U.S. Customs Service: Observations on Selected Operations and	 
Program Issues (17-JUL-01, GAO-01-968T).			 
								 
This testimony discusses three issues related to selected U.S.	 
Customs Service programs and operations. First, concerning the	 
Automated Commercial Environment (ACE), a more capable import	 
processing system designed to replace Customs' current aging and 
error-prone system, GAO concluded that Customs' plan constituted 
a reasonable first step on a complex, long-term modernization	 
program. Pursuant to its obligation to review ACE expenditures,  
GAO plans to continue monitoring Customs' ongoing modernization  
efforts. Second, GAO found that Customs' Office of Regulations	 
and Rulings headquarters did not issue the majority of its	 
rulings in a timely manner. Finally, GAO found that if proposed  
legislation on Customs officers' night pay had been in effect	 
during fiscal year 1999, the officers would have received about  
$6 million in night differential pay. Further, across the five	 
ports GAO reviewed, the impact on officers' pay varied widely	 
because of the differences in shift patterns.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-968T					        
    ACCNO:   A01401						        
  TITLE:     U.S. Customs Service: Observations on Selected Operations
             and Program Issues                                               
     DATE:   07/17/2001 
  SUBJECT:   Federal employees					 
	     Import regulation					 
	     Information systems				 
	     Systems conversions				 
	     Customs administration				 
	     Differential pay					 
	     Officer personnel					 
	     Proposed legislation				 
	     Customs Service Automated Commercial		 
	     Environment System 				 
								 
	     Customs Service International Trade Data		 
	     System						 
								 

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GAO-01-968T
     
Testimony Before the Subcommittee on Trade, Committee on Ways and Means,
House of Representatives

United States General Accounting Office

GAO For Release on Delivery Expected at 10 a. m. EDT Tuesday July 17, 2001
U. S. CUSTOMS SERVICE

Observations on Selected Operations and Program Issues

Statement of Laurie E. Ekstrand Director, Justice Issues

GAO- 01- 968T

Page 1 GAO- 01- 968T Customs Operations

Mr. Chairman and Members of the Subcommittee: I am pleased to be here today
to discuss (1) an update of our work on the Automated Commercial Environment
(ACE), which is intended to be Customs? new import processing system, (2)
findings from our report on the timeliness of Customs? Office of Regulations
and Rulings (OR& R) 1 in issuing headquarters rulings on such things as the
proper classification and valuation of imported goods, and (3) findings from
our recent report on the effects of proposed legislation (H. R. 1833,
sections 123 (a) and (b), 106th Cong.) on Customs officers? night pay. 2 Our
report on Customs officers' 3 night pay was requested by Senator Grassley as
Chairman of the Senate Caucus on International Narcotics Control. 4 At the
close of fiscal year 2000, Customs had a permanent work force of about
20,000 employees, including about 8,000 officers.

In summary, on our first issue, concerning ACE, a more capable import
processing system designed to replace Customs? current aging and errorprone
system, we concluded that Customs? plan constituted a reasonable first step
on a complex, long- term modernization program. Pursuant to our obligation
to review ACE expenditures, we plan to continue monitoring Customs? ongoing
modernization efforts. Second, we found that OR& R headquarters did not
issue the majority of its rulings in a timely manner. Third, we found that
if proposed legislation on Customs officers? night pay had been in effect
during fiscal year 1999, the officers would have received about $6 million
in night differential pay- about $5 million less than what they actually
received during that year. Further, across the five ports we reviewed, the
impact on officers? pay varied widely because of the differences in shift
patterns.

1 U. S. Customs Service: OR& R Needs to Resolve Timeliness and Data Problems
Involving Headquarters Rulings (GAO/ GGD- 00- 181, Sept. 7, 2000). 2 Customs
Service: Effects of Proposed Legislation on Officers? Pay (GAO- 01- 304,
Jan. 2001). 3 For the purposes of this testimony, when we used the term
Customs officers, we are referring to both inspectors and canine enforcement
officers. 4 The Caucus has been concerned for some time about the manner in
which Customs provides compensation to its officers, who are on the front
line of the nation?s drug interdiction efforts. Customs? responsibilities
include preventing the smuggling of drugs into the United States.

Page 2 GAO- 01- 968T Customs Operations

Let me start by updating you on the progress of Customs? ACE. As we have
previously testified, the need for Customs to modernize its import
processing is undeniable. 5 In the face of burgeoning trade workload
forecasts, a commensurate increase in Customs? human capital resources is
neither planned nor the appropriate solution. Moreover, Customs? current
system for import processing, the Automated Commercial System, is paper-
intensive, error- prone, transaction- based, and out of step with the just-
in- time inventory practices of the trade community. To address this
challenge, and consistent with our prior recommendations on ACE, Customs
plans to incrementally acquire and invest in a more capable import
processing system known as the Automated Commercial Environment, or ACE, and
retire its existing system. Also consistent with our past recommendations,
Customs plans to acquire on behalf of the many federal agencies that
collect, use, and disseminate trade data, a system known as the
International Trade Data System, or ITDS, that is to provide importers with
a single interface into the federal government.

For fiscal year 2001, the Congress appropriated $130 million and $5.4
million as the first installments on the ACE and ITDS investments,
respectively. 6 In the act appropriating these funds, the Congress also
stated that the ACE funds may not be obligated until Customs submits to the
Congress for approval an ACE expenditure plan that meets a number of
management and oversight requirements, including review by us.

Customs submitted its first expenditure plan seeking release of $45 million
on March 26, 2001. On April 23, 2001, we provided the results of our review
of the plan to the Customs? appropriations subcommittees. 7 In sum, we
reported that Customs? expenditure plan satisfied the appropriations act?s
conditions and was consistent with our open recommendations concerning ACE,
and we thus concluded that the plan constituted a reasonable first step on a
complex, long- term modernization program. However, we also reported that
(1) opportunities for improving modernization management existed because the
expenditure plan excluded relevant ITDS investment activities and allowed
these activities to proceed outside of the scope of the modernization
program without

5 U. S. Customs Service: Observations on Selected Operations and Program
Issues

(GAO/ T- GGD/ AIMD- 00- 150, Apr. 20, 2000). 6 The Consolidated
Appropriations Act, 2001 (P. L. 106- 554, Dec. 21, 2000).

7 Customs Service Modernization: Results of Review of First Automated
Commercial Environment Expenditure Plan (GAO- 01- 696, June 5, 2001).
Customs Is Taking a

Reasonable First Step on Long- Term ACE Modernization Program

Page 3 GAO- 01- 968T Customs Operations

justification for doing so and (2) the plan provided for conflicting roles
and responsibilities for the modernization program?s independent
verification and validation agent. 8

Accordingly, we recommended that Customs (1) transfer responsibility and
accountability for the ITDS pilot to the ACE modernization program manager;
(2) include further ITDS investment plans and supporting information in the
next ACE expenditure plan; and (3) clarify the roles and responsibilities of
the ACE modernization IV& V contractor to ensure independence. Customs
agreed with our recommendations, and to date has either implemented or is in
the process of implementing these recommendations. Currently, Customs is
working with its recently selected modernization integration contractor to
define the initial contract task orders, which the $45 million is to fund.
In fall 2001, Customs plans to submit its second expenditure plan seeking
release of funding to carry the program through its next increment. Pursuant
to our obligation to review ACE expenditure plans, we are currently
monitoring Customs ongoing modernization efforts.

Last year, we responded to your Committee?s request that we examine the
timeliness with which Customs? OR& R issues rulings on such things as the
proper classification and valuation of imported goods. OR& R issues rulings
to advise importers of Customs regulations and assist importers in making
marketing and pricing decisions.

We found that OR& R headquarters did not issue the majority of its
prospective rulings- those requested by an importer on goods that are
proposed for entry into U. S. markets- in a timely manner. Our review of a
random sample of 70 hard- copy case files representing approximately 610
rulings showed that about two- thirds of the rulings that were requested and
issued between January 1, 1997, and October 26, 1999, were not completed
within OR& R?s 120- day benchmark for those rulings. We estimated that about
16 percent of the rulings took longer than 365 days to process and issue.

8 The purpose of independent verification and validation is to provide an
independent review of system processes and products to ensure that quality
standards are being met. The use of independent verification and validation
is a recognized best practice for large and complex system development and
acquisition projects, like ACE. OR& R Headquarters

Did Not Issue the Majority of Its Prospective Rulings Within Its Timeliness
Goal

Page 4 GAO- 01- 968T Customs Operations

OR& R acknowledged problems with the timeliness of headquarters rulings, and
attributed many of these problems to staffing shortages and competing
workload demands. We made several recommendations regarding actions to
address the problems and improve OR& R?s performance. In commenting on a
draft of the report, Customs officials discussed actions they intended to
take to implement each of our recommendations. We concluded that while most
of the actions proposed by Customs appeared to be steps in the right
direction, they may not fully resolve the problems discussed in our report.

In January 2001, we reported on the extent that Customs officers? night
differential 9 pay would be increased or decreased by proposed legislation
introduced by this Subcommittee. Specifically, our report focused on the
effects of sections 123 (a) and (b) of Subtitle C of H. R. 1833, 10
introduced in the 106th Congress, which would change how Customs officers?
night differential pay is calculated.

We compared current law to proposed changes in H. R. 1833 and analyzed
Customs data nationally and at five ports of entry. 11 Section 123 (a) would
have prohibited Customs officers who are scheduled for night shifts from
receiving night differential pay when they take annual, sick, or other
leave. Section 123 (b) would have changed the times and reduced the number
of hours in a day that Customs officers could earn night differential pay.
Night differential pay would be limited to hours worked on a midnight- to- 8
a. m. shift, and for all other shifts, hours worked between 6 p. m. and 6 a.
m. Table 1 below shows the decreases, and to a lesser extent increases, in
the number of available hours that Customs officers could earn night
differential pay for various 8- hour shifts in a day if the proposed change
was enacted.

9 Night differential pay for Customs officers consists of a 15- or 20-
percent differential above the basic hourly rate. 10 An Act to authorize
appropriation for the United States Customs Service, and for other purposes.
In May 1999, the House of Representatives passed H. R. 1833 that contained
amendments to change Customs officers? night pay. In August 1999, the Senate
passed another version of H. R. 1833, which did not contain the pay
amendments.

11 We judgmentally selected, based on the number of air and land passengers
processed, three large airports, one medium airport/ seaport, and one large
land border crossing. The ports selected were John Fitzgerald Kennedy
International Airport (JFK), Los Angeles International Airport (LAX), Miami
International Airport, Baltimore- Washington International Airport and
Seaport, and San Ysidro land border crossing near San Diego. Most Customs

Officers Would Receive Less Night Differential Pay Under Proposed Changes

Page 5 GAO- 01- 968T Customs Operations

Table 1: Comparison of the Number of Night Differential Hours Currently
Available and as Proposed

Night differential hours available 8- hour shift starting and ending time
Current law Proposed

changes Increase

under proposed

changes Decrease

under proposed

changes

12 noon to 8 p. m. 8 2 6 1 p. m. to 9 p. m. 8 3 5 2 p. m. to 10 p. m. 8 4 4
3 p. m. to 11 p. m. 8 5 3 4 p. m. to 12 midnight 8 6 2 5 p. m. to 1 a. m. 8
7 1 6 p. m. to 2 a. m. 8 8 7 p. m. to 3 a. m. 8 8 8 p. m. to 4 a. m. 8 8 9
p. m. to 5 a. m. 8 8 10 p. m. to 6 a. m. 8 8 11 p. m. to 7 a. m. 8 7 1 12
midnight to 8 a. m. 8 8 1 a. m. to 9 a. m. 8 5 3 2 a. m. to 10 a. m. 8 4 4 3
a. m. to 11 a. m. 8 3 5 4 a. m. to 12 Noon 0 2 2 5 a. m. to 1 p. m. 0 1 1 6
a. m. to 2 p. m. 0 0 7 a. m. to 3 p. m. 0 0 8 a. m. to 4 p. m. 0 0 9 a. m.
to 5 p. m. 0 0 10 a. m. to 6 p. m. 0 0 11 a. m. to 7 p. m. 0 1 1

Source: GAO analysis of current law- U. S. C. 267 (b) (1)- and proposed
changes- section 123 (b) of H. R. 1833.

Our analysis of Customs data showed the extent to which sections 123 (a) and
(b) of H. R. 1833 would affect Customs officers? pay. Nationwide, our
analysis of the Customs data showed that 6,510 Customs officers received
about $13.5 million in night differential pay in fiscal year 1999. Over 80
percent of the $13.5 million in night differential pay was concentrated in
six shifts, which generated $11 million in night differential pay (see table
2 below). Had sections 123 (a) and (b) of H. R. 1833 been in effect for
these six shifts during fiscal year 1999, Customs officers would have
received about $6 million in night differential pay, about $5 million less
than what they actually received that year.

Page 6 GAO- 01- 968T Customs Operations

Table 2: Total and Average per Officer Amount of Night Differential Pay
Under Current Law and Under H. R. 1833 Sections 123 (a) and (b) for the Six
Top ?Differential Earning? Shifts Nationwide During Fiscal Year 1999

Total Average per shift, per officer

Shift hours Current law (actual) Proposed

(estimate) Difference (decrease) Current law

(actual) Proposed (estimate) Difference

(decrease)

4 p. m. to 12 a. m. $4,087,828 $2,584,188 $1,503,640 $22.25 $16.56 $5.69 1
p. m. to 9 p. m. 2,059,029 643,686 1, 415,343 23.87 8.89 14.98 12 a. m. to 8
a. m. a 1,956,775 1,706,846 249,929 29.80 29.69 0.11 12 p. m. to 8 p. m.
1,310,974 276,381 1, 034,593 23.18 5.76 17.42 2 p. m. to 10 p. m. 972,762
410,872 561,890 22.66 11.27 11.39 3 p. m. to 11 p. m. 654,615 346,833
307,782 22.69 14.07 8.62

Total $11,041,983 $5,968,806 $5,073,177

a This shift, 12 a. m. (midnight) until 8 a. m., is preserved in H. R. 1833
so that officers working this shift would continue to earn 8 hours of night
differential. Therefore, any reduction because of the proposed legislation
is attributable to section 123 (a) eliminating payment of night differential
while officers are on leave.

Source: GAO analysis of Customs data.

Our analysis of the Customs data for five selected ports showed that nearly
all (97 percent) of the 1,377 Customs officers receiving night differential
pay at these ports would have received less night differential pay had the
proposed changes been in effect. Customs officers working at ports with
shifts starting in the early afternoon, such as those at JFK, would have had
the largest pay decreases.

The amount of pay decreases and number of Customs officers affected varied
across the five ports we analyzed, as shown in table 3 below. For example,
of the 464 Customs officers who received night differential pay at JFK, 148
(32 percent) as shown in the shaded areas of the table, would have had their
night differential pay decreased by over $3,000 had the proposed changes
been in effect. In contrast, the proposed changes would not have had as much
of an impact on Customs officers working at the Baltimore- Washington
International Airport and Seaport, a smaller port with fewer officers
earning night differential pay. Of the 53 Customs officers who received
night differential pay at the Baltimore- Washington International Airport
and Seaport, 44 (83 percent) would have had their pay decreased by $500 or
less if the pay provisions in H. R. 1833 had been enacted. None would have
had a pay decrease of over $3,000. Extent of Night

Differential Pay Reductions Varied by Port

Page 7 GAO- 01- 968T Customs Operations

Table 3: Potential Night Differential Pay Reductions Had Sections 123 (a)
and (b) of H. R. 1833 Been in Effect in Fiscal Year 1999 at Five Selected
Ports

Officers at each port JFK LAX Miami Balto.- Wash. San Ysidro border
Potential pay reductions No. % No. % No. % No. % No. %

$500 or less 97 21 99 42 186 51 44 83 93 43 $501 to $1, 000 41 9 41 17 89 25
3 6 34 16 $1,001 to $2,000 87 19 63 27 74 20 5 9 55 26 $2,001 to $3,000 91
20 19 8 12 3 1 2 22 10 $3,001 to $4,000 83 18 115 2 1 0084 $4,001 to $5,000
48 10 31 0 0 001< 1 $5,001 and over 17 4 1<1 0 0 001< 1

Total 464 237 363 53 214

Note: Percentages may not sum to 100 due to rounding. Source: GAO analysis
of Customs data.

In contrast, but to a lesser extent, 122 officers at four of the five
selected ports would have received net increases in night differential pay
totaling $16,943 by the end of fiscal year 1999 had the proposed changes
been in effect. The net increases primarily would have resulted from early
morning shifts.

Mr. Chairman, this concludes my prepared statement. I would be pleased to
answer any questions you may have.

For further information regarding this testimony, please contact Laurie E.
Ekstrand at (202) 512- 8777 or Darryl Dutton at (213) 830- 1000. GAO
Contacts

(440071)
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