[Federal Register Volume 67, Number 154 (Friday, August 9, 2002)]
[Rules and Regulations]
[Pages 51988-52007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-19667]



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Part IV





Department of Justice





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Drug Enforcement Administration



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21 CFR Part 1301



Registration and Reregistration Application Fees; Final Rule

  Federal Register / Vol. 67, No. 154 / Friday, August 9, 2002 / Rules 
and Regulations  

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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

21 CFR Part 1301

[DEA-140F]
RIN 1117-AA34


Registration and Reregistration Application Fees

AGENCY: Drug Enforcement Administration (DEA), Justice.

ACTION: Confirmation of final rule, remanded for further notice and 
comment, and response to comments.

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SUMMARY: DEA is publishing a final rule regarding the registration and 
reregistration fees charged to controlled substances registrants. DEA 
is required to charge reasonable fees relating to the registration and 
control of the manufacture, distribution, and dispensing of controlled 
substances. To address this mandate, on March 22, 1993 DEA published a 
final rule in the Federal Register, establishing registration fees for 
controlled substances registrants (58 FR 15272). Following publication 
of the final rule, the American Medical Association (AMA) and others 
filed a complaint in the United States District Court for the District 
of Columbia objecting to the new fees. The district court issued its 
final order granting the government's motion for summary judgment and 
disposing of all claims. The AMA appealed. The United States Court of 
Appeals for the District of Columbia Circuit found DEA's rulemaking to 
be inadequate. The appeals court remanded, without vacating, the rule 
to DEA, requiring the agency to provide an opportunity for meaningful 
notice and comment on the fee-funded components of the Diversion 
Control Program. DEA responded to the remand requirement through a 
document published in the Federal Register on December 30, 1996 (61 FR 
68624). This Final Rule supplements the December 30, 1996 Federal 
Register document and with that document, constitutes the final rule on 
the Drug Diversion Control Fee Account.

FOR FURTHER INFORMATION CONTACT: Patricia M. Good, Chief, Liaison and 
Policy Section, Office of Diversion Control, Drug Enforcement 
Administration, Washington, DC, 20537, Telephone (202) 307-7297.

SUPPLEMENTARY INFORMATION:   

I. Introduction

    Congress passed the Departments of Commerce, Justice, and State, 
the Judiciary, and Related Agencies Appropriations Act of 1993, Pub. L. 
No. 102-395, 106 Stat. 1828 (1992), on October 6, 1992. Congress 
directed in Section 111(b) of the act, codified at 21 U.S.C. 886a(3), 
that ``[f]ees charged by the Drug Enforcement Administration under its 
diversion control program shall be set at a level that ensures the 
recovery of the full costs of operating the various aspects of that 
program.'' The Drug Enforcement Administration (DEA) published its 
proposal to adjust the existing registration fee schedule in accordance 
with this mandate on December 18, 1992. 57 FR 60148. After notice and 
comment, DEA published a final rule adjusting registration fees on 
March 22, 1993. 58 FR 15272.
    Following publication of the final rule, the American Medical 
Association (AMA) and others filed a complaint in the United States 
District Court for the District of Columbia objecting to the new fees. 
The district court issued its final order granting the government's 
motion for summary judgment and disposing of all claims on July 5, 
1994. AMA v. Reno, 857 F. Supp. 80 (D.D.C. 1994). The AMA appealed. The 
United States Court of Appeals for the District of Columbia Circuit 
found DEA's rulemaking to be inadequate on July 27, 1995. The appeals 
court remanded, without vacating, the rule to DEA, requiring the agency 
to provide an opportunity for meaningful notice and comment on the fee-
funded components of the Diversion Control Program (DCP). Specifically, 
the court held that DEA ``was required to identify the components of 
the fee-funded diversion control program and provide a brief 
explanation of why it deemed each component to be a part of that 
program.'' AMA v. Reno, 57 F.3d 1129, 1135 (D.C. Cir. 1995). The 
appeals court remanded this action to the district court with 
instructions on August 29, 1995. The district court remanded the matter 
to DEA for proceedings consistent with the appeals court opinion on 
November 22, 1995.
    DEA responded to the remand requirement through a notice in the 
Federal Register on December 30, 1996, describing the fee-funded 
components and activities of the DCP with an explanation of how each 
satisfies the statutory requirements for fee-funding. 61 FR 68624-32. 
This document supplements the December 30, 1996 Federal Register notice 
and with that notice, constitutes the final rule on the Drug Diversion 
Control Fee Account (DDCFA).

II. Statutory Basis of Diversion Control Fee Account

    The Controlled Substances Act (CSA) has authorized the Attorney 
General since 1970 ``to promulgate rules and regulations and to charge 
reasonable fees relating to the registration and control of the 
manufacture, distribution, and dispensing of controlled substances' and 
``to charge reasonable fees relating to the registration of importers 
and exporters of controlled substances.'' 21 U.S.C. 821 and 958(f). The 
Attorney General delegated that authority to the Administrator of the 
Drug Enforcement Administration (DEA), who in turn redelegated it to 
DEA's Deputy Administrator. See 28 CFR 0.100(b) and 0.104. Congress, 
through the 1993 Appropriations Act, established the Diversion Control 
Fee Account (DDCFA), changing the source of Diversion Control Program 
(DCP) funding from being part of DEA's congressional appropriation to 
full funding by registration and reregistration fees. The 1993 
Appropriations Act made no changes in the DCP's duties or authorities, 
directing that ``[f]ees charged by the Drug Enforcement Administration 
under its diversion control program shall be set at a level that 
ensures the recovery of the full costs of operating the various aspects 
of that program'' and that funds from the DDCFA will be provided to DEA 
from the U.S. Treasury in accordance with ``the budget request of the 
Attorney General.'' 21 U.S.C. 886a(3) and (4).

III. Comments Received

    DEA received five comments in response to the December 30, 1996 
Federal Register notice. One comment was filed on behalf of five 
professional and trade associations, several of whom were plaintiffs in 
the legal action: the American Medical Association (AMA), the American 
Dental Association, the American Veterinary Medical Association (AVMA), 
the National Community Pharmacists Association and the National 
Wholesale Druggists' Association (NWDA). A separate comment submitted 
on behalf of the American Osteopathic Association, also a plaintiff, 
fully concurred with the multi-party comment. The remaining three 
comments were filed separately by the AVMA, the NWDA and an individual 
practitioner. Most of the comments relate to three broad areas of 
concern: whether particular diversion control activities are properly 
fee-funded; justification for the current fee schedule; and the 
accumulation and

[[Page 51989]]

disposition of the surplus that had accumulated in the fee account.
    The commentors expressed general concern regarding the funding of 
activities by the DDCFA. They singled out international and enforcement 
activities as examples of what they considered to be inappropriate 
funding. Specifically, the commentors asserted that DEA cannot lawfully 
fee-fund certain international activities, non-registrant drug 
trafficking investigations, and activities involving controlled 
substances not lawfully marketed in the United States, such as 
marijuana and flunitrazepam, because they lack connection or have such 
attenuated connection to the registration and control of the 
manufacture, distribution and dispensing of controlled substances. One 
commentor asked that the Office of Management and Budget (OMB) review 
various activities to determine whether they are fee-fundable.
    Another point raised by commentors regarding DCP funding was that 
the explanation provided in the December 30, 1996 Federal Register 
notice failed to provide an adequate description of some of the DCP 
components. One commentor expressed concern regarding fee-funding the 
National Forensic Laboratory Information System (NFLIS) and Tactical 
Diversion Squads (TDSs), stating that the final rule described these 
programs ``too generally.'' Commentors demanded more detailed 
justification for fee-funding specific DCP activities.
    Most of the commentors stated that the current fee schedule is 
unjustified, asserting that DEA failed to properly determine the costs 
of appropriate fee-funded activities and overestimated the costs. They 
asserted that the existence of a surplus is relevant to the issue of 
whether the registration fees are ``reasonable'' as required by 21 
U.S.C. 821, stating that its existence indicates a failure to set 
appropriate fees. The commentors requested detailed justification for 
maintaining the fee schedule at current levels. Several also requested 
that DEA refund the surplus to the fee-paying registrants and/or adjust 
future fees to prevent surplus funds from accumulating.
    In addition, one commentor stated that the rule fails to provide 
sufficient information on which to meaningfully comment. The same 
commentor characterized the registration fee as a user fee and claimed 
that it has been improperly assessed to fund international and other 
activities from which registrants receive no greater benefit than that 
received by the general public. Several commentors requested 
information on the costs of each component of the DCP. Finally, one 
commentor called for a registration fee structure for practitioners 
based on their individual controlled substance prescribing or 
dispensing patterns.
    We address each of the points raised by the commentors below.

IV. Requirements for Fee-Funding Diversion Control Activities

    DEA's mission with respect to illicit controlled substances like 
heroin and crack cocaine is to eliminate them outright, but the 
agency's role is far more complex when it involves licit controlled 
pharmaceuticals. On one hand, DEA prevents, detects and eliminates the 
diversion of controlled pharmaceuticals from legitimate channels to 
illegal use, while at the same time ensuring their availability for 
legitimate medical and scientific purposes. To facilitate these goals, 
Congress through the CSA established a closed system of controlled 
substance distribution encompassing manufacturers, distributors, 
pharmacies and practitioners. Components of this closed system include 
scheduling of all controlled substances, registration of all controlled 
substance handlers, recordkeeping for accountability, security, and 
manufacturing quotas, all under DEA DCP oversight. The DCP also 
possesses chemical control responsibilities pursuant to the Chemical 
Diversion and Trafficking Act (CDTA) and subsequent legislation.
    DEA's authority to collect registration fees derives from three 
statutory provisions. DEA is authorized by 21 U.S.C. 821 to collect 
reasonable fees relating to the registration and control of the 
manufacture, distribution and dispensing of controlled substances. 
Secondly, 21 U.S.C. 958(f) permits DEA to collect reasonable fees 
relating to the registration of importers and exporters of controlled 
substances. Lastly, the 1993 Appropriations Act added a provision 
requiring DEA to make the DCP self-supporting by setting fees at a 
level that ensures the recovery of the full costs of operating its 
``various aspects''. 21 U.S.C. 886a(3). The United States Court of 
Appeals for the District of Columbia Circuit noted that in establishing 
the DDCFA, Congress left intact the fee collection requirements of 21 
U.S.C. 821, confirming boundaries of the DCP that DEA can fund by 
registration fees. AMA v. Reno, 57 F.3d 1129, 1135 (D.C. Cir. 1995). 
Although the court made no specific mention of 21 U.S.C. 958(f), those 
same boundaries remain intact as well. The current statutory scheme 
thus requires DEA to set registration fees to recover the full costs of 
the DCP, while limiting DEA to charge ``reasonable'' fees relating to 
the registration and control of the manufacture, distribution and 
dispensing of controlled substances. DEA, therefore, must examine DCP 
activities in conjunction with the nexus requirements of 21 U.S.C. 821 
and 958(f) to determine whether it can properly fee-fund them while 
setting fees that recover total program costs.
    Much debate regarding which diversion control activities DEA can 
properly fee-fund has accompanied the establishment of the DDCFA.
    The 1993 Appropriations Act specifically mandates that fees ``shall 
be set at a level that ensures the recovery of the full costs of 
operating the various aspects of that program.'' 21 U.S.C. 886a(3). 
Congress, in using the mandatory term ``shall'' as opposed to the 
discretionary ``may,'' unambiguously required DEA to increase its then-
existing registration fees resulting in registrants fully funding DCP 
expenses. DEA, therefore, lacks discretion in this matter and must fund 
its DCP totally from registration fees. Assuming for the sake of 
argument that there is some doubt as to whether Congress intended DEA 
to entirely fund the DCP from registration fees due to its use of the 
phrase ``various aspects'' of the DCP as opposed to something like 
``all aspects,'' the House Conference Report notes that the act's 
language ``requires the Drug Enforcement Administration to set fees to 
recover the full cost of their Diversion Control Program.'' H.R. Conf. 
Rep. No. 918, 102nd Cong., 2d Sess. 44 (1992).
    The 1993 Appropriations Act directing DEA to set its fees to 
recover the full costs of its DCP may appear to conflict with the 21 
U.S.C. 821 and 958(f) requirements that DEA's fees be reasonable and 
relate to the control and registration of the manufacture, 
distribution, dispensing, import or export of controlled substances. 
Perhaps Congress assumed that all DCP costs are reasonable. Possibly in 
anticipation of potential conflicts, as a preamble to the provisions 
establishing the DDCFA, Congress mandated fulfillment of the 
requirements of the act ``[n]otwithstanding [a]ny [o]ther [p]rovision 
of [l]aw,'' thus making its provisions supersede all other provisions 
of law that would otherwise prevent or impede DEA's recovery of the 
full costs of the DCP through registration fees. H.R. 5678, 102nd 
Cong., 2d Sess. 111 (1992).
    DEA, upon establishment of the DDCFA, wrestled with the 
determination of which DCP activities it could legally fee-fund. The 
plain language of the 1993 Appropriations Act

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requires DEA to set and collect registration fees to cover the full 
costs of operating its Diversion Control Program. A broad 
interpretation of the 1993 Appropriations Act would have resulted in 
fee-funding all DCP activities, while a narrow interpretation would 
have restricted the DCP activities that could be fee-funded.

A. Final Rule (March 22, 1993)

    DEA examined all activities that relate to the registration and 
control of the manufacture, distribution and dispensing of controlled 
substances and to the registration (and control) of importers and 
exporters. DEA determined that ``activities contained in the 
[diversion] program which give rise to the fees consist of Diversion 
Investigators, analysts, technicians, and clerical personnel salaries 
and expenses; and travel, rent, utilities, supplies, equipment and 
services associated with these positions for the registration and 
control of the manufacture, distribution and dispensing of controlled 
substances.'' 58 FR 15273. DEA determined that it would not fee-fund 
costs associated with chemical control efforts, clandestine lab 
efforts, overseas efforts (specifically diversion investigators 
assigned to foreign posts), DEA's Office of Chief Counsel and executive 
direction. 58 FR 15273. DEA concluded that these activities were 
excluded from the Attorney General's budget delineation for the 
category of ``Diversion Control'' and thus not included in the 
determination of the fees. Id.

B. Federal Register Notice (December 30, 1996)

    DEA further excluded from fee-funding in its December 1996 Federal 
Register notice activities that, while supporting the DCP, are funded 
elsewhere in the DEA Salaries Budget and thus not fee-funded. The 
notice, mirroring the 1993 final rule, provided the following examples 
of such activities: Chief Counsel attorney support; laboratory services 
support; DEA automated data processing systems support; training, 
management and administrative support; activities conducted by the DEA 
Office of Congressional and Public Affairs; intelligence support; and 
diversion investigators assigned overseas. 61 FR 68631.

C. Litigation Statements

    The AMA and others brought a complaint in U.S. District Court for 
the District of Columbia in June 1993 objecting to the fees, and the 
court granted the government's motion for summary judgment in July 
1994. The plaintiffs appealed, and the U.S. Court of Appeals for the 
District of Columbia Circuit found DEA's rulemaking to be inadequate in 
July 1995. During the course of these legal proceedings DEA made 
statements regarding which activities could be fee-funded and which 
could not. The government statements on fee-fundable activities 
essentially mirror the criteria set out in the March 1993 Final Rule; 
i.e., that activities involving chemical control, clandestine 
laboratories, overseas operations, Chief Counsel and ``executive 
direction'' were excluded from fee-funding and were paid for by 
congressionally appropriated funds. DEA subsequently discovered its 
statements regarding the exclusion of chemical control activities were 
in part, at least, erroneous.

D. DEA Response to the Senate Appropriations Committee (1998)

    In response to questions from the Senate Appropriations Committee 
regarding fee-fundable activities, DEA stated that in the absence of 
specific guidance in the Appropriations Act as to which activities were 
encompassed within the DCP and thus fee-fundable, DEA followed the 
plain language of the act and used the budget category that had 
historically been included in the DCP budget request of the Attorney 
General.

E. DEA Fee Spending Elements

    As a matter of note, DCP activities are undertaken by DEA elements 
other than those within the Office of Diversion Control. While the 
Office of Diversion Control conducts anti-diversion registration and 
control activities, other DEA elements undertake activities in support 
of the DCP in addition to supporting nonfee-fundable activities. As 
such, these other elements expend fee-funds to support fee-fundable DCP 
activities. For example, the Office of Administration provides office 
space, makes appropriate office renovations and supplies the security 
guard force to the diversion groups. The Office of Administration pays 
rent and other expenses with fee funds. The Office of Resource 
Management expends fee funds for payroll and employment benefits for 
the DCP workforce. The Office of Training trains the DCP workforce and 
spends fee funds on training in support of fee-fundable activities.

F. Current Fee-Funding

    Commentors to the December 1996 Federal Register notice focused on 
several specific activities that DEA has always conducted and has fee-
funded under the new fee program since its inception in 1993. In light 
of the comments, DEA reexamined each questioned activity to determine 
and explain the extent of its relationship to the registration and 
control of the lawful manufacture, distribution and dispensing of 
controlled substances, and the registration for importing and exporting 
controlled substances.
    DEA has reevaluated its fee-funded DCP activities several times 
since publication of the December 1996 Federal Register notice and has 
concluded that it is proper to fee-fund all activities with the 
exception of those specifically excluded in the March 1993 and December 
1996 Federal Register notices. DEA has reached this conclusion because 
all DCP activities except for those involving chemical control relate 
to controlled substances lawfully manufactured, distributed, dispensed, 
imported or exported as required by 21 U.S.C. 821 and 958(f). DEA 
decided not to fee-fund the remaining excluded activities even though 
they relate in varying degrees to the criteria enumerated in 21 U.S.C. 
821 and 958(f).
    Fee-funded activities thus include those relating to controlled 
substances handled by any DEA registrant (including researchers, 
analytical laboratories, teaching institutions and narcotic treatment 
programs) for legitimate medical, scientific or industrial purposes. 
DEA's ability to fee-fund such activities is derived from the 
authorizing language of 21 U.S.C. 821. Scheduling activities are also 
fee-fundable because they, too, relate to the control requirement of 21 
U.S.C. 821. Although 21 U.S.C. 958(f) authorizes DEA to collect fees 
related to the registration, with no explicit mention of ``control'' of 
importers and exporters of controlled substances, activities related to 
their control are implicit in the 21 U.S.C. 821 criteria. All 
controlled substances imported into the United States by DEA-registered 
importers pursuant to import declarations or permits are distributed to 
other DEA registrants engaged in the manufacture or distribution of the 
original substances or of products made from them that are lawfully 
marketed here. Conversely, DEA-registered exporters are the final point 
of sale for products manufactured and distributed within the United 
States by domestic registrants who transfer the products to them for 
the purpose of export to foreign customers. Activities related to these 
transactions are, therefore, fee-fundable.
    Fee-fundable DCP activities include: scheduling, registration, 
investigation,

[[Page 51991]]

inspection, data collection and analysis, training, establishing 
production quotas, cooperative efforts with state, local and other 
federal agencies, cooperative efforts with the regulated industry, 
international activities, as well as the attendant management, 
personnel, administrative and clerical oversight for the DCP because 
they too relate to the fee-funding criteria of 21 U.S.C. 821 and 
958(f). For the reasons explained below, DEA has determined that even 
activities relating to foreign substances unlawfully imported into the 
United States are fee-fundable as are those relating to counterfeit 
versions of legitimate controlled substances.
    The final rule published in March 1993 stated that DEA would not 
fee-fund five particular DCP activities. DEA excluded efforts involving 
chemical control, clandestine laboratories, overseas activities, Office 
of Chief Counsel support and executive direction. DEA did not consider 
their costs in determining the new fees. Although DEA stated that it 
would fund these activities by other appropriated funds, DEA has 
subsequently found that agency elements have erred in inappropriately 
fee-funding some of these at different times since establishment of the 
DDCFA. DEA is in the process of minimizing the risk of fee-funding 
these ``excluded'' activities in the future. For a more detailed 
discussion of the inappropriately fee-funded activities, see Sections X 
and XIII.
    The following sections discuss in greater detail the specific 
comments questioning various DCP activities, DEA's response to the 
comments, and how DEA funds them.

V. International Activities

    DEA received four comments objecting to fee-funding specific 
international activities on the ground that they are unrelated or only 
remotely related to the registration and control of the manufacture, 
distribution and dispensing of controlled substances or to 
``controlling the manufacture, distribution or use of controlled 
substances by the health care professionals and other registrants on 
whom the costs of the program have been placed.'' One commentor 
objected to fee-funding DEA participation in international policy 
activities such as the development and formulation of United Nations 
(UN) resolutions, position papers, background documents and briefing 
materials. Two commentors objected to fee-funding DEA participation in 
and/or co-sponsorship of international conferences on drug control. 
These commentors criticized the use of DDCFA funds for meetings with 
European government officials because they included discussions of, 
among other topics, the medical use of marijuana, and meetings with 
Colombian and Mexican officials about flunitrazepam, noting that 
neither substance is legitimately produced in the United States.
    Several commentors objected to use of DDCFA funds to assist foreign 
authorities with their national systems of control, specifically citing 
DEA involvement in a conference to improve controlled substance and 
chemical controls in the Commonwealth of Independent States (CIS) 
(formerly the Soviet Republics) and for sending a DEA representative to 
participate in a training seminar to assist African authorities in 
developing effective national controls. We address these specific 
concerns later in this section.

A. International Activities Generally

    DEA fee-funded certain international diversion control activities 
when the 1993 Appropriations Act became effective because they relate 
to the registration and control of the lawful manufacture, distribution 
and dispensing of controlled substances. As explained above, controlled 
substances lawfully imported or exported relate to Section 821 
requirements because imported substances are subsequently distributed 
to other DEA registrants, and exported substances are initially 
manufactured and/or distributed domestically prior to export. As 
explained in the December 30, 1996 Federal Register notice, the CSA's 
closed system of controls over manufacturing, distribution and 
dispensing was not established and is not administered within the 
isolation of our domestic borders. Rather, the controls are part of a 
global system of national and international laws designed to establish 
an interrelated, worldwide structure of control over the manufacture, 
distribution, dispensing, import and export of controlled substances, 
so that controls or lack of controls in one country do not undermine 
controls in another. Congress found and declared that illegal 
importation, along with illegal manufacture, distribution, possession 
and improper use of controlled substances, has a detrimental effect on 
the health and welfare of the American people, recognizing that ``[a] 
major portion of the traffic in controlled substances flows through 
interstate and foreign commerce.'' 21 U.S.C. 801(2) and (3).
    The international drug control treaties to which the United States 
is a signatory require that each party establish a program of controls 
relating to the registration and control of the manufacture, 
distribution, dispensing, import and export of controlled substances. 
The specific language of the CSA and its implementing regulations 
recognize the obligations of the United States under the international 
conventions. See 21 U.S.C. 801, 801a, 811(d)(1), 823(a) and 958(a), and 
21 CFR 1307.02.
    The CSA expressly recognized that the United States is a party to 
the Single Convention on Narcotic Drugs of 1961 and other conventions 
``designed to establish effective control over international and 
domestic traffic in controlled substances.'' 21 U.S.C. 801(7). 
Likewise, Congress recognized that the abuse of psychotropic substances 
has become ``a phenomenon common to many countries'' that ``is not 
confined to national borders,'' making it ``essential that the United 
States cooperate with other nations in establishing effective controls 
over international traffic in such substances.'' 21 U.S.C. 801a(1). 
Congress further recognized that the United States joined with other 
countries in executing the Convention on Psychotropic Substances, 
``which is designed to establish suitable controls over the 
manufacture, distribution, transfer, and use of certain psychotropic 
substances.'' 21 U.S.C. 801a(2). Congress acknowledged that before the 
Senate could ratify the convention, the CSA required amending to bring 
it into compliance with the requirements of the convention. Congress 
thus recognized that the conventions are an integral part of the United 
States' programs regarding the registration and control of the 
manufacture, distribution, and dispensing of controlled substances. By 
implementing and ratifying the international treaties, Congress 
recognized that a strong domestic program relating to the registration 
and control of the manufacture, distribution, dispensing, import or 
export of controlled substances depends on establishing and maintaining 
strong controls within other individual nations.
    As described above, DEA is obligated to conduct, as part of its 
diversion control program, certain international activities relating to 
the lawful manufacture, distribution, dispensing, import and export of 
controlled substances. DEA fee-funds most international diversion 
control activities that it had historically conducted since 1971, 
considering each related to 21 U.S.C. 821 and 958(f) criteria. DEA, 
although not always successful, has

[[Page 51992]]

attempted to exclude from fee-funding international chemical control 
activities, as well as those specified in the March 1993 and December 
1996 Federal Register notices. Comments responding to the December 30, 
1996 Federal Register notice raised issues about fee-funding certain 
international activities, and DEA reexamined the fee-funding criteria 
in light of the comments. DEA has determined that international 
programs and activities are an integral part of the DCP, and fee-
funding them is appropriate because they relate to the registration or 
control of the lawful manufacture, distribution or dispensing of 
controlled substances.
    Following is a discussion of the international activities for which 
comments were received, and justification why DEA fee-funds them.

B. DEA Participation in UN International Policy Activities

    The international community, through the UN's International 
Narcotics Control Board (INCB) and the Commission on Narcotic Drugs 
(CND), continuously monitors the workings of the treaties and each 
country's compliance with their diversion control provisions. The UN 
treaties have mechanisms by which the scope of control may be changed. 
Such changes are binding upon the United States as a party to the 
conventions and have a significant impact on those lawfully 
manufacturing, distributing or dispensing controlled substances here. 
When new controls are adopted or existing ones amended, DEA must 
implement the new requirements, and they are binding upon the U.S. 
registrant community, i.e., all manufacturers, distributors and 
dispensers. DEA participation in the development and formulation of UN 
resolutions, position papers and other briefing materials, and its 
attendance at formal meetings of international experts on drug control 
ensures that the interests of the United States, including those of its 
registrants, are represented during the consideration of additional or 
amended controls.
    DEA fee-funds diversion control personnel participation in 
international policy matters when the activity relates to the lawful 
manufacture, distribution, dispensing, import or export of controlled 
substances. For example, DEA has fee-funded international activities 
relating to the following actual examples: benzodiazepine scheduling; 
emergency international distribution of controlled substances from the 
U.S. to countries that have experienced a natural disaster; the 
manufacture, use, diversion, abuse and scheduling of stimulant drugs, 
such as methylphenidate, used in the treatment of obesity or Attention 
Deficit Disorder; preparation of information regarding trade names of 
U.S.-manufactured products containing Schedule I or II substances; 
preparation of UN reports, questionnaires and estimates of legitimately 
produced controlled substances; and the domestic manufacture, 
distribution or dispensing of controlled substances for pain treatment.
    DCP activities involving gamma hydroxybutyrate (GHB) and 
flunitrazepam on the surface seem to pose a dilemma as to whether DEA 
may fee-fund them. GHB was originally marketed in health food stores. 
The U.S. Food and Drug Administration (FDA) issued advisory warnings in 
1990 and 1997 declaring GHB unsafe and illicit except under FDA-
approved physician-supervised protocols. GHB is currently a Schedule I 
controlled substance, not approved by FDA for marketing. GHB is under 
investigation for use in treating narcolepsy under FDA's Orphan Drug 
program and Schedule III security requirements apply to those 
conducting these investigations. If FDA approves GHB for medical use in 
the United States, Congress has directed that DEA place the dosage 
form, though not the bulk form, into Schedule III. The CSA sets forth 
the following criteria for drugs or substances placed into Schedule 
III: the drug or substance has a potential for abuse less than that of 
the drugs or substances in Schedules I and II; the drug or substance 
has a currently accepted medical use in the United States; and the 
abuse of the drug or substance may lead to moderate or low physical 
dependence or high psychological dependence. 21 U.S.C. 812(b)(3). DEA, 
therefore, fee-funds GHB activities. DEA must have control and play an 
active role in the scheduling process prior to FDA approval and 
scheduling, and to do otherwise would seriously curtail DEA fulfilling 
its mandated mission. DEA activities prior to scheduling ultimately 
impact post-scheduling commercial decisions of registrants.
    Flunitrazepam, like GHB, is not currently approved for medical use 
in the United States. However, twenty countries, including Mexico and a 
number in South America, have approved the drug in tablet form. Roche 
Pharmaceuticals, a foreign subsidiary of the United States DEA-
registered manufacturer, markets the drug under the trade name of 
Rohypnol . Smuggling and introducing Rohypnol  into 
the United States for medical and illicit reasons impacts Roche 
Pharmaceuticals domestically. DEA has placed flunitrazepam into 
Schedule IV, while some states have also placed it under control, some 
in Schedule I, and others in Schedules II to IV. DEA fee-funds 
flunitrazepam activities because, while more tenuous than those 
involving GHB, in the case of Rohypnol  they relate to the 
registration and control of the manufacture, distribution, dispensing 
and import of at least one U.S. DEA-registered manufacturer. 
Admittedly, the nexus of non-tableted flunitrazepam to Sections 821 and 
958 is less clear and less direct than other Schedule IV controlled 
substances. DEA determined not to fee-fund activities involving non-
tableted flunitrazepam because they are undertaken by non-DCP personnel 
and are closer to chemical control activities than to traditional DCP 
activities.
    In the event that an international activity or conference meets the 
fee-funding criteria but also involves excluded activities or 
substances, DEA attempts to fee-fund the activity on a pro rata basis, 
with the remainder funded by other appropriated funds. The costs of 
salary, support, travel and other items pertaining to such dual-purpose 
activities are split-funded and assigned to the appropriate funding 
source. For example, if an international conference involves fee-funded 
activities for 90% of the time, and chemical activities for the 
remaining 10%, then DEA would fee-fund 90% of the conference.

C. Participation In and/or Co-Sponsorship of International Conferences 
or Bilateral Discussions on Drug Control

    DEA participates in and co-sponsors international conferences and 
meetings with foreign counterparts to gain critical information on drug 
abuse trends and patterns. DEA considers this information in 
determining whether these, or pharmacologically similar substances 
should be controlled in the United States. These activities allow DEA 
to exchange information regarding diversion and effective (or 
ineffective) prevention measures and to identify specific problems that 
the agency must address. Information derived from such activities is 
essential in protecting the U.S. public health and safety and relates 
to a broad spectrum of DEA efforts, ranging from information collection 
and policy formulation to investigative and operational activities.
    Several commentors objected to fee-funding meetings with European, 
Turkish, Colombian and Mexican officials regarding specific control 
issues, such as the medical use of

[[Page 51993]]

marijuana and flunitrazepam. Other international conferences and 
discussions relate in whole or in part to controlled substances 
lawfully manufactured, distributed or dispensed. For example, the 
December 30, 1996 Federal Register notice described meetings with 
European officials to discuss control and policy issues ``relating to 
pain management, the distribution and use of methylphenidate, narcotic 
treatment programs, and the medical use of marihuana.'' 61 FR 68628. 
While the commentor singled out the topic of medical marijuana raised 
at these meetings, the other subjects clearly relate to serious 
domestic control issues involving controlled substances lawfully 
manufactured, distributed or dispensed. DEA carries out the mandates of 
the CSA related to lawfully manufactured drugs so that controlled 
substances are available for pain management and other legitimate 
purposes, while preventing, detecting and investigating their 
diversion. Methylphenidate is a Schedule II controlled substance, 
lawfully marketed for Attention Deficit Disorder and narcolepsy, that 
is in great demand by illicit users and traffickers. Narcotic treatment 
programs primarily dispense and administer methadone, a highly abusable 
and sought-after Schedule II controlled substance, to narcotic addicts.
    Additionally, and perhaps most importantly, such activities 
potentially impact U.S. manufacturers, distributors, dispensers, 
exporters and importers which, if they handle controlled substances 
legally, are DEA registrants.
    The medical uses of marijuana and flunitrazepam have been the 
subject of much press, policy and medical professional association 
debate in the United States as to the appropriateness of current CSA 
controls. Marijuana is a Schedule I controlled substance available and 
used for research purposes, and those handling it within the closed 
distribution system including conducting research must be registered 
with DEA. 21 CFR 1308.11(d)(19) and 21 U.S.C. 823(f). In reviewing and 
considering U.S. control policy and practices for these substances and 
activities, it is appropriate and necessary for DEA to research and 
examine the experience of other nations' control efforts with them. 
Factors determining whether any substance, including marijuana and 
flunitrazepam, should be scheduled, re-scheduled or de-scheduled under 
21 U.S.C. 811(c), are not limited to the domestic experience of the 
United States. See 21 U.S.C. 811(c). In fact, U.S. firms and 
practitioners frequently cite the experiences of other nations as a 
foundation for suggesting modifications to domestic controls. For 
additional discussion of flunitrazepam, please see Section B directly 
above.

D. Assisting Foreign Authorities With Their Diversion Control Systems

    One commentor expressed concern about a conference held in Austria 
to ``improve the design and administration of, and cooperation 
regarding, controlled substance and chemical controls in the 
Commonwealth of Independent States' and training African authorities 
about effective national controls for the manufacture and distribution 
of controlled substances. The commentor asserted that these activities 
have ``nothing to do with the legitimate manufacture, distribution and 
dispensing of controlled substances that are handled by DEA 
registrants.'' The commentor contended that DEA must explain how these 
activities legitimately relate to the regulation of DEA registrants.
    In addition to the above discussion explaining the 
interrelationship of effective international controls and treaty 
requirements with domestic controls, DEA activities to assist other 
nations in establishing adequate national control mechanisms are 
crucial in establishing and maintaining the machinery and working 
procedures that allow the legitimate exportation of controlled 
substances by U.S. registrants to foreign countries and the legitimate 
importation of foreign pharmaceuticals by U.S. registrants for 
distribution and dispensing in the United States. The CSA authorizes 
registration of importers and exporters of Schedule I or II substances 
only if consistent with the public interest and with U.S. obligations 
under the treaties, conventions and protocols. 21 U.S.C. 958(a). The 
CSA, recognizing the interrelationship between U.S. and foreign 
controls, makes it unlawful to export Schedule I-IV narcotics and 
Schedule I and II non-narcotic substances unless the importing country 
has adequate controls in place and that country has a legitimate 
medical, scientific or research need for the drug. For example, the 
foreign-based consignee must hold an appropriate permit or license from 
the government authority in the importing country that also indicates 
that a legitimate need for the drug exists in that country. 21 U.S.C. 
953(a) and (c). The CSA also restricts the export of the other 
controlled substances. 21 U.S.C. 953(e).
    DEA, jointly with the European Union, organized, sponsored and 
funded, the Commonwealth of Independent States Policy Conference, held 
October 1994, in Salzburg, Austria. The purpose of the conference was 
``to establish dialogue with policy-level officials of the CIS 
governments on the problems of illicit drug transit, manufacture, and 
uncontrolled trade in pharmaceuticals and chemicals used in the 
clandestine production of drugs.'' DEA, Conference Report, Commonwealth 
of Independent States Policy Conference on Drug and Enforcement Control 
1 (1995). Participants discussed the need for adequate national 
legislation to enable government authorities to deal with the drug 
threat, international treaty compliance, establishing or strengthening 
national frameworks for administering drug and chemical regulatory and 
enforcement programs, drug trafficking methods and aspects of drug law 
enforcement. Id. As the December 30, 1996 Federal Register notice 
pointed out, DEA's share of the costs of this multi-topic conference 
was split between the DDCFA and other appropriated funds ``in 
approximation to the subject matter covered.'' 61 FR 68628.
    DEA sent one DCP representative to an INCB training seminar for 
north and west African drug control administrators held March 1995 in 
Tunis, Tunisia. Most African countries import controlled substances 
from American exporters and others to meet their legitimate medical 
needs. Lack of organization, conflicting authorities and other factors 
contribute to potential and actual controlled substance diversion in 
Africa, and the DEA representative provided insight into the business 
practices and attitudes of importers and exporters of controlled 
substances and chemicals. Working groups discussed, among other topics, 
the effectiveness of national and international control measures. 
Adequate national control measures, as discussed above, are 
prerequisite for exporting controlled substances from the United States 
to any foreign country. Training African drug control administrators 
involved control activities relating to controlled substances lawfully 
manufactured in, and subsequently exported from, the United States. The 
total fee account funds expended for this activity totaled $3,775.16.
    The adequacy of foreign controls relate to the control of the 
lawful manufacture, distribution and dispensing of controlled 
substances for the reasons just cited, and DEA has determined that it 
will fee-fund these activities based on its extensive reevaluation of 
the fee-funding criteria.

[[Page 51994]]

DEA will continue to fee-fund foreign bilateral and multilateral 
training, and the development of effective foreign national control 
systems, unless they do not relate to controlled substances lawfully 
manufactured, distributed, dispensed, imported or exported in the 
United States. DEA has attempted to exclude expenses incurred when 
international activities relate to chemical control but as previously 
mentioned, has not always been successful.
    As a further note, the international activities carried out by 
personnel assigned to DEA domestic offices are limited in scope. The 
expenses of DCP personnel assigned to overseas positions are totally 
funded by other appropriated funds, not by the DDCFA, even though they 
may conduct activities that fall within the 21 U.S.C. 821 and 958(f) 
criteria.

VI. Enforcement Activities-Drug Trafficking Investigations

    Two comments submitted on behalf of six professional and trade 
associations stated that the December 30, 1996 Federal Register notice 
indicated that ``much of the [diversion control] program has nothing to 
do with controlling the manufacture, distribution or use of controlled 
substances by the health care professionals and other registrants on 
whom the costs of the program have been placed'' and provided, as an 
example, ``many of the costs of the agency's efforts to control drug 
trafficking by non-registrants.''
    Narcotic, depressant, and stimulant drugs manufactured, distributed 
and dispensed for legitimate medical need are sought by abusers and 
subject to diversion into the illicit traffic. Pharmaceutical drugs are 
in demand by abusers as a substitute when ``street'' drugs are in short 
supply (Oxycontin , Dilaudid , or morphine in place 
of heroin, for example); as a supplement to ``street'' drugs to enhance 
or diminish their effect (e.g., tranquilizers to ``smooth out'' a 
cocaine binge); or even as many abusers'' primary drugs of choice. 
These legitimate abusable drugs, listed individually in the CSA and its 
implementing regulations, are ``controlled substances.'' Their street 
value can be up to a hundred times their original cost, and they are 
available through theft, fraud or illegal sale from over a million 
physicians, pharmacies and other registrants.
    Abuse resulting from diverted controlled substances is within the 
DCP's authority to control and prevent since the drugs are lawfully 
manufactured, distributed and/or dispensed, and the ``sources of 
supply'' to abusers hold DEA registrations and state licenses. The DCP 
is responsible for investigations related to lawfully manufactured, 
distributed and dispensed controlled substances for which registration 
is required or excepted, and where controls imposed by the CSA and its 
implementing regulations are circumvented or disregarded. The DCP 
attempts to ensure that the required controls to prevent diversion are 
maintained and verifies the bona fides of applicants for registration. 
DCP investigations fall into three general categories: pre-registrant 
investigations, scheduled regulatory investigations, and complaint 
investigations. The DCP conducts investigations of individuals and 
institutions suspected of violating the CSA or which undermine public 
confidence in the safety and authenticity of controlled substances 
found within pharmaceutical and health care channels.
    The DCP investigates the diversion of legitimate controlled 
substances to determine where the closed system of controls has been 
compromised so that corrective action can be taken. When such products 
are trafficked or sold in the illicit market, it is not always clear 
how they were diverted, but the illicit source of supply must by virtue 
of the closed distribution system requirement be a person subject to 
the CSA's registration and control requirements. The person responsible 
for the diversion could be a doctor, pharmacist, employee of a DEA 
registrant or other source. The controlled substances could be smuggled 
or stolen.
    The closed system created by the CSA was designed to ensure that 
registrants maintain controls over their activities with controlled 
substances to prevent and detect their diversion. When drug abusers and 
traffickers obtain controlled substances from registrants, the DCP 
investigates the registrants to determine whether their controlled 
substance registration is consistent with the public interest. The DCP 
also investigates non-registrants such as prescription forgers and 
``doctor shoppers.'' All of these activities relate ``to the * * * 
control * * * of the dispensing of controlled substances'' since the 
originating source of the drugs is a DEA registrant or an individual 
whose activities is subject to DEA's registration requirements.
    DEA identified six categories of DCP complaint investigations in 
the December 30, 1996 Federal Register notice and described how each 
relates to 21 U.S.C. 821. Following review of the comments received, 
DEA reevaluated these investigations and how they relate to 21 U.S.C. 
821 and 958(f). DEA fee-funds these investigative activities because 
they relate to the registration and control of lawfully manufactured, 
distributed or dispensed controlled substances. Some have asserted that 
DEA should not fee-fund investigative activities involving other than 
lawfully manufactured, distributed or dispensed controlled substances, 
such as counterfeit or illegally imported versions of legitimate 
controlled substances. While the nexus of some investigative activities 
with controlled substances under the 21 U.S.C. 821 and 958(f) criteria 
may not appear as evident or as clear as others, DEA believes that it 
is sufficient to justify fee-funding investigative activities except 
when they involve chemicals. (The activities within the areas 
specifically excluded by the March 1993 and December 1996 Federal 
Register notices, while currently excluded from fee-funding, may have 
sufficient nexus for fee-funding under 21 U.S.C. 821 and 958(f) 
criteria.) The language of 21 U.S.C. 821 requires only that the 
activities listed therein ``relate to'' the registration and control of 
the manufacture, distribution, and dispensing of controlled substances. 
The primary targets and types of complaint investigations conducted by 
the DCP (which is a major emphasis of the DCP program) are identified 
below, with an explanation of how each relates to the fee-funding 
requirements:
    1. Registrants and their employees or agents who are suspected of 
diverting controlled substances from legitimate channels. 
Investigations of registrants relate to the ``registration and 
control'' criteria of 21 U.S.C. 821 and/or the ``registration'' 
criteria of 958(f). Although employees of registrants are exempt from 
individual registration as agents of a registrant, their access to 
lawfully manufactured, distributed or dispensed controlled substances 
remains subject to the controls of the CSA and is the responsibility of 
the registrant. Registrants are required under 21 CFR 1301.71(a) to 
provide effective controls and procedures to guard against theft and 
diversion of controlled substances, including that by their employees 
and agents.
    2. Persons who engage in pharmaceutical controlled substance 
smuggling, theft, robbery or trafficking. Such investigations can 
include, where appropriate, identifying and immobilizing the sources of 
supply, whether domestic or foreign, through enforcement of controls 
relating to the lawful manufacture, distribution or dispensing of 
controlled substances. These activities relate to the registration and 
control responsibilities of 21 U.S.C.

[[Page 51995]]

821 and 958(f). For example, theft or robbery may be the result of a 
registrant's failure to maintain required security controls or even 
collusion with a thief or robber, and the investigation will ensure 
that the deficiencies are corrected and determine whether the 
registrant's continued registration is in the public interest. In 
another example, if controlled substances lawfully manufactured or 
distributed in the United States are exported to avoid stringent U.S. 
control and then smuggled back into the United States, DEA will 
investigate to determine if the U.S. exporter should be prosecuted, its 
registration revoked or future export authorizations denied.
    DEA fee-funds these investigative activities because they relate to 
lawful controlled substance manufacture, distribution or dispensing. 
Among smuggling, theft, robbery or trafficking pharmaceutical 
controlled substances, smuggling is perhaps the activity area with the 
most unclear nexus with 21 U.S.C. 821 and 958(f) criteria. Smuggling a 
controlled substance into, or introducing it into, the United States is 
importation, albeit illegal, and constitutes an activity for which DEA 
registration and controls are required under the CSA and its 
implementing regulations. Smuggling investigations relate to the 
registration for importing controlled substances under 21 U.S.C. 958(f) 
and their subsequent control once in the United States under 21 U.S.C. 
821. Some smuggled pharmaceutical controlled substances are 
manufactured, distributed or dispensed by foreign subsidiaries of DEA 
registrants. Smuggled substances potentially threaten the integrity of 
the closed system by introducing foreign-source or even counterfeit 
substances into the domestic market. It is to the benefit of 
manufacturers and distributors that these products are eliminated from 
competition with their products to pharmacies, and prescribers for the 
assurance that they are handling only legitimate products and to the 
public health. The presence of these smuggled substances potentially 
impacts the domestic market for controlled substances manufactured, 
distributed and dispensed by DEA registrants.
    3. Persons, both registered and non-registered, who conduct 
controlled substance activities without the required DEA registration 
or state authorization. DEA registration and state licensure are 
prerequisites for lawfully manufacturing, distributing, dispensing, 
importing and exporting controlled substances, including handling 
Schedule I substances in industrial, analytical or research 
applications. Proper registration is the keystone of the CSA's closed 
distribution system. Investigations to maintain the integrity of the 
CSA registration system directly relate to the registration and control 
of the manufacture, distribution and dispensing of controlled 
substances under 21 U.S.C. 821 and to the registration for importing 
and exporting controlled substances under 21 U.S.C. 958(f). DCP 
authority to investigate extends to registered persons who lack 
required state or other authorization which is a prerequisite for DEA 
registration, non-registered persons who are conducting controlled 
substance activities for which registration is required, including 
those who have had a registration revoked yet continue to misrepresent 
that they are registered, and registrants conducting activities with 
controlled substances not authorized by their registration. DEA fee-
funds investigations of DEA registrants authorized to handle, or 
persons seeking registration to handle, a controlled substance that is 
not commercially available in the United States, but for which 
registration is required for its use in industrial, analytical or 
research applications. Investigations of these activities relate to the 
registration and control requirements under 21 U.S.C. 821.
    4. Persons who obtain controlled substances from registrants 
through fraud, deceit or circumvention of the manufacturing, 
distribution, dispensing, importing or exporting controls, such as by 
fraudulent use of another person's DEA registration number, ``doctor 
shopping'' or prescription forgery. The CSA system of registration and 
control was created to prevent diversion from registrants and ideally 
permits detection when diversion occurs. Investigations of this type of 
diversion focus on the activities of non-registrants in order to 
determine the source of the diversion, the degree of registrant 
culpability (if any) and appropriate corrective action. Investigative 
activities involving non-registrants who obtain legitimate controlled 
substances are fee-funded to the extent they involve lawfully 
manufactured, distributed or dispensed controlled substances.
    5. Drug trafficking by non-registrants of controlled substances 
that are fraudulently promoted as legitimate (such as herbal remedies 
that actually contain a controlled substance). Investigations involving 
products that are not lawfully marketed in the United States, but which 
contain a controlled substance that is lawfully marketed here, on the 
surface appear to be too tenuous to relate to 21 U.S.C. 821 and 958(f) 
criteria. ``Black Pearls'' is an example of one herbal remedy sold in 
health food stores that contains a controlled substance (diazepam). An 
example of a product trafficked as having been lawfully produced is 
smuggled or counterfeit anabolic steroids. Trafficking of these 
products sometimes occurs within the otherwise legitimate medical/
pharmaceutical environment.
    For investigations involving products such as smuggled anabolic 
steroids, the nexus to 21 U.S.C. 821 and 958(f) is discussed and 
described under Number 2 directly above. DEA concedes that the nexus of 
counterfeit substances promoted as legitimate to 21 U.S.C. 821 and 
958(f) criteria seems more tenuous in comparison with other DCP 
activities. Counterfeit versions of controlled substances manufactured, 
distributed or dispensed compete with legitimate versions of that 
substance, thus impacting registrants lawfully handling them under the 
CSA. Additionally, Congress explicitly recognized the problem created 
by the distribution and dispensing of counterfeit controlled 
substances. See 21 U.S.C. 841(a)(2). While ``distribution'' may entail 
any controlled substance, ``dispensing'' by definition involves 
controlled substances lawfully marketed in the United States and 
subject to the CSA's closed system of distribution. 21 U.S.C. 802(10). 
Dispensing is an activity that requires DEA registration.
    6. Persons who use their DEA registrations to assist in the 
diversion or misuse of legitimate controlled substances. The CSA 
provides that controlled substances may only be administered or 
dispensed by a practitioner in the normal course of professional 
practice. Unlawful registrant practices such as selling or trading 
controlled substances for non-medical purposes, health care fraud or 
self-abuse are outside the scope of activity authorized by their DEA 
registration. Investigative activities of such practices meet the fee-
funding criteria because DEA registration enables the registrants to 
divert controlled substances from the CSA's closed distribution system.
    To summarize, DEA fee-funds investigative activities of registrants 
and non-registrants when they relate to the registration and/or control 
of the lawful manufacture, distribution or dispensing of controlled 
substances.

VII. National Forensic Laboratory Information System

    One commentor objected to fee-funding the National Forensic 
Laboratory Information System (NFLIS),

[[Page 51996]]

concerned that DEA did not provide adequate information demonstrating 
whether the analyzed drug evidence involves licit or illicit controlled 
substances, resulting in registrants not knowing whether DEA is 
inappropriately fee-funding a system for illicit drugs.
    The NFLIS is a computerized database of analyzed diverted and 
trafficked drug information from non-federal state and local forensic 
crime laboratories in the United States. The information obtained 
through the NFLIS, when combined with data from other sources, will 
present a more accurate and complete indicator of the extent of the 
abuse, diversion and trafficking of specific substances on a regional 
and national basis, providing early warning of new and changing trends. 
Prior to establishment of the NFLIS, DEA had to laboriously collect 
this data manually through separate contacts with individual 
laboratories nationwide.
    DEA will use the NFLIS primarily for classifying and scheduling 
substances, setting production quotas, determining enforcement 
priorities and establishing drug control priorities for controlled 
substances lawfully manufactured, distributed or dispensed under the 
CSA. The CSA authorizes DEA to schedule, reschedule or deschedule 
substances according to specific scheduling criteria. 21 U.S.C. 811(a). 
The CSA requires DEA to conduct a comprehensive study of a substance, 
including collecting data on abuse and abuse potential before 
initiating any scheduling actions. 21 U.S.C. 811(b). The DCP is the DEA 
element responsible for conducting drug evaluations and gathering the 
necessary data for scheduling purposes regardless of the type of 
substance under consideration. The NFLIS will provide DEA with 
accurate, chemically verified data that will be used to support these 
DCP activities. See Section IX below for a discussion of how scheduling 
and production quotas relate to 21 U.S.C. 821 and 958(f).
    Scheduling actions establish which substances are subject to the 
registration and control provisions of the CSA. There are no ``legal'' 
or ``illegal'' substances, only activities with controlled substances 
that are either legal or illegal under the CSA, depending upon their 
actual use. For example, there are numerous researchers registered to 
handle Schedule I substances (LSD, heroin, etc.,). There is obviously 
extensive illicit trafficking in Schedule I substances. Scientifically 
acceptable and meaningful use of the NFLIS for any and all scheduling 
actions requires the collection of data on all types of abused, 
diverted and trafficked substances. Data collected by the NFLIS is 
necessary to conduct a complete and thorough scheduling review of a 
substance. The analyzed drug evidence reported to NFLIS will include 
controlled substances that are lawfully manufactured, distributed or 
dispensed, as well as non-controlled but lawfully marketed substances 
subject to pending scheduling actions, illicit controlled substances 
and non-controlled substances that are purported to be controlled 
substances. DEA concedes that that only first type of evidence falls 
within the 21 U.S.C. 821 and 958(f) criteria.
    As most new drugs of abuse begin as local problems, it is almost 
impossible to quickly detect new drugs of abuse or changes in national 
drug abuse trends based on DEA's STRIDE system, the database of drug 
analysis information of drugs purchased and seized in DEA cases. 
Systematic collection and analysis of non-federal forensic data are 
critical for the DCP to discharge its scheduling responsibilities 
efficiently.
    Licit and illicit controlled substance data are not as separate 
from one another as one might believe. Existing indicators, such as the 
Drug Abuse Warning Network (DAWN) and the Drug Use Forecasting System 
(DUF), demonstrate that the majority of licit controlled substance 
abuse is in combination with illicit substances. In addition, lawfully 
marketed controlled substances have been trafficked as illicit drugs, 
and non-controlled substances have been sold as controlled substances. 
For example, traffickers have distributed diverted Dilaudid 
as heroin, and substances sold as anabolic steroids have been 
determined to be non-controlled counterfeits. Information related to 
these activities that is analyzed and compiled as a result of the NFLIS 
will enhance overall DCP efficiency in determining which substances 
pose threats to the public health and safety.
    While the primary purpose of the NFLIS will be for control 
activities related to the lawful manufacture, distribution or 
dispensing of controlled substances, there will be instances in which 
data will be used for activities unrelated to the fee-funding criteria. 
Most of the funding for the NFLIS thus far has occurred in establishing 
the system's infrastructure. As later costs to collect data or to 
generate a report for non-fee-fundable activities are minimal, there 
will be occasions when DEA provides NFLIS data for non-related 
regulatory and law enforcement activities. DEA will monitor NFLIS 
activities, and if after a reasonable period it appears that non-fee-
fundable activities occur on more than a minimal basis, DEA will 
reevaluate its fee-funding of the NFLIS.
    In summary, DEA fee-funds the NFLIS because the system will be used 
primarily for drug scheduling actions, setting production quotas and 
other diversion control activities related to 21 U.S.C. 821 and 958(f) 
fee-funding criteria.

VIII. Tactical Diversion Squads (TDSs)

    One commentor objected to fee-funding DEA's Tactical Diversion 
Squads (TDSs), concerned that DEA described them too generally in the 
final rule and did not adequately explain their connection to the 
activities of DEA registrants.
    Authority for the TDSs derives from the statutory directive to the 
Attorney General to cooperate with local, state and federal agencies to 
combat controlled substance trafficking and abuse. 21 U.S.C. 873(a). 
The CSA authorizes the Attorney General to assist state and local 
governments ``in suppressing the diversion of controlled substances 
from legitimate medical, scientific, and commercial channels'' by 
establishing cooperative investigative efforts and to enter into 
contractual agreements with state and local law enforcement agencies 
providing for cooperative enforcement and regulatory activities. 21 
U.S.C. 873(a)(6) and (7). TDSs are cooperative teams of DEA diversion 
personnel and other federal, state and local authorities established to 
identify and investigate the diversion of licit controlled substances 
from registrants. DEA has established multi-agency TDSs in eight 
cities.
    TDSs combine efforts by DEA and other federal, state and local law 
enforcement and regulatory agencies to combat the diversion of lawfully 
marketed controlled substances from registrants primarily at the retail 
level within a given geographic area. The mission of the TDSs is to 
concentrate a dedicated workforce to detect, investigate, disrupt and 
refer for prosecution, violators of federal and state controlled 
substance statutes pertaining to drug diversion. The TDSs develop 
investigative leads from information and intelligence from 
participating agencies, through undercover operations and the use of 
informants. The multi-agency efforts help coordinate the various 
jurisdictional responsibilities of the agencies that otherwise may 
hinder investigations and prosecutions, and combine program and 
personnel expertise to maximize resources and

[[Page 51997]]

enhance efforts at all levels of diversion control investigations.
    Information gleaned from work of the TDSs also contribute to 
classification and scheduling activities, as well as to the 
establishment of production quotas, by generating data essential to 
these functions. Classification, scheduling and production quota 
activities relate to the control of the manufacture, distribution and 
dispensing of controlled substances as required by 21 U.S.C. 821. For 
additional justification regarding classification, scheduling and 
production quota activities, see Section IX below. Data gathered about 
the number of persons diverting licit controlled substances and the 
specific substances involved help identify drug abuse trends and 
patterns.
    DEA fee-funds the salaries of DEA personnel, office space, travel, 
investigative equipment and costs, and training and overtime for state 
and local officers. The member agencies provide representative 
personnel and fund their salaries. Fee-funding TDSs is appropriate 
because the investigative and prosecutorial activities are directed 
solely against registrants and others mishandling controlled substances 
otherwise lawfully manufactured, distributed or dispensed.

IX. Classification and Identification of Controlled Substances and 
Establishment of Production Quotas

    One commentor questioned activities ``that appear to exceed the 
bounds of a program for which DEA registered practitioners should be 
expected to pay.'' The comment noted that the classification and 
identification of controlled substances and the establishment of 
production quotas appear to be ``indirect or collateral'' activities 
having more to do with controlled substance manufacturing and marketing 
than with diversion control. The commentor requested that the Office of 
Management and Budget (OMB) review these activities.
    The DDCFA budget request and the DEA appropriated funds budget 
request are submitted each year to OMB through the Attorney General, 
the White House and Congress, which approves the requests and 
authorized the funding of the programs at the requested levels. Prior 
to publication, the December 18, 1992 Federal Register notice proposing 
to adjust the registration fee schedule and the March 22, 1993 Federal 
Register notice of the final rule establishing the fee schedule were 
submitted to OMB for review. 57 FR 60148 and 58 FR 15274. Therefore, 
the diversion control budget provisions and Federal Register notices 
relevant to the DDCFA have been submitted for review consistent with 
OMB's authority and jurisdiction. DEA did not submit the December 30, 
1996 Federal Register notice describing DCP components and fee-funded 
activities to OMB because it was merely the publication of additional 
information for public comment and was not a new rule. Moreover, this 
notice has been reviewed by OMB.
    Classification and scheduling substances relate to more than just 
controlled substance manufacturing and marketing. The authority to 
classify and schedule substances of abuse is central to the effective 
application of the CSA and DEA Diversion Control Program relating to 
the registration and control of the lawful manufacture, distribution, 
dispensing, import and export of controlled substances. The term 
``classification'' as used in the CSA equates to the term 
``scheduling.'' Classification, with its related activities, is the 
initial step constituting the threshold that must be met for any change 
of status of a substance within the five schedules, which in turn 
dictates the CSA controls to which it is subsequently subjected. 
Classification or scheduling affects all registered manufacturers, 
distributors and dispensers who lawfully handle the controlled 
substance within the closed distribution system. The DCP collects, 
monitors and analyzes data for recommendations to add substances to, 
delete substances from, or transfer substances between schedules and 
maintains a highly educated staff of pharmacologists and scientists to 
perform this work. They are experts in controlled substance 
pharmacology, and their opinions are sought by state, national and 
international officials involved in drug abuse studies. This DCP staff 
is responsible for ensuring that objective and comprehensive studies 
are undertaken on the actual and potential abuse of substances to find 
the balance between protecting the public health and safety, yet 
allowing necessary medication to be readily available for legitimate 
medical and scientific purposes. Each study requires an examination of 
the scientific literature regarding the properties of the drugs, the 
current controls over the drugs, data regarding annual production and 
consumption, and information from law enforcement, regulatory and 
medical sources regarding drug diversion, trafficking and abuse.
    The CSA provides for the classification of substances of abuse into 
one of five schedules when appropriate. Such classification determines 
the level of controls that all registrants must then comply with when 
handling the controlled substance. Classification of a substance thus 
impacts not only how it will be handled by registered manufacturers, 
distributors and importers and exporters, but also how it will be 
administered, prescribed and dispensed by registered practitioners such 
as pharmacies, hospitals, physicians, dentists and veterinarians.
    The language of 21 U.S.C. 821 refers to ``the registration and 
control * * * of controlled substances,'' and classification and 
scheduling of substances of abuse are the initial steps in the 
``control * * * of controlled substances'' criteria of 21 U.S.C. 821. 
Thus, these activities meet one of the legal requirements for fee 
funding. DEA believes that it is reasonable to fee-fund classification/
scheduling activities, and to fund the same classification/scheduling 
activities from different sources depending upon whether the substance 
of abuse is controlled or non-controlled at the start would be 
unworkable and not feasible. DEA has determined, therefore, that it is 
appropriate to fee-fund classification and scheduling activities of 
controlled substances and substances of abuse that are not yet 
controlled.
    In conjunction with the classification of substances, the CSA and 
international treaties require that controlled substance containers 
include certain identifying symbols, warnings and seals. These symbols, 
warnings and seals identify for all legitimate handlers a controlled 
substance's level of control under the CSA and alert them as to how 
they must handle it. In clarifying how to handle the substance, the 
identifying symbols, warnings and seals help maintain the integrity of 
the closed system of controls, minimizing the risk of diversion when 
the substances are properly handled and securely stored. The CSA makes 
it unlawful to remove, alter or obliterate a required symbol or label, 
illustrating the importance of controlled substance identification. 21 
U.S.C. 842(4).
    The CSA and international treaties require DEA to determine the 
total quantity of certain controlled substances necessary for medical, 
scientific, research and industrial use in the United States and limit 
the manufacture of such substances to the quantity necessary for 
legitimate use through a system of production quotas. In recent years, 
DEA has issued approximately 850 quotas annually to over 200 
manufacturer registrants. DEA's scientific staff works closely with the 
regulated industry to identify medical trends, new drugs entering the 
market, and manufacturing issues in order to allow U.S. manufacturers 
to meet

[[Page 51998]]

legitimate patient and distribution needs. The DCP scientific staff 
collects and analyzes information regarding the legitimate use, 
trafficking and abuse of Schedule I and II controlled substances in the 
United States from such sources as manufacturing and distribution 
reports, treatment and prescription utilization data, case data, drug 
abuse indicators and Department of Health and Human Services (HHS) 
estimates of medical use. In response to requests from controlled 
substance manufacturers, DCP staff conducts training sessions 
throughout the United States to assist these registrants in 
understanding the operation and goals of the quota system.
    Although manufacturers are the registrants who, by virtue of their 
role in the closed manufacturing and distribution system, directly 
apply the provisions of the production quotas issued, it is inaccurate 
to characterize the establishment of quotas as an indirect or 
collateral activity primarily related to manufacturing and marketing. 
The establishment of production quotas is a key component in the closed 
system of controls. Establishing production quotas for controlled 
substances impacts not only the quantity manufactured and distributed 
by registered non-practitioners but also the availability of those 
substances for administering and prescribing by physicians and 
veterinarians, and dispensing by pharmacies. Production quotas help to 
ensure adequate availability of controlled substances for legitimate 
use by handlers at each level of the closed system. Additionally, 
quotas limit overproduction, minimizing diversion and abuse and 
ultimately reducing the need for enforcement activities against 
registrants and others.
    The classification and identification of controlled substances and 
the establishment of quotas relate to the control of the lawful 
manufacture, distribution, dispensing, import and export of controlled 
substances by practitioners and other registrants. Therefore, funding 
these activities through fees collected from registrants is consistent 
with the requirement that they relate to the registration and control 
requirements of 21 U.S.C. 821 and 958(f).

X. History of the Current Fee

    In response to the 1993 Appropriation, DEA published a rulemaking 
in the Federal Register on March 22, 1993 to announce a new fee 
schedule for the Diversion Control Program (DCP) (58 FR 15272). This 
announcement outlined the general categories of cost to be borne by the 
resulting Drug Diversion Control Fee Account (DDCFA) and excluded from 
such outline certain DCP costs, including the cost of the Chemical 
Control Program. This program is responsible for the regulation and 
monitoring of activity involving chemicals used in illicit manufacture 
of controlled substances and for the investigation of the diversion of 
these chemicals. Following the March 22, 1993 announcement, several 
registrant groups filed a complaint in the United States District Court 
for the District of Columbia. On July 5, 1994, the district court 
disposed of all claims, but one of the plaintiffs, the American Medical 
Association (AMA), appealed to the United States Court of Appeals for 
the District of Columbia Circuit. In this case, AMA v. Reno, 57 F. 3d 
1129 (D.C. Cir. 1995), the District of Columbia Circuit held that DEA 
``was required to identify the components of the fee-funded Diversion 
Control Program and provide a brief explanation of why it deemed each 
component to be a part of that program.'' Id. At 1135. DEA has 
attempted to fulfill the court's mandate through a second announcement, 
which appeared in the Federal Register on December 30, 1996 (61 FR 
68624).
    The second announcement provided a more detailed discussion of the 
DCP costs to be included in, and excluded from, DEA's DDCFA charges. A 
table summarizing these costs follows.

------------------------------------------------------------------------
                Included                             Excluded
------------------------------------------------------------------------
 All direct support of drug        All direct support of
 diversion control efforts, including:     chemical diversion control
 Diversion investigators, analysts,        efforts, including payroll,
 technicians, and clerical personnel;      benefits, travel, training,
 equipment and services associated with    supplies and equipment.
 these positions for the registration
 and control of the manufacture,
 distribution and dispensing of
 controlled substances.
 Salaries and expenses,
 benefits.
 Travel, rent, utilities,
 supplies.
 Training.
Specific Activities:                      Specific Activities:
   Development and refinement of     Chemical control.
   regulations and rules re:               Clandestine
   registration and control of the         laboratories.
   manufacture, distribution and           Overseas positions.
   dispensing of controlled substances..   Chief Counsel
   Preparation for and conduct     support.
   of meetings and national conferences    Executive Direction.
   with registrants, registrants'          DEA automated data
   representatives (e.g., associations,    processing systems and
   etc.), law enforcement                  support (except ARCOS and
   representatives, and other interested   CSA).
   parties..
   Responding to inquiries from
   industry, law enforcement, regulatory
   personnel, Congress, and federal
   agencies..
   Classification and scheduling     Office of Training
   of substances, including the              staff.
   collection and analysis of necessary    DEA management and
   data, providing information to          administrative support.
   international, national and state       Office of
   entities re: scheduling of              Congressional and Public
   substances, responding to scheduling    Affairs support.
   petitions, providing testimony and      Intelligence support.
   expert guidance and assistance, and     Development of non-
   working with law enforcement            drug related materials such
   agencies, the scientific community,     as the Chemical Handlers
   industry, the public and other          Manual.
   interested parties..                    Chemical Laboratory
   Identification of controlled    Services Support.
   substances for the control of the
   lawful manufacture, distribution,
   dispensing, and export of controlled
   substances by practitioners and other
   registrants..
   Establishment of quotas for
   certain controlled and substances for
   medical, scientific, research and
   industrial use and monitoring of the
   manufacture, utilization, trafficking
   an abuse of controlled substances
   against the quotas..
   Conduct of training seminars
   for industry on controlled
   substances, including quotas, etc..

[[Page 51999]]

 
   Registration of persons
   authorized to manufacture,
   distribute, dispense, import, or
   export controlled substances,
   including registration of persons
   conducting research with Schedule I
   controlled substances in conjunction
   with FDA and distribution of
   registrant information to other DEA
   elements , Federal, state and local
   regulatory personnel, and registrants
   as necessary..
   Conduct of other
   investigations including pre-
   registrant investigations and cyclic
   investigations of registrants'
   records/inventories..
   Participation in any civil or
   criminal action resulting from above-
   referenced investigations..
   Operation of system of
   declarations and permits for
   importers and exporters of controlled
   substances to comply with CSA and
   international treaties. This includes
   examining request for permission to
   import or export controlled
   substances and maintenance of
   records, monitoring of imports of
   controlled substances to ensure they
   are consistent with domestic need,
   and preparation of reports..
   Participation in
   international policy activities re:
   the manufacture, distribution,
   dispensing, import and export of
   controlled substances and the
   strengthening of controls in these
   areas to comply with CSA and
   international treaties/conventions,
   including participating in United
   Nations policy activities and
   international meetings/conferences;
   developing and formulating policy;
   and developing substantive materials
   and research papers. Note, fee-funded
   activities in this area are limited
   to domestic personnel (personnel
   assigned to overseas positions are
   supported through appropriated
   funds)..
   Providing assistance to
   foreign authorities and governments
   with their diversion control systems
   to improve the design and
   administration of, and cooperation
   regarding, controlled substances and
   chemical controls..
   Participation in cooperative
   efforts with other officials involved
   in diversion control activities
   (e.g., Federal, state, local, and
   national and local pharmaceutical and
   health care organizations) and
   maintenance of an active liaison
   program..
   Development of information
   manuals and materials for industry
   such as Pharmacist's Manual,
   Practitioner's Manual, Mid-Level
   Practitioner's Manual, and the
   Security Outline to the Controlled
   Substances Act..
   Enforcement of the Anabolic
   Steroid Control Act..
   Operation of ARCOS and CSA
   data systems..
   Establishment and operation
   of National Forensic Laboratory
   Information System..
   Establishment and operation
   of Tactical Diversion Squads..
------------------------------------------------------------------------

    The increased detail of the December 30, 1996 announcement did not 
address all concerns, however. Several of the commentors asserted that 
DEA failed in the first DDCFA rulemaking and in the December 1996 
Federal Register notice to articulate how it had arrived at the amount 
for the registration fee increase in 1993 and failed to provide 
adequate justification for the increase. One commentor concluded that 
``[t]he thing that bothers many of us is that it appears the amount of 
increase was ``picked out of the air'' and there was no justification 
for that much of an increase.''
    The 1993 Appropriations Act mandates: (a) That DEA deposit each 
fiscal year's fee revenue in excess of $15 million into an account for 
``offsetting receipts'' (i.e., the first $15 million collected must 
remain in the General Fund of the Treasury); (b) that revenue deposited 
into such account ``remain available until expended''; (c) that the 
fees funding this account ``be set at a level that ensures the recovery 
of the full costs of the various aspects'' of the DCP; (d) that DEA 
``be refunded in accordance with estimates made in the budget request 
of the Attorney General''; and (e) that the Attorney General ``prepare 
and submit annually to the Congress, statements of financial conditions 
of the account''. 21 U.S.C. 886a.
    The 1993 Appropriations Act augments DEA's previously established 
authority, pursuant to 21 U.S.C. 821, to collect offsetting fees by 
requiring that DEA fund the entire DCP with registration fees. Because 
previously established fees were insufficient to recover the full cost 
of operating the DCP, the 1993 legislation made a fee increase 
unavoidable. Because the law required recovery of the ``full costs'' of 
the program and because the law required all fee revenue to ``remain 
available until expended,'' DEA knew that any excess or surplus 
collected would remain in the fee account until it could be used for an 
appropriate DCP purpose.
    DEA's method for estimating the full cost of the DCP has been a 
traditional approach: modular costing. This approach is required under 
the Department of Justice (DOJ) Instructions for the Preparation of 
Budget Estimates and is consistent with Office of Management and Budget 
(OMB) Circular A-11, Section 30.5; and both DOJ and OMB review the cost 
modules presented with each of DEA's three annual budget drafts. A 
modular cost is the total organizational burden of each incremental 
employment position in an organization. Such burden extends beyond the 
salary and benefits of a new position and includes all other resource 
requirements (including supplies, utilities, rent, training, etc.) 
resulting from the position's existence. Cost estimation may also 
accommodate fixed program increases: such fixed costs are incorporated 
into each budget request under the separate heading ``Non-Personnel 
Costs''. The modular costing method is useful because it enables budget 
formulators to project the cost of additional resources without 
recalculating the base cost of the underlying program. If the 
underlying program is modified or broken into components, however, the 
base cost of the resulting program(s) must be calculated afresh. The 
DCP's division into one appropriation-funded component and one fee-
funded component made just such a base cost recalculation necessary.
    In 1992, prior to passage of the 1993 Appropriation Act, DEA's FY94 
budget

[[Page 52000]]

request for the DCP was represented partially under the Drug and 
Chemical Diversion Control Decision Unit and partially under other 
decision units. These decision units were not developed to enable DEA 
to track such individual programs as the DCP, and even the Drug and 
Chemical Diversion Control Decision Unit was not identical with the 
DCP. Many of the costs of the DCP were managed under other decision 
units. The cost of DCP budgeting and accounting, for example, was borne 
under DEA's Management and Administration decision unit. DEA was 
therefore unprepared to collect a fee recovering the full costs of a 
program which (a) could not be disaggregated in the DEA Accounting 
System (DEAAS, the automated accounting system in use at the time) and 
(b) was managed by several offices within the agency. Yet, with the 
passage of the 1993 Appropriation DEA was obliged to develop a new 
estimate of total DCP cost, including costs of the program not 
previously budgeted under the Drug and Chemical Diversion Control 
Decision Unit.
    To achieve such a first-time, full cost estimation of the DDCFA-
funded portion of the DCP, DEA assigned each object group (or general 
cost element, such as salaries, benefits, training etc.) a budgeted 
cost based on the ratio of projected DDCFA workyears (one workyear 
equals 2,080 hours worked by an individual) to projected Salary and 
Expense Appropriation (S&E) workyears. The budgeted cost of items 
intended for both DCP and non-DCP use (e.g., utilities, postal 
expenses, office services, and furniture) was prorated between DDCFA 
and the S&E account in proportion to the ratio of projected DDCFA 
workyears to projected S&E workyears. The budgeted cost of such 
dedicated DCP activities as the Administrative Law Judges' office, on 
the other hand, was assigned entirely to the DDCFA because 100 percent 
of that office's activities were related to drug diversion control at 
that time. When DEA prepared the initial estimate of FY94 DDCFA cost, 
budgeted DDCFA workyears totaled 555, in comparison with 6,602 total 
budgeted DEA workyears. The ratio of DDCFA workyears to total DEA 
workyears, accordingly, was 8.31 percent (555 divided by 6,602). DEA 
also prorated payroll costs and non-foreign space rent and alterations 
in proportion to the projected workyears billable to the DDCFA as a 
percentage of DEA's total projected workyears.
    The amount DEA originally projected as the total operating cost of 
the DCP for FY94 was $62,917,000. Yet this estimate included the cost 
of ``chemical'' diversion control: the regulation and monitoring of 
activity involving chemicals used in the illicit manufacture of 
controlled substances and the investigation of the diversion of these 
chemicals. Because DEA had independently determined not to fee-fund the 
cost of ``chemical'' diversion control, it reduced its request for 
DDCFA obligating authority (and thereby its minimum fee revenue target) 
to $57,123,000. The remaining $5,794,000 of the DCP's projected FY94 
cost fell under the modified (and still S&E-funded) Chemical Diversion 
Control Decision Unit.
    DEA's original estimation of the DDCFA-billable portion of the DCP 
was, if anything, too conservative, especially inasmuch as it did not 
capture a significant non-programmatic item. In addition to the direct 
program elements discussed in the December 30, 1996 Federal Register 
announcement and outlined above, DEA must transfer the first $15 
million of fee revenue to the General Fund of the Treasury each year. 
21 U.S.C. 886a(1). DEA's failure to include this surcharge (which is 
not driven by the number of DCP employees and is therefore not captured 
in DEA's DCP cost modules) in its calculation of the DDCFA fee did not 
impede cash flow until FY99, however, because Congress had appropriated 
an offsetting $15 million supplement to the DDCFA for every year from 
FY93 (the year of the DDCFA's inception) through FY98. Indeed, because 
of the offsetting appropriation of $15 million from FY93 through FY98 
(a total infusion to the DDCFA of $90 million), the DDCFA had spent $21 
million more than its cumulative revenue but was still showing a $69 
million surplus ($90 million minus $21 million) in FY99. The DDCFA 
surplus, even at its peak of $69 million in FY99, in other words, was 
artificial and predicated on a supplemental appropriation not provided 
for in 21 U.S.C. 886a.
    The DDCFA's actual cash flow has turned negative with (a) the 
discontinuation of the $15 million supplemental appropriation in FY99 
and (b) the growth of DCP responsibilities. Some DCP growth has been 
reflected in DEA budget submissions, as when DEA requested and received 
authority (in FY97) to create Tactical Diversion Squads (TDSs) in 
various field locations. Other DCP expansions have not been reflected 
in DEA budget submissions, as when DEA implemented its initial response 
to internet-based drug diversion, or when DEA increased the number of 
drug diversion cases leading to arrest. (The number of diversion 
arrests more than doubled in just five years, from 444 arrests in FY95 
to 935 diversion arrests relating to drug cases alone in FY00.) Yet, 
notwithstanding such growth due to both budgeted and unbudgeted DCP 
expansions, DEA has not increased the fee supporting the DDCFA since 
FY93.
    In the meantime, DEA has also faced a management challenge 
extending beyond the DDCFA. Before Fiscal Year 1998 (FY98), DEA relied 
upon DEAAS. DEAAS was adequate for the purposes of a law enforcement 
organization with a single funding source and streamlined agenda, but 
as both enforcement and diversion control mandates began to expand in 
the 1990s (and in order to comply with laws requiring auditable 
financial statements) DEA replaced DEAAS with a better-suited 
accounting system.
    The replacement, DEA's current Federal Financial System (FFS), is 
more flexible and has enabled DEA to track all obligations and 
expenditures (not merely those incurred under the DDCFA) through a 
greater variety of cost centers and programs. But this improved 
accounting capability was not available until FY98. Prior to FY98, a 
deficiency of accounting controls throughout DEA's management structure 
resulted in the inadequate tracking of all DEA funds--not just the 
DDCFA. For FY97 and before, accordingly, DEA's annual independent 
financial audit resulted in an unsatisfactory opinion of DEA's accounts 
and financial statements. Yet even in FY93 DEA attempted to comply with 
the law establishing the DDCFA.

XI. Accumulation and Distribution of Surplus

    Each of the five commentors addressed the surplus, with all but one 
asserting that DEA must either issue a refund to the fee-paying 
registrants or reduce future fees. As noted in the December 1996 
Federal Register notice, this surplus (or positive cash balance) began 
to accrue shortly after the establishment of the DDCFA. The surplus 
totaled $45 million as of September 1996 and had risen to $69 million 
by February 1999. Note in the table below that the bottom line 
``Carryover'' figure represents the DDCFA surplus at the end of a given 
fiscal year. This surplus grew through FY98 (the last fiscal year 
during which DEA received a supplemental $15 million appropriation for 
the DDCFA) and has declined through the present. Because the surplus is 
expected to become a deficit shortly after the end of FY02, there are 
no funds to support a

[[Page 52001]]

refund to registrants, as all remaining DDCFA funds will be expended.

                                          Drug Enforcement Administration Diversion Control Fee Account (DDCFA)
                                                       [Cash flow summary (dollars in thousands)]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                     FY02        FY03
                                  FY93       FY94       FY95       FY96       FY97       FY98       FY99       FY00       FY01      (Est.)      (Est.)
--------------------------------------------------------------------------------------------------------------------------------------------------------
DDCFA Authority \1\..........    12,000     42,123     57,178     62,188     67,824     73,268     76,710     80,330     83,543     86,021   \2\ 116,462
Carry over from Prior Year...  .........     7,201     28,939     37,230     45,284     61,724     69,313     53,168     44,699     36,072       10,018
  Rescinded Authority........  .........  .........  .........  .........  .........  .........    (7,000)   (35,000)    (8,000)  .........  ...........
  Net Carryover \3\..........  .........     7,201     28,939     37,230     45,284     61,724     62,313     18,168     36,699     36,072       10,018
Revenue:
  Collections \4\............    19,201     69,609     61,258     65,160     75,003     69,668     69,301     75,232     75,099     74,967       74,967
  Supplemental Appropriation.    15,000     15,000     15,000     15,000     15,000     15,000   .........  .........  .........  .........  ...........
  Less: General Treasury        (15,000)   (15,000)   (15,000)   (15,000)   (15,000)   (15,000)   (15,000)   (15,000)   (15,000)   (15,000)     (15,000)
   Surcharge.................
  Net Revenue................    19,201     69,609     61,258     65,160     75,003     69,668     54,301     60,232     60,099     59,967       59,967
Obligations:
  Gross Obligations \4\......    12,000     47,871     53,294     57,106     61,951     62,961     71,772     74,121     77,272     86,021      116,462
  Adjustments & Deobligations  .........  .........      (327)  .........    (3,388)      (882)    (1,326)    (5,420)    (8,546)  .........  ...........
  Net Obligations............    12,000     47,871     52,967     57,106     58,563     62,079     70,446     68,701     68,726     86,021      116,462
Fiscal Year End Balance......     7,201     28,939     37,230     45,284     61,724     69,313     46,168      9,699     28,072     10,018      (44,795)
  Restored Authority.........  .........  .........  .........  .........  .........  .........     7,000     35,000      8,000   .........  ...........
  Carryover..................     7,201     28,939     37,230     45,284     61,724     69,313     53,168     44,699     36,072     10,018      (44,795)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimate of DDCFA-funded program is provided to Congress two years before execution and is subsequently authorized (but not appropriated).
\2\ The collection of $116,462 in FY03 will require prior implementation of a revised fee structure.
\3\ Carryover equals the Unobligated Balance shown on the final FMS Form 2108, after release of which Adjustments & Deobligations are shown in the
  subsequent year.
\4\ Gross Obligations and Collections are based on DEA's most recent Financial Management System (FMS) Form 133, prior to availability of which an
  estimate is provided.

    A second series of tables on subsequent pages, entitled ``Validated 
vs. Actual DCP Program Charges to the DDCFA'', shows the accumulation 
and subsequent depletion of the DDCFA surplus.
    The commentors stated that in (ostensibly) failing to project the 
costs of the DCP accurately, DEA overestimated initial program costs 
and calculated an excessive fee, which resulted in a significant 
surplus. Yet, rather than overestimating DCP costs, DEA appears, as 
discussed above, to have underestimated such costs drastically. DEA has 
followed the OMB-approved DOJ Instructions for the Preparation of 
Budget Estimates to project future DCP costs from the inception of the 
DDCFA through the present. Indeed, for all fiscal years since FY93, 
DEA's programmatic requirements of the DDCFA are defended in this 
section, below. Unfortunately, DEA has not charged the DDCFA for all 
fee-fundable costs, including the mandated annual $15 million transfer 
to the General Treasury. Thus the surplus accumulated between FY93 and 
FY98 was attributable not to overestimations of future DDCFA need but 
to subsequent underbilling of actual DDCFA-fundable activity and costs.
    Perhaps confusingly, DEA's general underbilling of the DDCFA has 
accompanied occasional instances of DDCFA overcharge within a 
particular cost category. In FY96, for example, rent charges to the 
DDCFA appear to have exceeded a reasonable amount by at least $2.1 
million. Yet for the same year DEA's estimate of valid DDCFA 
information technology charges (e.g. for Diversion Investigators' 
desktop computers, as distinct from network infrastructure charges 
provided for under DEA's Salaries and Expenses appropriation) is 
greater than actual DDCFA information technology charges by $3.3 
million. DEA appears to have overcharged the DDCFA for rent in FY96, in 
other words, but other allowance centers were undercharging the DDCFA 
to an even greater degree during the same period.
    A particular area of confusion between legitimate and illegitimate 
uses of the DDCFA has been the boundary separating ``chemical'' from 
``non-chemical'' DCP activities. This boundary crosses through a range 
of cost categories, from payroll to training. In its 1993 Federal 
Register notice, and during the course of the AMA v. Reno litigation, 
DEA stated it was not charging the costs of enforcing the Chemical 
Diversion and Trafficking Act to the DDCFA. DEA has since discovered 
these statements to have been in error. DEA has identified numerous 
examples of chemical costs erroneously charged to the DDCFA and of 
DDCFA-fundable items erroneously charged to the Chemical Decision Unit. 
Such errors resulted from a failure in some DEA offices to understand 
(and therefore implement) internal directives to use multiple fund 
sources for obligations with both a chemical and a non-chemical 
purpose. Because the errors resulted from a failure of understanding, 
however, they resulted, in turn, in mischarges to both the DDCFA and to 
the appropriation for the Chemical Decision Unit. The analysis 
presented below was performed in order to quantify the full extent of 
such funding errors and to determine whether there was any net 
overcharge to the DDCFA.
    Before FY00, a common cause of chemical mischarges was erroneous 
``split-funding.'' Items purchased in support of the entire DCP--for 
both chemical and non-chemical activities--were not consistently 
prorated by purpose (i.e., ``split-funded'') until FY00. Such items 
(including photocopiers and automobile repairs) should have been 
charged to the DDCFA in proportion to the ratio of non-chemical to 
chemical activity, but such ``split funding'' was not effectively 
instituted (despite earlier guidance) until FY00. The analysis below 
takes these and other DDCFA mischarges into account by imputing a 
legitimate DDCFA burden based on workyear consumption. The results of 
this calculation suggest that DDCFA overcharges are more than offset by 
DDCFA undercharges.
    DEA has acted in good faith to address and resolve accounting and 
managerial deficiencies connected with both the DDCFA and other 
programs. The replacement of DEAAS with FFS arose not just from DDCFA 
challenges but also from the need to isolate the cost of such major 
appropriation-funded DEA programs as Source Country Interdiction and 
Mobile Enforcement Teams. To validate DDCFA charges

[[Page 52002]]

under the abandoned DEAAS system, DEA has performed two independent 
retrospective analyses of actual DDCFA billings since FY93. Both of 
these analyses have confirmed (a) that DEA's original projections of 
DDCFA need (as presented to Congress and subsequently used as the basis 
for fee collections) were overly conservative and (b) that the DEA also 
should have charged the DDCFA more in the aggregate for every year 
through FY00.
    DEA began its first analysis with a calculation of the ratio of 
DDCFA to non-DDCFA work years consumed. Only domestic, non-chemical DCP 
work years (as broken out in DEA's budget submissions to Congress) were 
included in this calculation. These work years correspond to DCP 
positions assigned to drug diversion control efforts. DEA multiplied 
the resulting ratio by non-DDCFA actual expenditures (a figure also 
provided in DEA's Congressional budget submissions and consistently 
greater than 90 percent of DEA's total expenditures). The resulting 
total for FY93 through FY00, $672,745,000, was then multiplied by 67 
percent to reflect the relatively lower cost of a DEA Diversion 
Investigator (the core position supporting DEA's DDCFA-funded 
activities) in comparison with a DEA Special Agent (the core position 
supporting DEA's appropriation-funded activities). The result of this 
last calculation was $449,227,000: $8,129,000 more than the 
$441,098,000 actually charged to the DDCFA for FY93 through FY00. This 
calculation is not a traditional budget estimation technique, yet it 
corroborates the actual charges originally provided for in the official 
budget process. It answers the commonsense question, ``What if DEA had 
never developed a DCP budget: was the money spent from the DDCFA 
proportional to the number of Diversion Investigators assigned to drug 
diversion control efforts?'' The resulting estimate of total drug 
diversion control cost is approximately $8 million greater than the 
actual charges to the DDCFA (as recorded in DEA's accounting system) 
during the same period, even before adding the $15 million annual 
surcharge (required transfer to the U.S. Treasury).
    This first analysis addresses the possibility of DDCFA overcharges 
at the bottom line. The analysis assigns all DEA costs to one of two 
categories (DDCFA or non-DDCFA) based on the number of work years 
reported for each category. This analysis leaves untested the cost 
elements adding into the bottom line. To validate these components, DEA 
designed a second test of the DDCFA charges in FFS for FY99. In this 
second diagnostic, DEA met with each headquarters office holding DDCFA 
obligation authority and verified actual procedures and obligations. 
DDCFA obligations found not to comport with DEA's announcements in the 
Federal Register were removed from the obligating office's validated 
total, while DDCFA charges provided for (but not made because of 
accounting and managerial errors) in the same announcements were added. 
For field offices, whose authority to obligate DDCFA funds is limited, 
the principle problem identified was a failure to split-fund (i.e., 
draw a proportional amount from more than one fund source for a single 
item) non-travel items.
    DEA next sought to extend this analysis of FY99 FFS data back to 
the beginning of the DDCFA (in FY93). To develop this extrapolation, 
DEA identified actual drug diversion control work hours stored in the 
Workhour Reporting System (WRS, a system tracking both the drug 
diversion control and chemical diversion control work hours reported by 
Diversion Investigators on DEA Form 351) and the wage and non-wage cost 
inflators reported to Congress in each fiscal year's budget request. 
DEA then projected valid DDCFA charges in reverse for FY93 through FY98 
by carrying the directly validated FY99 data backward and adjusting for 
inflation and WRS data in each year. Finally, DEA compared this 
retrospective projection with the certified actual accounting data 
stored for the same fiscal years and offices.
    The result was striking. In every year of this analysis, the actual 
DDCFA charges recorded in DEA's accounting system are significantly 
lower than what an inflation-adjusted, workhour-proportional projection 
generates. In the earlier years (FY93 through FY95), the difference is 
greater than $40 million per year. Later, as DEA began to make further 
legitimate use (even after invalidation of selected misuses) of the 
DDCFA, this annual difference recedes to just over $16 million. But in 
every year, DEA undercharged the DDCFA to a greater degree, and in more 
allowance centers, than the total of particular overcharges ultimately 
identified. The tables showing the results of this analysis follow.

----------------------------------------------------------------------------------------------------------------
                                                                                    Obligated/      Undercharge
   Validated vs. actual DCP program charges to the DDCFA--Item       Validated       incurred      (overcharge)
----------------------------------------------------------------------------------------------------------------
                                                                                 Fiscal year 1993
                                                                 -----------------------------------------------
Diversion Control Work Hours....................................  ..............         274,960  ..............
Drug Diversion Control Work Hours...............................  ..............         253,946  ..............
Split-Funding Drug Portion......................................  ..............             92%  ..............
Wage Inflation Factor Used for DEA Budget.......................  ..............            2.0%  ..............
Non-wage Inflation Factor Used for DEA Budget...................  ..............            2.6%  ..............
                                                                 ===============================================
Payroll/Benefits................................................      20,736,431      12,000,000      8,736,431
Rent/Utilities..................................................       6,982,552  ..............      6,982,552
DCP Management..................................................       3,787,819  ..............      3,787,819
Information Systems.............................................       3,214,756  ..............      3,214,756
Staff Relocation................................................       2,197,040  ..............      2,197,040
Field Operations................................................       1,187,364  ..............      1,187,364
Staff Training..................................................         912,791  ..............        912,791
Investigative Tech..............................................         791,779  ..............        791,779
Facility Security...............................................         531,529  ..............        531,529
Health Services.................................................         161,259  ..............        161,259
Forensic Sciences...............................................         140,117  ..............        140,117
Interest Penalties..............................................          71,552  ..............         71,552
Administrative Law..............................................          40,297  ..............         40,297
                                                                 -----------------------------------------------
      Total.....................................................      40,755,287      12,000,000     28,755,287
                                                                 ===============================================

[[Page 52003]]

 
Field Split-Funding Mischarges (NonTravel)......................  ..............  ..............  ..............
Net Undercharge (Overcharge)....................................  ..............  ..............     28,755,287
Cumulative Net DDCFA Undercharge from FY93......................  ..............  ..............     28,755,287
                                                                 -----------------------------------------------
                                                                                 Fiscal year 1994
                                                                 -----------------------------------------------
Diversion Control Work Hours....................................  ..............         493,982  ..............
Drug Diversion Control Work Hours...............................  ..............         466,200  ..............
Split-Funding Drug Portion......................................  ..............             94%  ..............
Wage Inflation Factor Used for DEA Budget.......................  ..............            2.0%  ..............
Non-wage Inflation Factor Used for DEA Budget...................  ..............            2.6%  ..............
                                                                 ===============================================
Payroll/Benefits................................................      38,829,816      30,681,201      8,148,615
Rent/Utilities..................................................      13,152,027      12,662,303        489,724
DCP Management..................................................       7,134,570         752,964      6,381,605
Information Systems.............................................       6,055,172         546,115      5,509,057
Staff Relocation................................................       4,138,249         483,060      3,655,188
Field Operations................................................       2,236,466       1,298,223        938,242
Staff Training..................................................       1,719,293         449,291      1,270,002
Investigative Tech..............................................       1,491,360       1,068,591        422,769
Facility Security...............................................       1,001,165         451,073        550,092
Health Services.................................................         303,740          67,957        235,783
Forensic Sciences...............................................         263,919  ..............        263,919
Interest Penalties..............................................         134,773  ..............        134,773
Administrative Law..............................................          75,901          56,760         19,141
                                                                 -----------------------------------------------
      Total.....................................................      76,536,451      48,517,539     28,018,912
Field Split-Funding Mischarges (NonTravel)......................  ..............  ..............         46,723
Net Undercharge (Overcharge)....................................  ..............  ..............     27,972,188
Cumulative Net DDCFA Undercharge from FY93......................  ..............  ..............     56,727,475
                                                                 -----------------------------------------------
                                                                                 Fiscal year 1995
                                                                 -----------------------------------------------
Diversion Control Work Hours....................................  ..............         485,937  ..............
Drug Diversion Control Work Hours...............................  ..............         461,089  ..............
Split-Funding Drug Portion......................................  ..............             95%  ..............
Wage Inflation Factor Used for DEA Budget.......................  ..............            2.0%  ..............
Non-wage Inflation Factor Used for DEA Budget...................  ..............            2.6%  ..............
                                                                 ===============================================
Payroll/Benefits................................................      39,172,203      29,874,828      9,297,375
Rent/Utilities..................................................      13,346,044      13,616,909       (270,865)
DCP Management..................................................       7,239,818       1,003,812      6,236,006
Information Systems.............................................       6,144,497       1,943,983      4,200,514
Staff Relocation................................................       4,199,295       1,833,917      2,365,379
Field Operations................................................       2,269,458       1,665,859        603,598
Staff Training..................................................       1,744,656         534,204      1,210,452
Investigative Tech..............................................       1,513,361       1,070,050        443,311
Facility Security...............................................       1,015,934         480,750        535,184
Health Services.................................................         308,221         109,170        199,051
Forensic Sciences...............................................         267,812  ..............        267,812
Interest Penalties..............................................         136,761  ..............        136,761
Administrative Law..............................................          77,021          69,721          7,300
                                                                 -----------------------------------------------
      Total.....................................................      77,435,081      52,203,202     25,231,878
Field Split-Funding Mischarges (NonTravel)......................  ..............  ..............         57,293
Net Undercharge (Overcharge)....................................  ..............  ..............     25,174,585
Cumulative Net DDCFA Undercharge from FY93......................  ..............  ..............     81,902,060
                                                                 -----------------------------------------------
                                                                                 Fiscal year 1996
                                                                 -----------------------------------------------
Diversion Control Work Hours....................................  ..............         468,677  ..............
Drug Diversion Control Work Hours...............................  ..............         430,032  ..............
Split-Funding Drug Portion......................................  ..............             92%  ..............
Wage Inflation Factor Used for DEA Budget.......................  ..............            2.2%  ..............
Non-wage Inflation Factor Used for DEA Budget...................  ..............            3.0%  ..............
                                                                 ===============================================
Payroll/Benefits................................................      37,337,472      31,120,120      6,217,352
Rent/Utilities..................................................      12,820,525      14,921,408     (2,100,883)
DCP Management..................................................       6,954,740       1,083,346      5,871,394
Information Systems.............................................       5,902,548       2,602,958      3,299,591
Staff Relocation................................................       4,033,942       1,759,553      2,274,389
Field Operations................................................       2,180,095       1,822,990        357,104
Staff Training..................................................       1,675,958       1,026,738        649,220
Investigative Tech..............................................       1,453,770       1,287,820        165,950

[[Page 52004]]

 
Facility Security...............................................         975,930         442,216        533,714
Health Services.................................................         296,084         141,197        154,887
Forensic Sciences...............................................         257,267  ..............        257,267
Interest Penalties..............................................         131,376          32,374         99,002
Administrative Law..............................................          73,988          43,659         30,329
                                                                 -----------------------------------------------
      Total.....................................................      74,093,694      56,284,378     17,809,316
Field Split-Funding Mischarges (NonTravel)......................  ..............  ..............        107,017
Net Undercharge (Overcharge)....................................  ..............  ..............     17,702,299
Cumulative Net DDCFA Undercharge from FY93......................  ..............  ..............     99,604,360
                                                                 -----------------------------------------------
                                                                                 Fiscal Year 1997
                                                                 -----------------------------------------------
Diversion Control Work Hours....................................  ..............         443,458  ..............
Drug Diversion Control Work Hours...............................  ..............         397,002  ..............
Split-Funding Drug Portion......................................  ..............             90%  ..............
Wage Inflation Factor Used for DEA Budget.......................  ..............            3.0%  ..............
Non-wage Inflation Factor Used for DEA Budget...................  ..............            3.1%  ..............
                                                                 ===============================================
Payroll/Benefits................................................      35,503,736      31,009,637      4,494,099
Rent/Utilities..................................................      12,202,713      14,358,276     (2,155,563)
DCP Management..................................................       6,619,596       4,649,140      1,970,455
Information Systems.............................................       5,618,109       4,655,344        962,765
Staff Relocation................................................       3,839,549       2,180,000      1,659,549
Field Operations................................................       2,075,037       1,987,268         87,770
Staff Training..................................................       1,595,195       1,534,400         60,794
Investigative Tech..............................................       1,383,714         628,795        754,919
Facility Security...............................................         928,901         560,178        368,723
Health Services.................................................         281,816         146,499        135,317
Forensic Sciences...............................................         244,869  ..............        244,869
Interest Penalties..............................................         125,045  ..............        125,045
Administrative Law..............................................          70,422         242,833       (172,410)
                                                                 -----------------------------------------------
      Total.....................................................      70,488,701      61,952,370      8,536,332
Field Split-Funding Mischarges (NonTravel)......................  ..............  ..............        133,277
Net Undercharge (Overcharge)....................................  ..............  ..............      8,403,054
Cumulative Net DDCFA Undercharge from FY93......................  ..............  ..............    108,007,414
                                                                 -----------------------------------------------
                                                                                 Fiscal year 1998
                                                                 -----------------------------------------------
Diversion Control Work Hours....................................  ..............         501,861  ..............
Drug Diversion Control Work Hours...............................  ..............         386,771  ..............
Split-Funding Drug Portion......................................  ..............             77%  ..............
Wage Inflation Factor Used for DEA Budget.......................  ..............            3.1%  ..............
Non-wage Inflation Factor Used for DEA Budget...................  ..............            2.8%  ..............
                                                                 ===============================================
Payroll/Benefits................................................      35,661,034      36,426,300       (765,266)
Rent/Utilities..................................................      12,221,111      13,926,300     (1,705,189)
DCP Management..................................................       6,629,576       3,209,600      3,419,976
Information Systems.............................................       5,626,580       3,092,800      2,533,780
Staff Relocation................................................       3,845,338       1,949,900      1,895,438
Field Operations................................................       2,078,166       2,316,600       (238,434)
Staff Training..................................................       1,597,600         921,700        675,900
Investigative Tech..............................................       1,385,800         200,300      1,185,500
Facility Security...............................................         930,301       1,060,900       (130,599)
Health Services.................................................         282,241         118,600        163,641
Forensic Sciences...............................................         245,238  ..............        245,238
Interest Penalties..............................................         125,233  ..............        125,233
Administrative Law..............................................          70,529          95,800        (25,271)
                                                                 -----------------------------------------------
      Total.....................................................      70,698,748      63,318,800      7,379,948
Field Split-Funding (Non Travel)................................  ..............  ..............        324,747
Net Undercharge (Overcharge)....................................  ..............  ..............      7,055,201
Cumulative Net DDCFA Undercharge from FY93......................  ..............  ..............    115,062,615
                                                                 -----------------------------------------------
                                                                                  Fiscal year 1999
                                                                 -----------------------------------------------
Diversion Control Work Hours....................................  ..............         484,083  ..............
Drug Diversion Control Work.....................................  ..............         386,171  ..............
Split-Funding Drug Portion......................................  ..............             80%  ..............
Wage Inflation Factor Used for DEA Budget.......................  ..............            3.0%  ..............
Non-wage Inflation Factor Used for DEA Budget...................  ..............            2.1%  ..............
                                                                 ===============================================
Payroll/Benefits................................................      36,673,884      38,484,803     (1,810,919)

[[Page 52005]]

 
Rent/Utilities..................................................      12,458,398      16,111,600     (3,653,202)
DCP Management..................................................       6,758,297       6,402,810        355,487
Information Systems.............................................       5,735,826       3,831,504      1,904,322
Staff Relocation................................................       3,920,000       1,397,306      2,522,694
Field Operations................................................       2,118,516       2,895,754       (777,238)
Staff Training..................................................       1,628,619       1,139,564        489,055
Investigative Tech..............................................       1,412,707          11,549      1,401,158
Facility Security...............................................         948,364  ..............        948,364
Health Services.................................................         287,721         121,800        165,921
Forensic Sciences...............................................         250,000         249,861            139
Interest Penalties..............................................         127,665         149,517        (21,852)
Administrative Law..............................................          71,898          71,898             (0)
                                                                 -----------------------------------------------
      Total.....................................................      72,391,895      70,867,965      1,523,930
Field Split-Funding Mischarges (NonTravel)......................  ..............  ..............        438,812
Net Undercharge (Overcharge)....................................  ..............  ..............      1,085,118
Cumulative Net DDCFA Undercharge from FY93......................  ..............  ..............    116,147,733
----------------------------------------------------------------------------------------------------------------

    The preceding tables of ``Validated vs. Actual Charges'' show three 
quantitative columns for each fiscal year from FY93 through FY99. The 
first quantitative column shows the ``Validated'' amount, or the 
dollars that should have been charged (in accordance with the 
aforementioned itemized review of all FY99 DDCFA charges) to the DDCFA. 
The second quantitative column shows the ``Obligated/Incurred'' amount, 
or the dollars which actually were charged to the DDCFA. (Note that, 
given the deficiencies of DEAAS, this column does not necessarily 
reflect the accurate subtotal of each item listed; but the column does 
show exactly what was spent bottom line level for the years in 
question.) The third column (the first column minus the second column) 
shows the ``Undercharge (Overcharge)'' amount or dollars that should 
have been charged over and above what was charged to the DDCFA. The 
rows of the preceding tables represent the DCP's major items, from 
Payroll/Benefits to Regulatory Law. Two item names which may not be 
immediately self-evident are ``Interest Penalties'' (which are required 
by law to accompany late vendor payments) and ``Administrative Law'' 
(which, as distinct from the DEA executive administration chief 
counsel's office, is the independent function required under 21 CFR 
1316.41 et seq. whereby DEA hears and resolves disputes regarding 
potential registrant violations).
    For each fiscal year, the ``Validated'' charges shown above are 
adjusted to reflect (a) the wage and non-wage inflation factors for 
that year (shown at the top of each table) and (b) the ratio of Drug 
Diversion Control Work Hours to Diversion Control Work Hours, or Split-
Funding Drug Portion (also shown at the top of each table). Note that 
adjustment (b) is based on work hours stored in WRS (DEA's system for 
tracking the purpose (drug or chemical) of Diversion Investigator hours 
worked). Thus, in FY93, DEA charged the DDCFA $12 million for salaries 
and benefits but did not bill the DDCFA for DCP administrative law 
functions, even though the cost of such functions is provided for in 
DEA's 1996 Federal Register announcement. When all such undercharges 
(together with consideration that FY93 payroll should have been over 
$20 million) are tallied, the result is a DDCFA undercharge exceeding 
$28 million in FY93 alone, even before adding the non-programmatic $15 
million surcharge for that year.
    While DEA is confident that the DDCFA was not overcharged in total 
between FY93 and the present, the agency is still moving toward a more 
precise accounting standard. In FY01 DEA created a task force to review 
each obligation of DDCFA funds for which the total cost to be incurred 
is $500 or greater. This task force also works closely with each DDCFA-
funded office to establish a clear understanding of proper procedure 
and documentation, and its efforts will enable DEA to publish a more 
accurate accounting of total DCP costs than has heretofore been 
possible.
    In the meantime, the $15 million annual offsetting transfer by 
Congress into the DDCFA was discontinued as of FY98, and the remaining 
revenue (from fee payments) is proving inadequate to address legitimate 
programmatic needs. Even during the period when Congress was providing 
an offsetting $15 million transfer (FY93 through FY98), the DCP 
received a cumulative funding supplement of $90 million but amassed a 
surplus which never exceeded $70 million. With the discontinuation of 
this supplement in FY99, the DDCFA surplus has declined rapidly and 
will turn deficit before the end of FY03.

XII. Status of the Current Fee

    This notice does not change the current fee schedule, and the fee 
schedule currently supporting the DCP remains the same as the schedule 
announced at the inception of the DDCFA in 1993:

------------------------------------------------------------------------
                                                                 Annual
                       Registrant class                           cost
------------------------------------------------------------------------
Manufacturers................................................       $875
Distributors, Importers/Exporters............................        438
Dispensers/Practitioners.....................................         70
Research, Narcotic Treatment Programs........................         70
------------------------------------------------------------------------

XIII. Miscellaneous Issues

A. Registration Fee as User Fee

    One commentor stated that registration fees imposed on domestic 
registrants should not fund ``international and other activities from 
which the registrant receives no greater benefit than the public at 
large.'' Yet DEA does not fund the costs of Diversion personnel 
stationed overseas through the DDCFA although certain overseas 
activities such as those relating to the import and export of 
controlled substances satisfy the requirements of 886a and 821 and are 
properly funded through the DDCFA. In addition, certain other 
activities from which ``the registrant receives no greater benefit than 
the public at large'' (e.g., the review for potential scheduling of new 
substances) are allowable DDCFA burdens. The commentor referred to the 
standard applicable to user fees. User fees, or charges imposed 
pursuant to the Independent Offices Appropriations Act (IOAA), may be 
assessed only when a fee-funded service provides special benefits to an 
identifiable recipient

[[Page 52006]]

beyond those that accrue to the general public. OMB Circular A-25, July 
15, 1993. The IOAA applies ``only when there is no independent 
statutory source for the charging of a fee or where a fee statute fails 
to define fee-setting criteria.'' AMA v. Reno, 857 F. Supp. at 84 
(D.D.C. 1994). Congress established the DDCFA by passing the 1993 
Appropriations Act with its collection and spending criteria 
established by prior law (21 U.S.C. 821 and 958(f)). This statute 
specified that ``[f]ees charged by the Drug Enforcement Administration 
under its diversion control program shall be set at a level that 
ensures the recovery of the full costs of operating the various aspects 
of that program'' and funds from the DDCFA will be raised ``in 
accordance with estimates made in the budget request of the Attorney 
General.'' 21 U.S.C. 886a(3) and (4). Therefore, registration fees 
charged by DEA pursuant to the 1993 Appropriations Act are not user 
fees subject to the IOAA because the act constitutes an independent 
statutory source for charging the fee and it defines fee-setting 
criteria, i.e., to cover the full costs of the DCP. AMA v. Reno, 857 F. 
Supp. 80 (D.D.C. 1994).
    Thus, the appropriate test for fee-funding DCP activities is not 
whether they convey a special benefit to registrants, but whether the 
fees are ``reasonable'' and ``relat[e] to the registration and control 
of the manufacture, distribution, and dispensing of controlled 
substances'' or relate to the registration of importers and exporters, 
and are set ``at a level that ensures the recovery of the full costs of 
operating the various aspects of [the diversion control] program.'' 21 
U.S.C. 821, 958(f) and 886a(3).

B. Costs of the Components of the DCP

    Two commentors contended that DEA should have provided an 
explanation of the costs of the DCP components. One commentor argued 
that registrants are entitled to an accurate accounting of the expenses 
for each of the program's components and demanded that DEA publish an 
explanation of its expenditures. Another commentor asked that DEA 
document the comparative costs of activities included within the DCP 
and subject the proposed rule to review by OMB.
    DEA acknowledges both commentors' concerns and has referred all 
parties of such a mind to DEA's annual budget request to Congress. This 
document breaks down the components of each DEA program, including the 
DCP, and shows both prior-year actual data and future-year projections. 
For budget submissions relating to FY98 and earlier, DEA retains 
little, and sometimes no, supporting documentation and is therefore 
unable to provide some of the cost detail. Yet each DEA budget is based 
on itemized cost modules which were developed using the most recent 
(i.e., best) accounting data available at the time. And the review of 
each DEA budget submission by both the Department of Justice and OMB 
includes a thorough examination and approval of the underlying cost 
modules and all other supporting documentation.

C. Fee Schedules Based on Prescribing Practices

    One commentor expressed disappointment ``at DEA's refusal to 
establish a fair and equitable fee schedule based on actual prescribing 
or use records.'' DEA addressed this issue in the December 30, 1996 
Federal Register notice, noting the various alternative fee structures 
that it had considered and the problems associated with each. 61 FR 
68632. As DEA stated in that notice, establishing a fee based on the 
volume of drugs handled by individual practitioners would be 
impractical since there is no way of determining such drug volumes. In 
addition, the volume of drugs handled can change due to considerations 
of market, health care, and competition, thus requiring frequent 
changes in the fees and making program budgeting impractical. Whatever 
benefit such a plan may offer would be offset by significantly 
increased costs, which must be borne by registrants, to monitor the 
prescribing and dispensing practices of practitioners and determine the 
appropriate fee, based on the volume of drugs prescribed or dispensed.

XIV. Conclusion

    Since FY93, DEA has attempted to manage the DCP in compliance with 
the following statutes: 21 U.S.C. 821 (which authorizes reasonable fees 
relating to the registration and control of the manufacture, 
distribution and dispensing of controlled substances); 21 U.S.C. 958(f) 
(which authorizes reasonable fees relating to the registration of 
importers and exporters of controlled substances); and 21 U.S.C. 
886a(3) (which requires a fee structure sufficient to recover the full 
costs of operating the DCP). Such management has included: (a) the 
submission to Congress of a DCP budget based on historic actual costs, 
in accordance with both DOJ and OMB guidelines and (b) the internal 
promulgation of guidelines governing the uses of the DDCFA.
    DEA has endeavored to avoid charging the DDCFA for three categories 
of DCP cost: (1) Costs associated with the regulation and monitoring of 
activity involving chemicals used in the illicit manufacture of 
controlled substance and the investigation of the diversion of these 
chemicals; (2) costs associated with the stationing of Diversion 
personnel overseas; and (3) portions of the DCP's indirect cost. Of 
these three cost categories, the first two (chemical and foreign 
diversion control activities) may be included in future Congressional 
requests for DDCFA funding authority. The third category includes DCP 
items which should have been (and, as of FY01, have indeed been) 
obligated against the DDCFA. Specifically, these items consist of 
health services and physical security requirements connected with DCP 
operation. Although DEA did not begin charging the DDCFA for such items 
until FY01, their funding out of the DDCFA is consistent with the 
provisions of 21 U.S.C. 821, 21 U.S.C. 886a, and all applicable public 
representations of DEA.
    Yet DEA has also mischarged the DDCFA on numerous occasions. Some 
mischarges have been simple overcharges, as when DEA charged an 
excessive portion of its rent to the DDCFA. In such cases, DEA was 
correct to charge a portion of the total cost to the DDCFA; but the 
amount charged appears in retrospect to have been unreasonably high. 
Other mischarges fall into the ``inappropriate'' category. Such charges 
were explicitly proscribed either in 21 U.S.C. 886a or in DEA's 
subsequent public announcements.
    DEA regrets being unable to itemize each instance of excessive and 
inappropriate charge to the DDCFA. DEA retains a full, certified public 
accounting record of all DDCFA charges, but the underlying 
documentation is largely unavailable and/or insufficient for the period 
in question. DEA's best effort to analyze this period in retrospect has 
nevertheless revealed two important insights: (1) DEA's FY93-FY98 
accounting shortfall regarding the DDCFA resulted from a lack of 
familiarity with the funding mechanism and its managerial/accounting 
implications, and (2) the sum of all retrospectively identifiable 
potential mischarges is exceeded by the sum of all corresponding 
undercharges. DEA therefore acknowledges a failure in fully accounting 
for its early use of the DDCFA but concludes that such failure had no 
adverse impact on the registrants. With every year since the DDCFA's 
inception, DEA has improved its management of this vital source of

[[Page 52007]]

funds. DEA has made accounting errors, especially early on, when the 
very idea of a fee fund was new and unfamiliar to the law enforcement 
organization. But such errors have proven, upon subsequent inspection, 
both unintentional and financially offset by other errors. The 
accumulation of a DDCFA surplus, moreover, resulted not because DEA's 
cost projection and fee setting method was overly generous but because 
DEA's subsequent charges to the DDCFA did not include all actual DDCFA-
billable costs of the DCP and because of an unexpected supplemental 
annual appropriation of $15 million by Congress. In light of such 
errors, DEA has intensified its efforts to transform the DDCFA from a 
management problem into the platform for a higher standard of 
managerial excellence. Beginning with FY99, DEA has retrospectively 
reviewed each office's use of the DDCFA to verify propriety. In FY01, 
DEA proceeded to validate (or reverse) each obligation of DDCFA funds 
totaling $500 or more. And in FY02, DEA will be validating both 
obligations and subsequent expenditures according to the highest 
standard of traceability. For these latest years, any auditor will be 
able to find a stand-alone document supporting every DDCFA-funded item 
costing $500 or more.

XV. Regulatory Analysis

Regulatory Flexibility Act

    The Deputy Administrator of the Drug Enforcement Administration 
hereby certifies that this rule will not have a significant economic 
impact upon entities whose interests must be considered under the 
regulatory Flexibility Act (5 U.S.C. 601 et seq.). The majority of DEA 
registrants are practitioners, pharmacies and hospital/clinics, for 
whom the annual impact of the fee increase initially finalized on March 
22, 1993 (58 FR 15272) was $50.00 per registrant. Further, the total 
annual impact of the fee increase for the entire registrant population 
was less than $50 million.
    Since 1971, the Controlled Substances Act has permitted the 
Attorney General to collect fees relating to the registration and 
control of the manufacture, distribution, import, export and dispensing 
of controlled substances (21 U.S.C. 821 and 958(f)). DEA and its 
predecessor agency have collected such fees pursuant to a schedule 
based upon the five basic activities cited in the law. That fee 
schedule was proposed for public comment as part of regulations to 
implement the Controlled Substances Act which were finalized in 1971. 
The ratio of fees was: a distributor's fee is 50% of the manufacturer's 
fee and a dispenser's 16-20% of a distributor's fee.
    In its December 30, 1996 Federal Register notice (61 FR 68624), DEA 
considered a number of alternate approaches to the fee schedule. Among 
these alternative were: establish a fee based on volume of drugs 
handled by individual registrants; establish a fee based upon DEA work 
hours expended per class of registrant; establish a different fee for 
various types of practitioner activities (i.e., hospital, medical 
doctor, dentist, veterinarian, narcotic treatment program, teaching 
institution); and, charge for order forms (DEA 222) used to order 
Schedule I and II controlled substances. Each of these alternative 
approaches was rejected for a variety of reasons, including, but not 
limited to, the impracticability of the alternative, an inability on 
the part of DEA to determine controlled substance utilization by 
individual registrants, and an inability to adequately budget due to 
fluctuating registration fees which would be created under certain 
alternatives. Therefore, although various fee approaches have been 
considered in the past, none offered a feasible alternative to the 
present approach.

Executive Order 12866

    The Deputy Administrator further certifies that this rulemaking has 
been drafted in accordance with the principles in Executive Order 12866 
Section 1(b). DEA has determined that this is a significant rulemaking 
action. Therefore, this action has been reviewed by the Office of 
Management and Budget. This document responds to the remand requirement 
of the United States Court of Appeals for the District of Columbia 
Circuit, and the notice and comments received subsequent to that remand 
requirement.

Executive Order 12988

    This regulation meets the applicable standards set forth in 
Sections 3(a) and 3(b)(2) of Executive Order 12988 Civil Justice 
Reform.

Executive Order 13132

    This rulemaking does not preempt or modify any provision of state 
law; nor does it impose enforcement responsibilities on any state; nor 
does it diminish the power of any state to enforce its own laws. 
Accordingly, this rulemaking does not have federalism implications 
warranting the application of Executive Order 13132.

Paperwork Reduction Act

    This rulemaking imposes no recordkeeping or reporting requirements 
on registrants. No information collection request is necessary.

Unfunded Mandates Reform Act of 1995

    This rule will not result in the expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of 
$100,000,000 or more in any one year, and will not significantly or 
uniquely affect small governments. Therefore, no actions were deemed 
necessary under the provisions of the Unfunded Mandates Reform Act of 
1995.

Small Business Regulatory Enforcement Fairness Act of 1996

    This rule is not a major rule as defined by Section 804 of the 
Small Business Regulatory Enforcement Fairness Act of 1996. This rule 
will not result in an annual effect on the economy of $100,000,000 or 
more; a major increase in costs or prices; or significant adverse 
effects on competition, employment, investment, productivity, 
innovation, or on the ability of United States-based companies to 
compete with foreign-based companies in domestic and export markets.

    Dated: July 30, 2002.
John B. Brown III,
Deputy Administrator.
[FR Doc. 02-19667 Filed 8-8-02; 8:45 am]
BILLING CODE 4410-09-P