding to be able to serve the large numbers of women, men and
    children in need of domestic violence services. In a national survey of
    221 shelters and domestic violence programs, funding was listed as the
    primary concern.\15\ Women are at the greatest risk of being injured
    shortly after separating from their abusive partners;\16\ if the local
    shelters are already full, a woman may have nowhere safe to stay.
    ---------------------------------------------------------------------------
        \15\ National Coalition Against Domestic Violence, Public Policy
    Poll (January 2001).
        \16\ Ronet Bachman and Linda Salzman, Bureau of Justice Statistics,
    Violence Against Women: Estimates From the Redesigned Survey 1 (1995).
    ---------------------------------------------------------------------------
        Increasing appropriations for shelters for battered women through
    the Family Violence Prevention and Services Act (FVPSA) portion of the
    Violence Against Women Act of 2000 (VAWA 2000) will allow these
    shelters to provide critical assistance to families in desperate need.
        FVPSA was authorized under VAWA 2000 to be funded at $175 million
    each year. Despite the broad support for shelters for battered women
    and for VAWA 2000, FVPSA was appropriated at only $117 million for
    fiscal year 2001--a loss of $58 million. The President's fiscal year
    2002 Budget also neglects FVPSA, requesting funding at last year's $117
    million level. We ask that Congress follow through on its commitment to
    battered women by funding FVPSA at the authorized level for the fiscal
    year 2002.

                       NATIONAL DOMESTIC VIOLENCE HOTLINE
        The National Domestic Violence Hotline has received more than
    500,000 calls since it began in 1994. Housed in Texas, this 24-hour,
    national toll-free hotline has received calls from increasing numbers
    of victims of domestic violence. The Hotline averages 13,000 calls each
    month, and provides services in 139 languages. A sophisticated system
    allows the Hotline operator to patch the caller in to a service
    provider located in the area nearest to the caller. The Hotline also
    provides information, referrals, and crisis counseling to its thousands
    of callers.
        The Hotline serves as a lifeline to women, children, and families
    across the country, and their goal is to ensure that when calling the
    Hotline, each of these individuals in crisis has access to an advocate
    who can effectively assist in ensuring their safety. Without crucial
    continued funding, thousands of battered women and their children will
    not receive assistance and will continue to live in fear for their
    lives.
        Between October 1, 1999, and September 30, 2000, the Hotline
    responded to 147,852 calls for help. In the last 6 months of fiscal
    year 2000, the Hotline was able to answer 64,770 calls. When its
    funding was increased from $1.2 million to $2 million in fiscal year
    2001, the number of calls answered increased to 80,620 for the first
    six months of fiscal year 2001. Unfortunately in the same six-month
    period in fiscal year 2001, 20,483 calls went unanswered for lack of
    resources. Continuing funding for the Hotline with at least $2 million
    for fiscal year 2002 will allow Hotline staff to continue to answer the
    thousands of calls for help they receive each month.
        The Hotline staff tell a story about a woman who called from a bus
    station. A small suitcase of clothing and $32 were the total sum of her
    personal resources. She had just fled for her life from her batterer,
    who was hot on her trail. She couldn't use family or friends as a
    haven, because he had repeatedly threatened their lives as well as her
    own. She had consulted with the bus station attendant to purchase a
    ticket for the location that was as far from her batterer as $32 would
    take her. She would have no money for food or phone calls during the
    trip, and her only resource was the toll free number of the National
    Domestic Violence Hotline. The bus was leaving in minutes, and she
    would arrive in a strange city later that night where she knew no one.
    The Hotline advocate handling the call calmed her fears and initiated a
    three-way call to the domestic violence shelter located near her
    destination. After some discussion and problem solving, all was well.
    She would be picked up from the bus station upon arrival and given safe
    haven and assistance as she made the first steps in her new life, free
    of violence and abuse.
        Congress recognized the valuable service provided by the Hotline
    and fully-funded it in fiscal year 2001. We ask Congress to continue
    this support and maintain full funding, $2 million, for the Hotline in
    fiscal year 2002.

                              TRANSITIONAL HOUSING
        Transitional housing is a critical need for battered women. Of all
    homeless women and children, 50 percent are fleeing domestic
    violence.\17\ 56 percent of cities identified domestic violence as a
    primary cause of homelessness.\18\ To help meet this need, emergency
    shelters for battered women provide a host of essential services.
    Unfortunately, most battered women's shelters can only accommodate
    residents for a month or two. The demand for shelter space is high,
    with thousands of women being turned away in each state.
    ---------------------------------------------------------------------------
        \17\ The Women and Housing Task Force, Unlocking the Door III: A
    Call to Action, Battered Women, September 1996 (citing Schneider,
    Elizabeth, Legal Reform Efforts for Battered women: Past, Present and
    Future (prepared for the Ford Foundation, July 1990)).
        \18\ U.S. Conference of Mayors, A Status Report on Hunger and
    Homelessness in America's Cities: 2000.
    ---------------------------------------------------------------------------
        In an ideal world, women would move directly from emergency shelter
    into stable, permanent housing. However, the housing crisis in America
    means there is little to no affordable housing, and women in most areas
    must wait for years to participate in Section 8 voucher programs.
    Moreover, victims of domestic violence frequently require supportive
    services including counseling for themselves and their children, case
    management, job and financial skills training, and legal assistance.
    Without those support services, many victims are unable to remain safe
    and independent and therefore return to their abusive partners.
        In a recent poll of 221 battered women's shelters and domestic
    violence programs, transitional housing was listed as the number one
    funding priority.\19\ In a separate mini-survey of shelter programs,
    shelter directors estimated that on average at least 50 percent of
    battered women in their shelters required, but usually could not find
    space in, transitional housing.
    ---------------------------------------------------------------------------
        \19\ See National Coalition Against Domestic Violence, supra note
    15.
    ---------------------------------------------------------------------------
        Transitional housing for battered women allows women to spend less
    time in emergency shelters, and thus allow emergency shelters to take
    in larger numbers of residents. The support services that accompany
    transitional housing provide victims with the practical assistance they
    need to rebuild their lives. Transitional housing programs help victims
    move beyond emergency shelter and work toward securing permanent
    housing. A St. Petersburg, Florida battered women's shelter that
    provides transitional housing said that the program is ``critical [in]
    enabling women to become independent'' and preventing them from
    returning to violent situations. Further south in Bradenton, Florida, a
    shelter director in an area with no transitional housing stated that
    abuse and problems with welfare have ``created a class of working poor
    who cannot afford housing and must remain with their abusers'' in order
    to have anywhere to live.
        Transitional housing programs around the country offer many success
    stories and demonstrate the multifaceted approach required to assist
    domestic violence victims. For example, a program in Louisville,
    Kentucky noted that transitional housing allows women to become self-
    sufficient before finding permanent housing. Many women have fled
    violent situations and arrive at the shelter in complete poverty. The
    Louisville program offers a broad spectrum of follow-up and support
    services, including a financial skills building course and an
    Individual Development Account (IDA) 2-1 matched savings plan. Without
    these continuing services, the director stated that ``women would cycle
    in and out of homelessness.''
        In Alliance, Ohio, where there is no transitional housing for
    battered women, women in the emergency domestic violence shelter must
    wait one to two years for any housing assistance. The emergency
    battered women's shelter stated that their top priority was to build
    transitional housing. The assistant director noted that transitional
    housing ``would enable [battered women] to stabilize their families,
    have hope, and break the cycle of violence.'' A Mount Vernon, Ohio
    shelter said that if they could do anything, they would build
    transitional housing. There is none in their community, and they
    estimate that at least 50 percent of their shelter residents need
    transitional housing.
        Where transitional housing is available, it is usually in such high
    demand that only a small percentage of needy applicants can be housed.
    In San Francisco only one transitional housing program is available for
    the entire city. The program can house 15 women and 15 children and
    must turn 75 percent of applicants away. Many transitional housing
    programs are extremely small, such as one in Leesburg, Virginia that
    can house only two families. Though transitional housing is available
    in Wooster, Ohio, there is a shortage of affordable housing, and an
    estimated 50-70 percent of shelter residents require transitional
    services.
        Transitional housing programs for battered women are in desperate
    need of funding. One program from Waldorf, Maryland described the lack
    of security cameras or other safety features. Despite this, the program
    is able to assist residents across Maryland, DC and Northern Virginia,
    providing 14,434 bed nights in 2000. The transitional housing director
    described a young woman whose abuser had destroyed her credit, isolated
    her from all friends and family, and repeatedly suffocated her child
    near to the point of death. The woman and her child were so traumatized
    that they required counseling and other supportive services along with
    the longer stay of a transitional housing program. Fortunately, the
    Maryland program was able to make space for them and the family is now
    established both financially and emotionally.
        Transitional housing is an essential component of the fight to end
    domestic violence. As the McAuley Institute, a faith-based housing
    organization, stated, ``short-term housing aid and targeted supportive
    services can help survivors bridge the gap between financial and
    emotional dependency and productive, healthy and life-sustaining
    environments for themselves and their children.'' Congress responded to
    the urgent need for transitional housing by providing a modest $25
    million for temporary housing assistance in VAWA 2000. Unfortunately,
    no money was appropriated for this vital service, and the President's
    Budget continues this travesty by requesting no funding for
    transitional housing in fiscal year 2002. Though the $25 million was
    initially authorized only for fiscal year 2001, we fully anticipate it
    will be reauthorized as part of the Child Abuse Prevention and
    Treatment Act (CAPTA). We ask that Congress now appropriate the needed
    funds for fiscal year 2002.

                                  STOP GRANTS
        In order to eradicate domestic violence, abusers must be held
    accountable for their actions and victims given appropriate legal
    assistance. The STOP (Services, Training, Officers and Prosecution)
    Grant program provides funding directly to states, territories and
    Indian Country to create a coordinated, community response to domestic
    violence and sexual assault. Police, district attorneys, shelters for
    battered women, rape crisis centers, and outreach organizations work
    together to combat domestic violence from an interdisciplinary
    approach. According to Nancy O'Malley, Chief Assistant District
    Attorney in Alameda County California, because of the STOP program,
    ``victims and abusers are no longer falling through the cracks. We are
    everywhere.'' \20\
    ---------------------------------------------------------------------------
        \20\ Muskie School of Public Service, State Profiles: Communities
    Respond to Domestic Violence, U.S. Department of Justice, Office of
    Justice Programs, Violence Against Women Office (2001).
    ---------------------------------------------------------------------------
        Before VAWA was originally passed in 1994, most police officers
    were not well-trained about domestic violence and sexual assault, and
    often made no arrests or did not collect appropriate evidence. When
    arrests were made, many victims of domestic violence dropped the
    charges, in large part because they were not adequately protected by
    the judicial and law enforcement systems and feared reprisals by their
    abusers. Programs funded by STOP have trained police, judges,
    prosecutors and court personnel to assist battered women and children
    as well as victims of rape and sexual assault.
        According to the Muskie School for Public Service's 2001 report for
    the U.S. Department of Justice Violence Against Women Office, STOP
    grants have been extremely effective in assisting victims and
    prosecuting batterers and rapists:
      --In Largo, Florida, the rate of domestic violence arrests that
            resulted in charges filed increased from 16 percent in 1997 to
            55 percent in 1999;
      --23,546 victims in Ohio were served through STOP grants from 1997 to
            1999;
      --From 1994-1999, there was a 275 percent increase in the number of
            felony stalking cases filed by the Los Angeles, California
            District Attorney's Office Stalking and Threat Assessment Team;
      --Counties in Iowa with established Domestic Abuse Response Teams
            (DARTs, created with STOP grant funding) have a conviction rate
            nearly 20 percent higher than counties without DARTs;
      --The Louisville, Kentucky Police Department saw its domestic
            violence arrest rate increase by 42 percent from 1998 to 1999;
      --Charleston, West Virginia saw a 73 percent increase in the number
            of arrests for violation of domestic violence protection orders
            from 1998 to 1999. A STOP funded prosecuting attorney in Wood
            County increased the number of domestic violence convictions
            from fiscal year 1998 to fiscal year 1999 by 143 percent;
      --In-person contacts made with victims by the Colorado Springs
            Domestic Violence Enhanced Response Team increased by 60
            percent from 1998 to 1999;
      --In Gresham, Oregon, the percentage of domestic violence police
            reports has increased 129 percent, from 383 reports in 1996 to
            876 in 1999;
      --In South Carolina, the number of criminal court hearings that
            domestic violence advocates have been able to attend has
            increased from 62 in 1996 to 1,511 in 1999, an increase of
            2,337 percent;
      --From 1996-1999, the New Day Shelter in Ashland County, Wisconsin,
            saw a 44 percent increase in client services. They responded to
            approximately 4,000 crisis calls in 1999, a 124 percent
            increase from 1,787 calls in 1996. Services to Native Americans
            increased 84 percent from 1996 to 1999.
        Though STOP-funded programs have made a significant impact, the
    need for them continually increases. In fact, the need for services in
    many areas has increased because of the efficacy of STOP programs. Many
    victims of domestic violence believed they had no choice but to stay
    with their abusers. Thanks to increased outreach, successful
    prosecution, and responsive police officers, thousands of battered
    women now have the knowledge and the courage to find safety for
    themselves and their children.
      --By 1999, The Los Angeles, California Commission on Assaults Against
            Women had seen a 64 percent increase in the number of victims
            served since the STOP grant funding was received in 1997. Rape
            Prevention Education program services in LA doubled from 1996
            to 1999;
      --Education and prevention efforts funded by STOP led to a 358
            percent increase in calls to the Columbus, Ohio 24-hour rape
            helpline--from 361 in 1996 to 1,654 in 1999;
      --From fiscal year 1995 to fiscal year 1999, there was a 473 percent
            increase in law enforcement referrals to the Women's Resource
            Center of West Virginia after STOP grants funded domestic
            violence advocates and law enforcement in Nicholas, Raleigh,
            Fayette and Summers Counties;
      --After receiving STOP funding for a community outreach coordinator,
            the Wintergarden Women's Shelter served 66 percent more women
            in crisis from 4 rural counties in Southeast Texas. Maverick
            County alone saw an 88 percent increase, and the number of
            women seeking services in Dimmit County tripled.
      --In the Bristol Bay region of Alaska, a rural area the size of Ohio
            where victims of domestic violence must be flown to safety, the
            only battered women's shelter saw its shelter nights double
            from fiscal year 1999 to fiscal year 2000. Another critical
            aspect of the STOP Grant program is a set-aside to combat
            violence in Indian Country. The violent crime rate among Native
            American females during the period of 1992-1996 was 98 per
            1,000 females. This is more than double the rate among white
            females (40 per 1,000) and almost twice the rate among black
            women (56 per 1,000).\21\ Approximately 75 percent of Native
            American female homicide victims are killed by someone they
            knew--a rate significantly higher than the national
            average.\22\ American Indian victims of intimate and family
            violence are more likely than others to be injured and a
            greater number of their injuries will require hospital
            care.\23\
    ---------------------------------------------------------------------------
        \21\ Lawrence A. Greenfeld and Steven K. Smith, Bureau of Justice
    Statistics, American Indians and Crime (1999).
        \22\ National Center for Injury Prevention and Control, Homicide
    Surveillance: 1979-1988, Centers for Disease Control. Atlanta, Georgia
    (1992).
        \23\ See Lawrence A. Greenfeld and Steven K. Smith, supra note 21.
    ---------------------------------------------------------------------------
        In order to meet the increasing demand for services as well as to
    reach out to underserved populations, Indian country, and rural
    communities, funding for STOP grants must increase. Unfortunately,
    appropriations for STOP grants were actually reduced in the fiscal year
    2001 Congressional Budget. Authorized by VAWA 2000 at $185 million,
    STOP grants were appropriated at only $152.02 million for fiscal year
    2001 once major earmarks, including Safe Start, Campus Violence Grants,
    and Civil Legal Assistance, were deducted. This amount, slightly less
    than had been appropriated for the previous 3 years, was further
    reduced by appropriation increases for smaller earmarks, which were
    deducted from the STOP grant funding stream.
        Subtracting money earmarked or set aside for various programs, the
    money left for grants to states was only $113.118 million--the lowest
    since 1996. Due to changes in the authorizing statute, many states
    received a substantial cut in funding this year. Large states were hit
    hardest by these cuts:
      --Texas lost $1.604 million;
      --Florida lost $1.194 million;
      --California lost $2.701 million;
      --North Carolina lost $.547 million;
      --Virginia lost $.491 million;
      --Pennsylvania lost $.991 million;
      --Ohio lost $.902 million.
      --New York lost $1.538 million.
        In all, 42 states and Puerto Rico lost money, with only 8 small
    states and 5 territories gaining money, usually less than $100,000.
        The President's fiscal year 2002 Budget makes great strides in
    redressing this grievance. His budget requests $184.5 million for STOP
    grants while simultaneously removing all but one of the earmarked
    programs from the Grants to Combat Violence Against Women section of
    the budget. This gives the earmarked programs, important in their own
    right, their own line-item appropriations, and leaves $173.3 million in
    STOP grants. We urge Congress to support both full funding for STOP
    grants and the removal of all earmarked programs from the Grants to
    Combat Violence Against Women portion of the fiscal year 2002
    Congressional Budget to bring the STOP Grants amount up to the full
    $185 million authorized.

                                  SAFE HAVENS
        Children are often the forgotten victims of domestic violence.
    Children who witness domestic violence are at a high risk of anxiety
    and depression, and exhibit more aggressive, antisocial, inhibited and
    fearful behaviors.\24\ It is estimated that between 3 and 10 million
    children witness acts of domestic violence, typically the father of the
    child or partner of the mother abusing the mother.\25\
    ---------------------------------------------------------------------------
        \24\ E. Peled, P.G. Jaffe, and J.L. Edelson, Ending the Cycle of
    Violence: Community Responses to Battered Women 4-5 (1995); M. Kenning,
    A. Merchant, and A. Thompkins, ``Research on the Effects of Witnessing
    Parental Battering: Clinical and Legal Policy Responses.'' 238-39, in
    Woman Battering: Policy Responses (37) (Michael Steinmen, ed.) (1991).
        \25\ J. Edelson, ``Mothers and Children: Understanding the Links
    Between Woman Battering and Child Abuse.'' Synergy 1(3) (1995).
    ---------------------------------------------------------------------------
        Safe Havens, or supervised visitation centers, play an essential
    role in breaking the cycle of domestic violence and child abuse.
    Supervised visitation centers allow non-custodial parents to meet with
    their children in a protected and neutral environment. In cases of
    domestic violence, the abusive partner is prevented from making contact
    with the custodial parent, while still having a safe and positive
    interaction with the children. Supervised visitation programs provide
    services including:
      --One-on-one supervision (one supervisor assigned to a single
            family);
      --Monitored exchanges (supervision of a child's movement between the
            residential and the nonresidential parent immediately before
            and after unsupervised visitation);
      --Group supervision (supervision of several families at a time);
      --Telephone monitoring (monitoring phone calls from the
            nonresidential parent to the child); and
      --Therapeutic supervision (mental health professionals providing
            therapy/counseling to the family during the visit).
        The services provided by supervised visitation centers are
    essential. Maureen Sheeran of the National Council of Juvenile and
    Family Court Judges states that, ``many battered women report threats
    against their lives during visitation and exchanges, and some, in fact,
    are killed in those contexts'' \26\. Supervised visitation centers
    minimize this risk by facilitating safe contact between perpetrators of
    domestic violence and their children.
    ---------------------------------------------------------------------------
        \26\ M. Sheeran, and S. Hampton, ``Supervised Visitation in Cases
    of Domestic Violence.'' 13-25, Juvenile and Family Court Journal
    (Spring) (1999).
    ---------------------------------------------------------------------------
        Many families are benefitting from supervised visitation centers.
    One program in Brockton, Massachusetts served 102 families, 141
    children and 205 adults in the fiscal year 2001. Florida supervised
    visitation centers reported over 30,000 scheduled visits in 1999. A
    Leesburg, Virginia program reported that 100 percent of participant
    evaluations indicated that participants were glad that the supervised
    visitation center was available and that the children had been able to
    feel safe with the non-custodial parent.
        Unfortunately, supervised visitation centers are woefully
    underfunded. Lack of funding was cited as a ``major problem'' by 67
    percent of surveyed administrators \27\. The Clearinghouse on
    Supervised Visitation estimates that programs need a minimum of $90,000
    per year to operate, but notes that many programs operate on smaller
    budgets and cannot afford adequate security--often placing the women
    and children they serve at great risk. ``Visitation services are not
    available in many communities, and in communities where they are
    available, the demand for service far outstrips the capacity,'' says
    Sheeran.\28\ Though Congress authorized $15 million for supervised
    visitation centers through the Violence Against Women Act of 2000, no
    money was appropriated for them in the fiscal year 2001 Congressional
    budget. VAWA 2000, and the authorized funding levels contained within,
    was passed with overwhelming, bipartisan support. The President's
    fiscal year 2002 Budget requests $15 million for the Safe Haven
    program. We urge Congress to live up to its promise by fully funding
    supervised visitation centers in the fiscal year 2002 Congressional
    budget.
    ---------------------------------------------------------------------------
        \27\ J. Pearson and N. Thoennes, Supervised Visitation: A Portrait
    of Programs and Clients (1997).
        \28\ See M. Sheeran, and S. Hampton, supra note 26.
    ---------------------------------------------------------------------------

                             CIVIL LEGAL ASSISTANCE
        In order to provide lasting safety for themselves and their
    children, victims of domestic violence and sexual assault must seek
    help from the legal system. Tragically, many battered women are
    revictimized by the judicial process. Usually, battered women cannot
    afford the retainers or hourly fees needed to hire private legal
    representation. Without any legal representation, many victims of
    domestic violence are unable to get needed protective orders or custody
    of their children.
        The Legal Assistance Program for Victims funds grassroots efforts
    to meet the broad civil legal assistance needs of victims of domestic
    violence and sexual assault. Civil legal representation for battered
    women in family law, immigration, housing and public benefits matters;
    training to improve the delivery of civil legal services; collaboration
    between domestic violence services and legal assistance programs; and
    the improvement of pro bono civil legal assistance are funded through
    the Legal Assistance Program. This program is the only Federal funding
    designed to meet the many legal needs of victims of domestic violence.
    The Violence Against Women Office has received an overwhelming number
    of requests for funding; in the first year alone, more than 400
    applications were received, but only 57 grants could be approved.\29\
    ---------------------------------------------------------------------------
        \29\ Roberta Valente, Campaign for Full Funding of the Violence
    Against Women Act Fiscal Year 2002 Budget Briefing Book (2001).
    ---------------------------------------------------------------------------
        Bay Area Legal Services of Tampa, Florida used their civil legal
    assistance grant to meet the needs of women in urban Tampa as well as
    rural Plant City and Dade City, fund Spanish-speaking attorneys and
    staff to work with the Hispanic community, and train more than 50
    domestic violence programs in their area. Demand for services is
    continually high, and if funding does not continue, Bay Area Legal
    Services will be forced to turn away many impoverished women. Another
    legal services program in Hammond, Louisiana served 710 women between
    October 1998 and March 2000. Three-quarters of those women had children
    who had been exposed to domestic violence in the home. The Hammond
    program also uses VAWA funding to collaborate with two domestic
    violence service providers. Since receiving that VAWA funding, those
    programs have seen 26-27 percent increases in the numbers of clients
    served.
        A VAWA-funded legal services provider in Los Angeles, California
    provides legal representation and language access to hundreds of local
    battered women. One of their clients had been married for 4 years to an
    extremely abusive man, who was also molesting their children. The woman
    could not afford legal services and went to a local ``notario'' service
    which advertises the provision of legal services but in fact only
    provides poor quality paralegal work. The notario service did not
    respond to the allegations of molestation and arranged joint custody
    for the woman and her husband. The victim was left to choose between
    allowing her husband to molest the children when he had custody of them
    or keeping the children with her exclusively and thus violating the
    court order. Fortunately, the Los Angeles program was able to provide
    quality pro bono legal services to the victim, who was granted sole
    custody of her children. She and her children are now able to live
    violence-free lives.
        The Legal Assistance Program was authorized in VAWA 2000 for $40
    million per year. Last year, Congress appropriated only $31.56 million
    for legal assistance in the fiscal year 2001 Congressional Budget. The
    President's recently-released Budget requests the full $40 million for
    this critical program. It is imperative that Congress also include $40
    million for the Legal Assistance Program in the fiscal year 2002
    Congressional Budget.

      EDUCATION/TRAINING TO END VIOLENCE AGAINST AND ABUSE OF WOMEN WITH
            DISABILITIES AND PROTECTION FOR OLDER AND DISABLED WOMEN
        Domestic violence is often portrayed as a crime which affects
    primarily younger women. However, according to the National Center on
    Elder Abuse more than two-thirds of all abusers, neglectors, and
    exploiters of older women are family members.\30\ A study on sexual
    abuse of elders found that 78 percent of suspected offenders were
    family members.\31\ Reports of domestic abuse against the elderly rose
    from 117,000 in 1986 \32\ to 293,000 total reports in 1996.\33\ After
    taking the rates of reporting into account, the National Center for
    Elder Abuse extrapolates that there were 818,000 total elderly domestic
    abuse victims in 1994.\34\
    ---------------------------------------------------------------------------
        \30\ Toshio Tatara, Summaries of the Statistical Data on Elder
    Abuse for Domestic Settings for Fiscal Year 1995 and Fiscal Year 1996,
    p. ix, National Center on Elder Abuse (November 1997).
        \31\ H. Ramsey-Klawsnik, Elder Sexual Abuse: Preliminary Findings,
    3(3) Journal of Elder Abuse and Neglect (1991).
        \32\ Toshio Tatara, Elder Abuse in Domestic Settings: Series#2,
    National Center on Elder Abuse (1996).
        \33\ See Toshio Tatara, supra note 30, at vii.
        \34\ See Toshio Tatara, supra note 32.
    ---------------------------------------------------------------------------
        Disabled women comprise another vulnerable population with unmet
    needs. Women with disabilities are more likely to be the victims of
    abuse and violence than women without disabilities because of their
    increased physical, economic, social, or psychological dependence on
    others.\35\ In cases of domestic violence, women with disabilities stay
    with their batterers almost twice as long as do women without
    disabilities.\36\ Like other victims of domestic violence, they are
    often unable to leave the abusive relationship because of the
    inaccessibility of services or the fear of abandoning dependent
    children.\37\ Many women with disabilities also fail to report the
    abuse, as they are dependent on their abusers and they fear being
    abandoned or institutionalized.\38\
    ---------------------------------------------------------------------------
        \35\ Nosek, Howland, and Young, Abuse of Women with Disabilities:
    Policy Implications, The Center for Research on Women with
    Disabilities, Department of Physical Medicine and Rehabilitation,
    Baylor College of Medicine (1996).
        \36\ Margaret Nosek, Principal Investigator for Findings on Abuse,
    for the Center for Research on Women with Disabilities, Department of
    Physical Medicine and Rehabilitation, Baylor College of Medicine
    (1999).
        \37\ See Nosek, Howland and Young, supra note 35.
        \38\ Ibid.
    ---------------------------------------------------------------------------
        These elderly and disabled victims often fall through the cracks of
    traditional services. Many emergency shelters for battered women,
    operating on shoestring budgets and often located in older buildings,
    are not handicapped accessible or not designed to meet the special
    mobility needs of elderly and disabled women. For example, until the
    city donated a new building, the emergency domestic violence shelter in
    Greensboro, North Carolina was located in a 3-story house with narrow
    stairs and no elevator. Bedrooms and bathrooms were all on the top
    floor, with food storage in the basement. When elderly and handicapped
    women fled to the shelter, they had to be relocated to the neighboring
    city of High Point--away from their support systems, their doctors, and
    their children's schools. A study in Florida, a state with a high
    percentage of elderly residents, found that fewer than 2 percent of the
    women using shelters in that state were older women.\39\ Law
    enforcement, the criminal justice system, legal services, health-care
    providers and victim services are often not equipped or trained to
    effectively identify and respond to abuse or violence against women
    with disabilities,\40\ and most crimes against the disabled go
    unreported.\41\
    ---------------------------------------------------------------------------
        \39\ L. Vinton, Abused Older Women: Battered Women or Abused
    Elders, 3(3) Journal of Women and Aging (1991).
        \40\ See Nosek, Howland and Young, supra note 35.
        \41\ D. Sobsey, Violence and Abuse in the Lives of People with
    Disabilities: The End of Silent Acceptance?, Baltimore, MD: Paul H.
    Brookes Publishing Co.
    ---------------------------------------------------------------------------
        Through VAWA 2000, Congress sought to address the needs of elderly
    and disabled women. $5 million per year was authorized for Protection
    for Older and Disabled Women (PODW), and $7.5 million per year was
    authorized for Education and Training to End Violence Against and Abuse
    of Women with Disabilities (VAAWD). The PODW program provides grants
    for training programs to assist law enforcement officers, prosecutors
    and other court officers in recognizing, addressing, investigating, and
    prosecuting instances of elder abuse, neglect and exploitation, and
    violence, including domestic violence and sexual assault, against older
    or disabled individuals. VAAWD established a new grant program to
    provide education and technical assistance to service providers to
    better meet the needs of disabled individuals who are victims of
    domestic violence, sexual assault and stalking. Regrettably, no money
    was appropriated in the fiscal year 2001 Congressional Budget for
    either program. President Bush has recognized the urgent need to fund
    this underserved population by requesting full funding for both
    programs in his fiscal year 2002 Budget. NCADV asks Congress to follow
    the President's lead and appropriate $5 million for PODW and $7.5
    million for VAAWD in its fiscal year 2002 Congressional Budget.

                                CAMPUS VIOLENCE
        While many girls endure sexual violence, battering, and harassment,
    violence against women is typically cast as a problem facing adults.
    However, sexual assault, dating and domestic violence, and stalking are
    serious and widespread problems on college and university campuses.
    More than half of all stalking victims are between 18-29 years old \42\
    and the highest rate of intimate partner violence is among women ages
    16-24.\43\ Sexual assault is the second most common violent crime
    committed on college campuses, with most perpetrators being students
    known to the victim. Half of all these sexual assaults occur in the
    victim's residence, with an additional one-third taking place in off-
    campus student housing, such as fraternities.\44\ According to the
    Bureau of Justice Statistics, 15.5 percent of college women were
    sexually victimized during the 1996-1997 academic year.\45\ Another 13
    percent were stalked during the same time period.\46\ A study in
    Jamaica Plain, Massachusetts, found that 41 percent of surveyed
    students in the Boston area during the 1998-1999 school year had
    experienced dating violence.\47\
    ---------------------------------------------------------------------------
        \42\  Stalking and Domestic Violence: Attorney General's Third
    Annual Report to Congress under the Violence Against Women Act, U.S.
    Department of Justice, Office of Justice Programs (1998).
        \43\ ``Violence by Intimates: Analysis of Data on Crimes by Current
    or Former Spouses, Boyfriends, and Girlfriends.'' Bureau of Justice
    Statistics Factbook. U.S. Department of Justice, Office of Justice
    Programs (1998).
        \44\ B. Fisher, J.J. Sloan, III, and F.T. Cullen, Final Report:
    Understanding Crime Victimization Among College Students: Implications
    for Crime Prevention, U.S. Department of Justice, Office of Justice
    Programs (1995).
        \45\ Bonnie S. Fisher, Francis T. Cullen, and Michael G. Turner,
    The Sexual Victimization of College Women, U.S. Department of Justice,
    National Institute of Justice, Bureau of Justice Statistics (December
    2000).
        \46\ Ibid.
        \47\ National Coalition Against Domestic Violence, Stories and
    Statistics: The Importance of Including Teen Dating Violence in the
    Current Federal Definition of Domestic Violence (May 2000).
    ---------------------------------------------------------------------------
        VAWA funding has enabled colleges and universities to respond to
    domestic violence and sexual assault on campus. For instance, the Oasis
    Center at the University of Arizona in Tucson has seen a 45 percent
    increase in the number of college students served since receiving VAWA
    funding. In the 1998 calendar year, 128 students were served. The
    Center received VAWA funding in fiscal year 1999, and by fiscal year
    2000, the number had increased to 186. Demand for domestic violence and
    sexual assault services on campus continues to rise. The Oasis Center
    estimates that approximately 200 students will be served in the first
    six months of 2001. The Women's Resource Center at the University of
    Alabama in Tuscaloosa has served nearly as many people in the first
    quarter of fiscal year 2001 (82) as it did in all of fiscal year 2000
    (94).
        VAWA 2000 authorized $10 million for Grants to Combat Violent
    Crimes Against Women on Campuses. In its fiscal year 2001 Congressional
    Budget, Congress appropriated nearly $11 million for this important
    program. The President's Budget requests $10 million for Campus
    Violence programs. NCADV also requests that Congress appropriate at
    least $10 million for Grants to Combat Violent Crimes Against Women on
    Campuses.
                rural domestic violence and child victimization
        Victims of domestic violence in rural and remote communities face
    unique obstacles in their efforts to escape abusive and dangerous
    relationships. Rural communities often lack the basic infrastructure
    needed to assist victims. Social and cultural pressures are strong, and
    the dynamics of small communities present challenges in the provision
    of confidential and safe services.\48\
    ---------------------------------------------------------------------------
        \48\ Lynn Rosenthal, Campaign for Full Funding of the Violence
    Against Women Act Fiscal Year 2002 Budget Briefing Book (2001).
    ---------------------------------------------------------------------------
        Women in rural areas are often forced to travel over 100 miles to
    reach safety. For example, the towns of Milford, Tunkhannock and
    Honesdale, located in rural Northeastern Pennsylvania, all lack
    emergency shelters for battered women. Resident's must travel 45
    minutes to an hour to another county in order to be safe. This
    dislocation requires that a battered woman's children must change
    schools, the battered woman must either commute or leave her job, and
    she must return for court hearings to the county she fled. As there is
    no public transportation in the area, this is very difficult for a
    woman with little or no money. Marlene Woods of the Tunkhannock Victims
    Resource Center said that many women choose to stay with their abusers
    because they know housing is extremely difficult to find in their rural
    community.
        With a VAWA Rural Domestic Violence and Child Victimization Grant,
    the New Hampshire Coalition Against Domestic and Sexual Violence
    (NHCADSV) increased contacts with the Division of Children, Youth and
    Families from 686 cases in calendar year 1998 to 906 cases in calendar
    year 1999--a 32 percent increase. They were also able to train more
    members of the community. In calendar year 1998, the NHCADSV trained
    2,458 individuals. In calendar year 1999 that number increased 55
    percent to 3,820 individuals. Prior to receiving VAWA funding, the
    Arkansas Valley Resource Center served only 12 percent of the domestic
    violence victims in Brent and Crowley counties in rural southeastern
    Colorado. With VAWA funding, they are now able to reach 50 percent of
    victims in these counties through the establishment of satellite
    offices. Victims seeking services in rural Colorado's La Plata,
    Archuleta and San Juan counties increased during the same time period;
    local domestic violence service provider Alternative Horizons received
    872 hotline calls in 1996 and 1,410 calls in 1999, a 62 percent
    increase.\49\
    ---------------------------------------------------------------------------
        \49\ See Muskie School of Public Service, supra note 20.
    ---------------------------------------------------------------------------
        According to Debbie Bresette, Executive Director of the Bastrop
    County Women's Center (BCWC) in Bastrop, Texas, the Rural Domestic
    Violence and Child Victimization funds have greatly impacted victims in
    her community. The Family Crisis Center, part of (BCWC) provides
    services for a 4,000 square mile area in Central Texas with a
    population of 100,000. During fiscal year 2000, the Center reported a
    66 percent increase in the number of people requesting services. Ms.
    Bresette stated that, ``this increase directly relates to the funding
    from the Rural Domestic Violence and Child Victimization program. With
    the wide breath of services we are able to provide through these funds
    we are able to touch the lives of a large number of people.'' The
    Center provides child abuse prevention programs to 52 rural campuses in
    a 4 county area in Texas, parent education in English and Spanish, and
    counseling for children and youth who have been victims of violence.
        In Ohio's 29 rural, Appalachian counties, a VAWA-funded program is
    working to connect law enforcement, prosecution and victim services to
    combat violence against women and children through three Crisis
    Response Teams (CRTs). In fiscal year 2000, these CRTs were able to
    serve 342 individuals. 70 percent of domestic violence providers
    working with the CRTs stated that the Teams had increased knowledge of
    domestic violence among criminal justice personal. Unfortunately, a
    Bowling Green State University review found that the CRTs still lacked
    the funds to adequately serve their rural region.\50\
    ---------------------------------------------------------------------------
        \50\ Ohio Office of Criminal Justice Services, Rural Domestic
    Violence and Child Victimization Evaluation Summary (2000).
    ---------------------------------------------------------------------------
        This lack of funding was addressed by Congress in passing VAWA
    2000. VAWA 2000 authorized $40 million annually for grants to serve
    victims of domestic violence in rural areas. Despite this clear mandate
    to increase funding for rural programs, Congress only appropriated
    $24.38 million to the Rural Domestic Violence and Child Victimization
    program in its fiscal year 2001 Congressional Budget. The President has
    recognized this problem by requesting full funding for the Rural
    program in his fiscal year 2002 Presidential Budget. NCADV urges
    Members of Congress to appropriate the promised $40 million for Rural
    Domestic Violence and Child Victimization in the fiscal year 2002
    Congressional Budget.

                                   CONCLUSION
        The investment of $677.3 million, which represents an additional
    $208.87 million over the fiscal year 2001 budget (a small amount
    compared to the billions spent coping with the effects of domestic
    violence), in the Congressional Budget for VAWA programs would save
    untold dollars for businesses of all types and sizes, the government,
    and taxpayers by working to reduce, and ultimately end, domestic
    violence. Currently in the United States, there is no group, race,
    religion, class, age or ethnicity that is free of domestic violence--it
    occurs nearly equally through all strata of our society. The money
    spent reducing domestic violence is significantly less than the money
    this nation will have to spend to pick up the pieces of shattered
    lives. In appropriating these funds, you will save money overall for
    business and taxpayers, you will save lives, and you will be heroes in
    your communities. We urge you to support full funding of all VAWA
    programs for the fiscal year 2002.
        Attached you will find a copy of the Campaign for Full Funding of
    the Violence Against Women Act fiscal year 2002 Appropriations Chart.
    <GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>

                                     ______

              Prepared Statement of Bernard H. Berne, M.D., PH.D.

        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.
        I ask your Subcommittee to deny the Administration's request to
    provide $9,060,000 to the General Services Administration's (GSA's)
    Federal Buildings Fund for the construction of a FDA Consolidation in
    Montgomery County, Maryland. This request appears on p. 983 of the
    President's Budget for Fiscal Year 2002.
        The General Services Administration (GSA) is now starting to design
    and construct this facility. GSA would use the additional funds to
    design the next phase of this wasteful project in suburban White Oak,
    Maryland. Please deny these funds for the following reasons:
    Economic Considerations
        FDA will need to pay rent to GSA if it occupies this facility. The
    rents would likely be higher than rents that GSA and FDA pay to private
    property owners, since GSA would not need to enter into competitive
    bidding processes.
        Congressional authorizing committees need to evaluate the current
    costs of the consolidation and compare them to the costs of maintaining
    FDA's current facilities. No Congressional committee has done this
    during the past ten years.
        All or nearly all of FDA's offices that would move to White Oak are
    presently located in satisfactory leased facilities. Some, such as my
    own, are now in excellent buildings. There is no clear need or economic
    reason to relocate these offices to White Oak or to consolidate any
    part of FDA at this location.
    Location
        White Oak is an unsatisfactory location for FDA's headquarters
    consolidation. The project would promote urban sprawl.
        FDA's White Oak facility would occupy 125 acres next to a golf
    course in a suburban residential neighborhood in Montgomery County,
    Maryland. The FDA site is outside of the Capital Beltway on a largely
    forested 750-acre property surrounded by heavily congested roads and
    highways. The site is three miles from the nearest Metro station, and
    has only infrequent bus service.
        An FDA consolidation at White Oak would bring 6,000 FDA employees
    to this Washington area suburb. Most would need to commute for much
    longer times and distances than they presently do. White Oak is more
    than 20 miles from most present FDA facilities.
        I and thousands of other FDA employees presently commute to work by
    Metro, as our workplaces are near Metro stations. This will be
    impossible at White Oak.
        FDA employees driving to White Oak will add traffic congestion and
    air pollution to the Washington Metropolitan Area. This is especially
    unfortunate because the Washington Metropolitan Area already has the
    second worst traffic congestion of all urban areas in the United
    States. The federal government will need to subsidize many improvements
    to roads and public transit to accommodate the many FDA employees and
    associated businesses that would relocate from better locations to this
    distant suburb.
        FDA employee surveys have revealed widespread opposition to this
    relocation. Last July, a survey of those employees who would relocate
    first to White Oak showed that 70 percent opposed the move. Many stated
    that the relocation would impair FDA's ability to regulate drugs and
    medical devices. It is clear that the location of this facility will
    have long-lasting adverse effects on FDA's ability to recruit and
    retain qualified employees.
        The Washington Metropolitan area has a number of better sites at
    which FDA can consolidate. Among these is the Southeast Federal Center
    in downtown Washington, D.C. This underutilized 50-acre federally-owned
    property is adjacent to the Navy Yard Metro Station. It is only one
    mile from the U.S. Capitol and the headquarters of the U.S. Department
    of Health and Human Services (HHS).
    Legal Issues
        On February 23, 2001, I and a number of other FDA employees joined
    the Sierra Club and the Forest Conservation Council in a law suit that
    is intended to stop the White Oak project. For a number of reasons,
    FDA's occupancy of any buildings at White Oak would be illegal. The
    U.S. District Court for the District of Columbia is presently
    considering this suit.
        The White Oak facility would house the Office of the Commissioner
    of Food and Drugs, as well as most other FDA headquarters offices. This
    would violate 4 U.S.C Sec. 72, which states:
        ``All offices attached to the seat of government shall be exercised
    in the District of Columbia, and not elsewhere, except as otherwise
    expressly provided in law.''
        4 U.S.C. Sec. 72 is derived from the 1790 Act that established the
    District of Columbia as the Nation's capital. The first Congress
    enacted this law, which President George Washington signed.
        There is no law that expressly provides that FDA's headquarters
    offices shall be exercised outside of the District of Columbia.
        The FDA Revitalization Act (Public Law 101-635; 21 U.S.C.
    Sec. 369b), authorizes the Secretary of HHS to enter into contracts to
    acquire property and to construct and operate a consolidated FDA
    headquarters facility. This Act does not provide the location of the
    consolidated facility.
        I ask Congress not to appropriate funds to support an illegal
    activity. The 1790 Act had the worthy purpose of ensuring that all
    central offices of the federal government would consolidate in the
    federal capital District, and not elsewhere. The consolidated FDA
    facility would be one such office that is ``attached to the seat of
    government''.
        Article 1, Section 8, of the Constitution gives Congress exclusive
    jurisdiction over the District of Columbia. Your Committee should take
    no action to support the location of FDA's headquarters at a location
    that is outside of the District. Any such action would tend to vitiate
    this section of the Constitution, which 4 U.S.C. Sec. 72 is intended to
    support.
        Executive Order 12072, Aug. 16, 1978, (40 U.S.C. Sec. 490 note)
    states in Section 1-1, Subsection 101:
        ``Federal facilities and Federal use of space in urban areas shall
    serve to strengthen the nation's cities and to make them attractive
    places to live and work. Such Federal space shall conserve existing
    urban resources and encourage the development and redevelopment of
    cities.''
        White Oak is not in or near any city. An FDA consolidation at White
    Oak (which is in an ``urban area'', the Washington Metropolitan Area)
    would not strengthen any cities. The FDA facility would not encourage
    the development or redevelopment of any cities.
        Executive Order 12072, Section 1-1, Subsection 101, contains the
    word ``shall'' in several locations. FDA therefore can not legally
    locate its headquarters in suburban White Oak.
        Executive Order 12072 and several federal statutes require that
    heads of federal agencies consult with local city officials to obtain
    their recommendations for and objections to all proposed new federal
    facilities. Neither GSA nor FDA officials ever consulted with officials
    of the District of Columbia or of the City of Rockville in Montgomery
    County, Maryland, concerning the White Oak facility.
        This lack of consultation violated Executive Order 12072 and
    several laws. It prevented District and Rockville officials from
    recommending alternative sites for the consolidated facility within
    their own jurisdictions and from objecting to the selection of the
    White Oak site.
        The Public Buildings Act of 1959, as amended, requires that the
    Committee on Environment and Public Works of the U.S. Senate approve
    prospectuses that describe the location and maximum costs of any large
    buildings that GSA may wish to construct before Congress can
    appropriate funds to design and construct such buildings. That
    Committee has never approved a prospectus that describes FDA's White
    Oak facility.
        Paragraph 7 of Senate Rule XVI requires that Committee reports on
    general appropriations bills identify each provision ``which proposes
    an item of appropriation which is not made to carry out the provisions
    of an existing law, a treaty stipulation, or an act or resolution
    previously passed by the Senate during that session.'' If your
    Committee proposes any appropriation of funds for an FDA consolidation,
    your Committee Report needs to identify this appropriation as being one
    that is not made to carry out the provisions of any existing law,
    treaty, or act or resolution that the Senate has previously passed
    during this session.
        The Treasury and General Government Appropriations Act, 2000
    (Public Law 101-58) and the Consolidated Appropriations Act, 2001
    (Public Law 106-544), appropriated funds to GSA that could support the
    first two phases of FDA's consolidation in Montgomery County, Maryland.
    However, both Appropriations Acts contain provisions that state:
        ``Provided further, That funds available to the General Services
    Administration shall not be available for expenses in connection with
    any construction, repair, alteration, or acquisition project for which
    a prospectus, if required by the Public Buildings Act of 1959, as
    amended, has not been approved, except that necessary funds may be
    expended for each project for required expenses in connection with the
    development of a proposed prospectus.''
        The Public Buildings Act of 1959, as amended, requires a prospectus
    that describes FDA's White Oak facility because the project's cost
    exceeds $1,500,000. No prospectus that described this facility had been
    approved before Public Law 101-58 was enacted into law. Therefore, GSA
    may only legally use the funds appropriated in these Acts for
    ``required expenses in connection with the development of a proposed
    prospectus''. GSA cannot legally use the funds to design and construct
    any buildings.
        Despite this prohibition, GSA is presently designing and starting
    to construct the first phase of the FDA consolidation without an
    approved prospectus. This is illegal.
        Some GSA officials claim that the FDA Revitalization Act (Public
    Law 101-635) authorizes appropriations to GSA without the need for
    prospectus approvals. This claim is incorrect. Public Law 101-635,
    which amended the Federal Food, Drug and Cosmetic Act, authorized
    appropriations that permit the Secretary of HHS to enter into contracts
    to construct and operate a consolidated FDA facility.
        Public Law 101-635 specifically limits the role of the
    Administrator of General Services in the FDA consolidation to
    consultation with the Secretary of HHS. Public Law 101-635 does not
    authorize any appropriations that can permit GSA to conduct any such
    activities, nor does it authorize any appropriations to GSA's Federal
    Buildings Fund.
        Your Subcommittee should not initiate the appropriation of any new
    funds for this facility. GSA has no intention of submitting a
    prospectus for Congressional approval. GSA will use any new funds
    illegally, just as it is using the previously appropriated funds.
        The National Environmental Policy Act (NEPA) of 1969 requires that
    federal agencies compare in an Environmental Impact Statement (EIS)
    alternative locations for any large new federal facility. However, the
    EIS for the White Oak FDA facility did not make any such comparisons.
        The EIS only compared the environmental impacts of an FDA
    consolidation at White Oak with the ``no action'' alternative.
    Following this legally inadequate comparison, GSA and FDA officials
    selected White Oak as the location for the facility.
        GSA and FDA officials therefore violated NEPA when they selected
    the White Oak site. Congress should not appropriate funds to support
    this illegal selection.
        A federal court may prevent FDA from consolidating its facilities
    at White Oak for one or more of the above reasons. Congress should not
    provide funds for FDA to occupy the White Oak facility until the
    federal courts decide whether the project can proceed.
        I therefore ask that your Subcommittee not provide the requested
    $9,060,000 to GSA in this legislation. Thank you.

           LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                                  ----------
                                                                       Page
    Baity, William F., Deputy Director, Financial Crimes Enforcement
      Network, Department of the Treasury............................   157
        Prepared statement...........................................   158
    Basham, Ralph W., Director, Federal Law Enforcement Training
      Center, Department of the Treasury.............................   149
        Prepared statement...........................................   151
    Berne, Bernard H., M.D., PhD., prepared statement................   270
    Buckles, Bradley A., Director, Bureau of Alcohol, Tobacco and
      Firearms, Department of the Treasury...........................    97
        Prepared statement...........................................    98

    Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado,
      questions submitted by.28, 64, 173, 177, 179, 187, 194, 198, 200, 232

    DeWine, Hon. Mike, U.S. Senator from Ohio:
        Prepared statement...........................................    85
        Questions submitted by......................................30, 181
    Dorgan, Hon. Byron L., U.S. Senator from North Dakota:
        Prepared statements..................................2, 38, 85, 205
        Questions submitted by...32, 174, 178, 182, 192, 196, 199, 201, 240
        Statement of.................................................    84

    Flyzik, James J., Acting Assistant Secretary for Management and
      Chief Information Officer, Office of the Secretary, Department
      of the Treasury................................................     1

    Institute of Makers of Explosives, prepared statement............   256

    Jurith, Edward H., Acting Director, Office of National Drug
      Control Policy, Executive Office of the President..............37, 40
        Prepared statement...........................................    45

    McFarland, Patrick E., Inspector General, Office of Personnel
      Management, prepared statement.................................   247
    Mikulski, Hon. Barbara A., U.S. Senator of Maryland, prepared
      statement......................................................   223

    National Coalition Against Domestic Violence, prepared statement.   258
    National Treasury Employees Union, prepared statement............   251
    Newcomb, R. Richard, Director, Office of Foreign Assets Control,
      Department of the Treasury.....................................   165
        Prepared statement...........................................   167

    O'Neill, Paul H., Secretary, Office of the Secretary, Department
      of the Treasury................................................  1, 5
        Prepared statement...........................................     7

    Rossotti, Charles O., Commissioner, Internal Revenue Service,
      Department of the Treasury..............................203, 204, 205
        Prepared statement...........................................   207

    Shelby, Hon. Richard C., U.S. Senator from Alabama, question
      submitted by...................................................   240
    Slavet, Beth S., Chairman, Merit Systems Protection Board,
      prepared statement.............................................   248
    Sloan, James F., Acting Under Secretary, Law Enforcement
      Division, Department of the Treasury...........................    83
        Prepared statement...........................................    86
    Stafford, Brian L., Director, U.S. Secret Service, Department of
      the Treas-
      ury............................................................   123
        Prepared statement...........................................   125

    Winwood, Charles W., Acting Commissioner, U.S. Customs Service,
      Department of the Treasury.....................................   109
        Prepared statement...........................................   111

                                 SUBJECT INDEX

                                  ----------

                           DEPARTMENT OF THE TREASURY

                                                                       Page
    Additional committee questions...................................   173
    Counter-terrorism:
        Fund.........................................................   175
        Role of Treasury in..........................................   174
    Human resources..................................................    89
    Program absorptions..............................................   176
    Southeast European Cooperative Initiative (SECI).................   173
    Strategic goals, meeting our.....................................    91
    Technology.......................................................    91
    Treasury IG......................................................   176
    Treasury strategic goal:
        Combat money laundering and other financial crimes...........    91
        Maintain U.S. leadership on global economic issues...........    96
        Protect our Nation's borders and illicit drugs, major
          international transportation terminals from traffickers and
          smugglers of...............................................    93
        Protect our Nation's leaders and visiting dignitaries........    95
        Provide high quality training for law enforcement personnel..    95
        Reduce violent crime and the terrorism, threat of............    94
        Support the achievement of business results..................    87
    U.S. Customs staffing............................................   174

                    Bureau of Alcohol, Tobacco and Firearms

    Additional committee questions...................................   177
    ATF:
        Accomplishments, fiscal year 2000............................    98
        Supervisory structure........................................   135
    Budget request, fiscal year 2002................................98, 178
    Firearms technological enhancements..............................   177
    Gang resistance education and training program (GREAT)...........   178
    G.R.E.A.T........................................................   144
    Management and technological improvements, funding for...........   136
    NIBIN............................................................   139
    Personnel annualizations, cost of................................   179
    Winter Olympics................................................178, 179

                    Federal Law Enforcement Training Center

    Accreditation:
        Initiative...................................................   196
        Project......................................................   155
    Additional committee questions...................................   194
    Area site progress, Washington, DC...............................   153
    Border patrol....................................................   195
    Charleston issues................................................   198
    Construction:
        Request......................................................   155
        Cost delays..................................................   171
    Facilities master plan/five year construction plan...............   154
    Firearms ranges/environmental cleanup............................   155
    Fiscal year:
        2001 achievements............................................   152
        2002 request.................................................   151
    FLETC GS-1811 position reclassification..........................   197
    Government Performance and Results Act (GPRA)....................   151
    Growth trends....................................................   154
    Law enforcement vehicle pursuit..................................   196
    Operations, overview of..........................................   152
    Rural law enforcement training...................................   196
    U.S. border patrol training, temporary site for the..............   154
    Workload.........................................................   153
        Capacity.....................................................   194

                      Financial Crimes Enforcement Network

    Additional committee questions...................................   198
    BSA, assessing our administration of the.........................   161
    FinCEN's administrative infrastructure, strengthening............   162
    Information to our customers, enhancing the quality and delivery
      of.............................................................   159
    Money services businesses (MSBs).................................   199

                            Internal Revenue Service

    Additional committee questions...................................   232
    Audits and collections...........................................   234
        Decrease in..................................................   225
    Benchmarks, telephone service....................................   221
    Budget:
        Request....................................................232, 240
        Summary......................................................   207
    E-learning.......................................................   238
    Earned income tax credit.........................................   230
    Electronic filing..............................................237, 244
    Enhancing productivity...........................................   243
    Fiscal year 2002:
        Budget request, key drivers of the...........................   212
        Resource request and objectives..............................   214
    Foundation and plans.............................................   208
    Funds, approval process for the release of.......................   228
    GAO:
        Audit........................................................   245
        Clean audit of IRS for the year 2000.........................   218
    Innocent Spouse Relief Program.................................223, 225
    IRS:
        E-learning method............................................   230
        Electronic tax return filing.................................   226
        Hardware replacement.........................................   242
        Laducer contract with........................................   244
        Modernization program............................218, 226, 228, 231
        Staffing.....................................................   241
    Life insurance compliance verification...........................   238
    Organizational modernization, strategies and program plan
      delivery.......................................................   209
    Systems modernization..........................................234, 241
    Tax:
        Fraud and the Internet.......................................   229
        Rebate, cost of a............................................   245
    Taxpayers advocate office........................................   224
    Telephone assistance.............................................   242
    Walk-in assistance...............................................   242

                        Office of Foreign Assets Control

    Additional committee questions...................................   200
    Cuban food and medicine regulations..............................   202
    Customer service.................................................   201
    Kingpin Designation Act..........................................   201
    National [Foreign] Terrorist Asset Tracking Center (the
      ``Center'')....................................................   200
    Network..........................................................   198
    Trade policy and sanctions.......................................   172

                            Office of the Secretary

    Additional committee questions...................................    28
    ATF:
        National Lab Center and Fire Research Center.................    22
        Staff hiring sustainment.....................................    35
    Border ports of entry infrastructure.............................    35
    Continued Dumping and Subsidy Offset Act.........................    30
    Counterfeiting, new currency guards against......................    32
    Customs automated commercial environment, funding for............    30
    Energy problems..................................................    27
    Government vehicles, use of......................................    16
    Identity theft...................................................    32
    International terrorism and our Nation's borders.................    24
    IRS:
        Computer modernization program...............................    10
        Income tax filing simplification.............................    18
    Labor infrastructure.............................................    21
    National Threat Assessment Center................................    21
    New buffalo nickel coins.........................................    22
    Office of Foreign Assets Control (OFAC)..........................    34
    Outsourcing information technology...............................    29
    Program absorptions..............................................    35
    Sacajawea dollar.................................................    23
    Tax rebates......................................................    34
    Trade:
        Deficit......................................................    25
        Policy and sanctions.........................................17, 19
    Treasury:
        Incident reporting system....................................    20
        Secure data network (TSDN)...................................    29
    2002 Winter Olympics.............................................    14
    U.S. Customs:
        Air and marine interdiction (AMID)...........................    36
        Staffing.....................................................    35
    Western Hemisphere Drug Elimination Act..........................     9
    Year 2000........................................................    28

                              U.S. Customs Service

    Additional committee questions...................................   179
    Air and Marine:
        Interdiction.................................................   110
        Program....................................................181, 182
            Strategic plan/spending................................179, 180
    Automated commercial environment.................................   137
    Automation modernization--ACE..................................179, 183
    Border infrastructure requirements...............................   110
    Budget request, fiscal year 2002.................................   122
    Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)...   186
    Continued Dumping and Subsidy Act................................   138
    Counter-terrorism................................................   110
    Customs:
        Automation modernization.....................................   110
        Core mission activities and accomplishments..................   115
    Ecstasy..........................................................   138
    Fiscal year 2000 accomplishments.................................   109
    Foreign offices/attache..........................................   184
    Human resources management.......................................   114
    Integrity........................................................   115
    Investigative efforts............................................   180
    Mad cow--foot and mouth disease..................................   141
    Native American trackers.........................................   185
    NII technology...................................................   109
    Program absorptions..............................................   185
    Recruitment/retaining............................................   181
    Risk management..................................................   145
        Strategies...................................................   113
    San Ysidro:
        Detention cells..............................................   186
        Outbound license plate readers...............................   185
    Staffing.........................................................   182
        Needs........................................................   109
    Technology.......................................................   111
    Trade issues.....................................................   183
    Training and development.........................................   113
    Western Hemisphere Drug Elimination Act..........................   140

                              U.S. Secret Service

    Counterfeiting...................................................   190
    Crime, globalization of..........................................   124
    Electronic crimes special agent program..........................   124
    Fiscal year 2002 appropriation request...........................   126
    Human resources and training.....................................   133
    Identity theft...................................................   193
    Investigative program..........................................124, 127
    National Center for Missing and Exploited Children...............   125
    National Threat Assessment Center................................   125
    Office of Protective Research....................................   131
    Overseas offices.................................................   191
    Protective program.............................................123, 126
    Secret Service fiscal year 2002 budget request...................   123
    Staffing and overtime concerns...................................   192
    2002 Olympic Games, security for the.............................   187
    Winter Olympics..................................................   192
    Workforce retention and workload balancing................144, 145, 188

                       EXECUTIVE OFFICE OF THE PRESIDENT

                     Office of National Drug Control Policy

    Additional committee questions...................................    64
    Counterdrug Technology Assessment Center.........................    44
    Drug:
        Trafficking areas, high intensity............................    44
        Use trends, current..........................................    46
    Fiscal year 2002 Federal drug control budget, the consolidated...    47
    ONDCP's:
        Coordinating role............................................    48
        Fiscal year 2002 budget request..............................    48
    Salaries and expenses............................................    40
    Special forfeiture fund..........................................    41