[Federal Register Volume 70, Number 155 (Friday, August 12, 2005)]
[Rules and Regulations]
[Pages 47094-47097]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-15969]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

21 CFR Part 1301

[Docket No. DEA-196F]
RIN 1117-AA73


Reports by Registrants of Theft or Significant Loss of Controlled 
Substances

AGENCY: Drug Enforcement Administration (DEA), Justice.

ACTION: Final Rule.

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SUMMARY: DEA is amending its regulations regarding reports by 
registrants of theft or significant loss of controlled substances. 
There had been some confusion as to what constitutes a significant loss 
and when and how initial notice of a theft or loss should be provided 
to DEA. In this final rule, DEA clarifies the regulations and provides 
guidance to registrants regarding the theft, significant loss, and 
unexplained loss of controlled substances.

DATES: This final rule is effective September 12, 2005.

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. Background

DEA's Legal Authority

    DEA implements the Controlled Substances Act (21 U.S.C. 801-971) 
(CSA), as amended. DEA publishes the implementing regulations for this 
statute in Title 21 of the Code of Federal Regulations (CFR), Part 1300 
to 1399. These regulations are designed to ensure that there is a 
sufficient supply of these substances for legitimate medical purposes 
and deter the diversion of controlled substances to illegal purposes. 
The CSA mandates that DEA establish a closed system of control for 
manufacturing, distribution, and dispensing of controlled substances. 
As part of these regulations, DEA requires that registrants have 
systems to maintain security for controlled substances and to report 
thefts or losses.

Theft and Loss Reporting Requirements

    Section 1301.74(c), ``Other security controls for non-
practitioners; narcotic treatment programs and compounders for narcotic 
treatment programs.'' states that ``[t]he registrant shall notify the 
Field Division Office of the Administration in his area of any theft or 
significant loss of any controlled substances upon discovery of such 
theft or loss. The supplier shall be responsible for reporting in-
transit losses of controlled substances by the common or contract 
carrier selected pursuant to Sec.  1301.74(e), upon discovery of such 
theft or loss. The registrant shall also complete DEA Form 106 
regarding such theft or loss. Thefts must be reported whether or not 
the controlled substances are subsequently recovered and/or the 
responsible parties are identified and action taken against them.''
    Section 1301.76(b), ``Other security controls for practitioners.'' 
requires that ``[t]he registrant shall notify the Field Division Office 
of the Administration in his area of the theft or significant loss of 
any controlled substances upon discovery of such loss or theft. The 
registrant shall also complete DEA (or BND) Form 106 regarding such 
loss or theft.''

DEA's Proposed Rule

    On July 8, 2003, DEA published a notice of proposed rulemaking 
(NPRM) (68 FR 40576) to address confusion that exists within the 
regulated industry as to the exact meaning of the phrases ``upon 
discovery'' and ``significant loss.''
    DEA has always viewed ``upon discovery'' to mean that notification 
should occur immediately and without delay. The purpose of immediate 
notification is to provide an opportunity for DEA, state, or local 
participation in the investigative process when warranted and to create 
a record that the theft or significant loss was properly reported. It 
also alerts law enforcement personnel to more broadly based 
circumstances or patterns of which the individual registrant may be 
unaware. This notification is considered part of a good-faith effort on 
the part of the regulated industries to maintain effective controls 
against the diversion of controlled substances, as required by Sec.  
1301.71(a). Lack of prompt notification could prevent effective 
investigation

[[Page 47095]]

and prosecution of individuals involved in the diversion of controlled 
substances. DEA proposed to insert the word ``immediately'' before the 
phrase ``upon discovery'' to clarify this point.
    Regarding ``significant loss,'' there is no single objective 
standard that can be established and applied to all registrants to 
determine whether a loss is ``significant.'' Any unexplained loss or 
discrepancy should be reviewed within the context of a registrant's 
business activity and environment. What constitutes a significant loss 
for one registrant may be construed as comparatively insignificant for 
another. A manufacturer may experience continuous losses in the 
manufacturing process due to, for example, atmospheric changes or 
mixing procedures. Such losses may not be deemed by the registrant to 
be significant and may be recorded in batch records. Conversely, for 
registrants other than manufacturers, the repeated loss of small 
quantities of controlled substances over a period of time may indicate 
a significant aggregate problem that must be reported to DEA, even 
though the individual quantity of each occurrence is not significant.
    Individual registrants should examine both their business 
activities and the external environment in which those business 
activities are conducted to determine whether unexplained losses of 
controlled substances are significant. When in doubt, registrants 
should err on the side of caution in alerting the appropriate law 
enforcement authorities, including DEA, of thefts and losses of 
controlled substances. DEA proposed to amend the regulations by 
inserting a list of factors that registrants should consider when 
determining whether a loss of controlled substances is significant.

II. Comments Received in Response to the NPRM Published July 8, 2003

    DEA received eight comments in response to the NPRM. In general, 
the comments were supportive of DEA efforts to clarify current 
regulations and provide guidance regarding reporting of theft or 
significant loss of controlled substances. At the same time, commenters 
offered a number of suggestions that, in their view, would provide even 
greater clarity and certainty to the regulations. These comments are 
addressed below.

Timing of Reports

    Regarding the timing of initial theft or loss reports, DEA proposed 
to insert the word ``immediately'' before the phrase ``upon 
discovery.'' DEA also suggested in the proposed rule preamble that 
submission of the DEA Form 106 itself is not immediately necessary if 
the registrant needs time to investigate the facts surrounding the 
theft or significant loss, but that updates should be provided to DEA 
if the investigation takes more than two months. One commenter 
recommended that the regulations provide an objective standard 
regarding the time frame when reports must be made (while retaining the 
subjective standard for registrants to decide when a report is 
necessary). Specifically, the commenter suggested that initial reports 
be required within one business day and that DEA Form 106 must be filed 
within 30 days.
    DEA agrees with the commenter that an objective standard for 
initial notification would be useful and believes the one-business-day 
suggestion is consistent with its proposed addition of the word 
``immediately.'' Regarding the 30-day requirement for submission of the 
Form 106, however, DEA believes that may be difficult to comply with in 
some cases, so prefers to retain the registrant flexibility provided by 
the approach outlined in the proposed rule preamble, i.e., DEA Form 106 
should be submitted once the circumstances surrounding the theft or 
significant loss are clear, but updates should be provided to DEA if 
the investigation takes more than two months.

Clarification on ``Discovery''

    Related to this change, several commenters requested clarification 
or proposed changes to what constitutes ``discovery.'' They suggested 
this was more a source of confusion to the regulated community than was 
the timing issue. According to these commenters, DEA should explicitly 
recognize that ``discovery'' may well occur in increments, therefore, 
knowing when to make a report becomes complex. One commenter suggested 
that the addition of objective standards for submitting reports would 
resolve much of the confusion, while another suggested adding ``and 
verification'' after the phrase ``upon discovery.''
    DEA does not disagree with these commenters and recognized the 
incremental nature of discovery in the preamble to the proposed rule 
when it suggested that an update be provided to DEA within 60 days of 
initial notification, if the investigation into the theft or 
significant loss is still ongoing, and that the Form 106 need not be 
filed at all if the registrant ultimately determines that no theft or 
significant loss occurred. DEA's overriding interest here is in 
obtaining immediate notification of suspected or actual theft or 
significant loss and accepts the one-business-day suggestion as a clear 
standard for making that required initial notification.

Method of Initial Notification

    One commenter questioned the nature of the initial notification 
itself, seeking clarification on whether a telephone call would 
suffice. In the preamble to the proposed rule, DEA recommended that the 
initial notification be a short statement provided by fax, which would 
avoid delays that might be associated with using regular U.S. mail. 
Faxing is not the only option a registrant may use, but DEA does 
believe that the notification should be in writing. Not only does this 
eliminate any misunderstanding that could arise in an oral 
communication, but it also provides the registrant with a record of 
what was provided, when it was provided, and to whom it was provided.

DEA Form 106

    A final area of comments on the notification process raised issues 
about the purpose of Form 106 and offered suggestions that the 
commenters believed would make it a more useful report. While DEA 
appreciates these comments and suggestions, DEA considers them beyond 
the scope of this rulemaking. DEA Form 106 is scheduled to be revised 
within the next year, and DEA will consider these comments during that 
process.
    In reviewing the existing regulation and DEA Form 106, DEA noted 
that while the form itself specified that the form should be completed 
and submitted to DEA, the regulations merely required that the form be 
completed and did not contain a requirement that the form be submitted. 
Therefore, DEA is amending the regulations to explicitly acknowledge 
the requirement, currently contained only in the DEA Form 106 
instructions, that the completed DEA Form 106 be submitted to DEA.

Factors To Be Considered in Determining Whether a Loss Is Significant

    In the proposed rulemaking, DEA included a change that would add a 
list of factors to be considered in determining whether a loss is 
``significant.'' DEA recognizes there is no single objective standard 
that can be applied to all registrants--what constitutes a significant 
loss for one registrant may be construed as comparatively insignificant 
for another. Any unexplained loss or discrepancy must be reviewed 
within the context of a registrant's business activity and

[[Page 47096]]

environment. Several commenters thought the list of factors is a 
helpful addition. One commenter disagreed, stating that ``none of these 
factors or questions is particularly useful in determining whether 
initial notification should be provided to DEA to satisfy the 
requirement of reporting'' and suggested that confusion over what 
constitutes a significant loss exists not only among DEA registrants, 
but also among DEA field offices, which results in differences in 
interpretation and enforcement.
    DEA recognizes that there has been confusion within the regulated 
community regarding the application of this standard and for that very 
reason proposed the list of factors to clarify for all parties what 
registrants should be considering--at a minimum--when determining 
whether a loss is significant. As DEA noted in the proposed rule 
preamble, ``individual registrants should examine both their business 
activities and the external environment in which those business 
activities are conducted to determine whether unexplained losses of 
controlled substances are significant. When in doubt, registrants 
should err on the side of caution in alerting the appropriate law 
enforcement authorities, including DEA, of thefts and losses of 
controlled substances.'' DEA encourages registrants to use additional 
factors beyond what DEA suggests in the evaluation of whether a loss is 
significant. DEA believes, however, that it has provided as much 
direction on this matter as it reasonably can, given the case-by-case 
nature of this determination.

In-Transit Loss

    One commenter also suggested the insertion of the word 
``significant'' before the phrase ``in-transit losses of controlled 
substances'' in Sec.  1301.74(c), unless DEA intends for all in-transit 
losses to be reported. DEA does, in fact, intend for all in-transit 
losses to be reported, not just significant losses. Therefore, to 
clarify this point, and based on the comment received, DEA is amending 
the regulatory text to reflect that ``all'' in-transit losses must be 
reported to DEA.

DEA Form 41

    Several commenters requested additional clarification and guidance 
on reporting and recordkeeping, particularly with regard to breakage 
and spillage and the submission of Form 41.
    In the preamble to the proposed rulemaking, DEA did provide 
guidance on this topic, both to distinguish it from reporting of thefts 
or significant losses of controlled substances (and the use of DEA Form 
106) and to restate the disposal and documentation obligations when 
breakage, spillage, or other damage to controlled substances occurs. 
DEA believes this guidance is adequate and sufficiently clear and does 
not wish to expand on the topic as a part of this rulemaking on theft 
and significant loss. Registrants should continue to employ common 
sense, good faith approaches to their reporting and recordkeeping 
obligations in the case of breakage and spillage.

Reporting of Thefts and Losses to ARCOS

    Finally, DEA received a request for clarification of the reporting 
of thefts and losses to DEA's Automation of Reports and Consolidated 
Orders System (ARCOS). DEA wishes to reiterate that thefts and losses 
are reported to ARCOS. Thefts are reported using transaction codes 
based on the type of theft, e.g., theft from premises, in-transit loss, 
etc. Losses are reported to ARCOS simply as losses. DEA did not propose 
any regulatory change regarding this reporting, nor is it making a 
regulatory change at this time.

Regulatory Certifications

Regulatory Flexibility Act

    The Deputy Assistant Administrator hereby certifies that this 
rulemaking has been drafted in accordance with the Regulatory 
Flexibility Act (5 U.S.C. 605(b)), has reviewed this regulation, and by 
approving it certifies that this regulation will not have a significant 
economic impact on a substantial number of small entities. This 
regulation seeks to clarify existing DEA regulations regarding the 
reporting of thefts and significant losses of controlled substances. No 
new recordkeeping or reporting requirements are imposed by this 
rulemaking.

Executive Order 12866

    The Deputy Assistant 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 not 
a significant rulemaking action. Therefore, this action has not been 
reviewed by the Office of Management and Budget. This rulemaking merely 
seeks to clarify existing DEA regulations, policies and procedures.

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.

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 $115 
million 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.

List of Subjects in 21 CFR Part 1301

    Administrative practice and procedure, Drug traffic control, 
Security measures.


0
For the reasons set out above, 21 CFR part 1301 is amended as follows:

PART 1301--REGISTRATION OF MANUFACTURERS, DISTRIBUTORS, AND 
DISPENSERS OF CONTROLLED SUBSTANCES

0
1. The authority citation for part 1301 continues to read as follows:

    Authority: 21 U.S.C. 821, 822, 823, 824, 871(b), 875, 877, 951, 
952, 953, 956, 957.


0
2. Section 1301.74 is amended by revising paragraph (c) to read as 
follows:


Sec.  1301.74  Other security controls for non-practitioners; narcotic 
treatment programs and compounders for narcotic treatment programs.

* * * * *
    (c) The registrant shall notify the Field Division Office of the 
Administration in his area, in writing, of any theft or significant 
loss of any

[[Page 47097]]

controlled substances within one business day of discovery of the theft 
or loss. The supplier is responsible for reporting all in-transit 
losses of controlled substances by the common or contract carrier 
selected pursuant to paragraph (e) of this section, within one business 
day of discovery of such theft or loss. The registrant shall also 
complete, and submit to the Field Division Office in his area, DEA Form 
106 regarding the theft or loss. Thefts and significant losses must be 
reported whether or not the controlled substances are subsequently 
recovered or the responsible parties are identified and action taken 
against them. When determining whether a loss is significant, a 
registrant should consider, among others, the following factors:
    (1) The actual quantity of controlled substances lost in relation 
to the type of business;
    (2) The specific controlled substances lost;
    (3) Whether the loss of the controlled substances can be associated 
with access to those controlled substances by specific individuals, or 
whether the loss can be attributed to unique activities that may take 
place involving the controlled substances;
    (4) A pattern of losses over a specific time period, whether the 
losses appear to be random, and the results of efforts taken to resolve 
the losses; and, if known,
    (5) Whether the specific controlled substances are likely 
candidates for diversion;
    (6) Local trends and other indicators of the diversion potential of 
the missing controlled substance.
* * * * *

0
3. Section 1301.76 is amended by revising paragraph (b) to read as 
follows:


Sec.  1301.76  Other security controls for practitioners.

* * * * *
    (b) The registrant shall notify the Field Division Office of the 
Administration in his area, in writing, of the theft or significant 
loss of any controlled substances within one business day of discovery 
of such loss or theft. The registrant shall also complete, and submit 
to the Field Division Office in his area, DEA Form 106 regarding the 
loss or theft. When determining whether a loss is significant, a 
registrant should consider, among others, the following factors:
    (1) The actual quantity of controlled substances lost in relation 
to the type of business;
    (2) The specific controlled substances lost;
    (3) Whether the loss of the controlled substances can be associated 
with access to those controlled substances by specific individuals, or 
whether the loss can be attributed to unique activities that may take 
place involving the controlled substances;
    (4) A pattern of losses over a specific time period, whether the 
losses appear to be random, and the results of efforts taken to resolve 
the losses; and, if known,
    (5) Whether the specific controlled substances are likely 
candidates for diversion;
    (6) Local trends and other indicators of the diversion potential of 
the missing controlled substance.
* * * * *

William J. Walker,
Deputy Assistant Administrator, Office of Diversion Control.
[FR Doc. 05-15969 Filed 8-11-05; 8:45 am]
BILLING CODE 4410-09-P