Export Controls: Reengineering Business Processes Can Improve
Efficiency of State Department License Reviews (31-DEC-01,
GAO-02-203).
The U.S. defense industry and some foreign government purchasers
have expressed concern that the U.S. export control process is
unnecessarily burdensome. Specifically, defense industry
officials have stated that extended reviews of export license
applications by the State Department are resulting in lost sales
and are adversely affecting the nation's defense industry. In the
United States, the State Department's Office of Defense Trade
Controls is the office responsible for licensing the export and
temporary import of defense articles and services. Many license
applications take a significant amount of time to review because
of the complexity of the application and the need to consider
different points of view in the review process. However, several
conditions reduce the efficiency of the application review
process and result in delays. The State Department has not
established formal guidelines for determining the agencies and
offices that need to review license applications. As a result,
the licensing office refers more license applications to other
agencies and offices than may be necessary. Further, many license
application reviewers in State Department reviewing offices
consider license reviews low priority work. The State Department
lacks procedures to monitor the flow of license applications
through the review process. The State Department has hired new
licensing officers, which, according to license office officials,
has decreased processing time, and the Department is planning to
upgrade the office's electronic business system. However, the
planned business system upgrade needs to focus on ensuring a
controlled and timely flow of applications, and implementing a
mechanism to track the progress of applications; otherwise, the
benefits of the upgrade may be limited.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-203
ACCNO: A02623
TITLE: Export Controls: Reengineering Business Processes Can
Improve Efficiency of State Department License Reviews
DATE: 12/31/2001
SUBJECT: Export regulation
Licenses
Productivity in government
Information resources management
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GAO-02-203
Report to the Chairman and Ranking Minority Member, Subcommittee on
Readiness and Management Support, Committee on Armed Services, U. S. Senate
United States General Accounting Office
GAO
December 2001 EXPORT CONTROLS Reengineering Business Processes Can Improve
Efficiency of State Department License Reviews
GAO- 02- 203
Page i GAO- 02- 203 Export Controls Letter 1
Results in Brief 1 Background 3 Export License Applications May Require
Extensive Review, but
Process Inefficiencies Cause Delays 6 Conclusions 12 Recommendations for
Executive Actions 12 Agency Comments and Our Evaluation 13 Scope and
Methodology 16
Appendix I Comments From the U. S. Department of State 19
Tables
Table 1: Time License Applications Take to Be Sent Between the Licensing
Office and Reviewing Agencies, September 2000 9
Figures
Figure 1: State Department License Process 4 Contents
Page 1 GAO- 02- 203 Export Controls
December 31, 2001 The Honorable Daniel Akaka Chairman The Honorable James M.
Inhofe Ranking Minority Member Subcommittee on Readiness
and Management Support, Committee on Armed Services United States Senate
The U. S defense industry and some foreign government purchasers have
expressed concern that the U. S. export control process is unnecessarily
burdensome. Specifically, defense industry officials have stated that
extended reviews of export license applications by the State Department are
resulting in lost sales and are adversely affecting the nation?s defense
industry. In the United States, the State Department?s Office of Defense
Trade Controls is the office responsible for licensing the export and
temporary import of defense articles and services. In June 2001, we reported
to you that the State Department completed over 46,000 license application
reviews in fiscal year 2000. 1 While the U. S. export licensing process can
be lengthy because of foreign policy and national security considerations,
other factors may also have an impact on processing times. Therefore, you
asked us to determine whether elements of the process create delays in
license application reviews.
Many license applications take a significant amount of time to review
because of the complexity of the application and the need to consider
different points of view in the review process. However, several conditions
reduce the efficiency of the application review process and result in
delays. Also, planned improvements to the license review process need to
focus on key elements that cause delays.
The State Department has not established formal guidelines for determining
the agencies and offices that need to review license
1 See Export Controls: State and Commerce Department License Review Times
Are Similar (GAO- 01- 528, June 1, 2001).
United States General Accounting Office Washington, DC 20548
Results in Brief
Page 2 GAO- 02- 203 Export Controls
applications. As a result, the licensing office refers more license
applications to other agencies and offices than may be necessary. Further,
many license application reviewers in State Department reviewing offices
consider license reviews low priority work.
The State Department lacks procedures to monitor the flow of license
applications through the review process. There are no guidelines on the
length of time a review should take, 2 no requirements to justify a lengthy
review, and no systematic checks on the progress of applications. In fiscal
year 2000, hundreds of applications were lost and thousands were delayed
while no substantive review occurred.
The State Department has hired new licensing officers, which, according to
license office officials, has decreased processing time, and the Department
is planning to upgrade the office?s electronic business system. However, the
planned business system upgrade needs to focus on ensuring a controlled and
timely flow of applications, and implementing a mechanism to track the
progress of applications; otherwise, the benefits of the upgrade may be
limited.
This report contains recommendations for the Secretary of State to develop
guidance for referring applications and training for reviewing officials,
establish timeliness goals to ensure the efficient flow of applications,
implement a tracking mechanism to identify lost or delayed applications, and
fix the process before proceeding with the new electronic business
processing system.
In commenting on a draft of this report, the State Department said that the
report indicates a failure to comprehend how U. S. foreign policy provides
the context for munitions export controls. The Department appears to have
missed the point of our report. As is clear from our scope and methodology,
our report does not address the time spent in substantive review of license
applications. It is primarily concerned with the procedures in place to
ensure that license applications flow smoothly through the review process.
On that point, the Department provided only one bit of additional
information. That is that the licensing office reviews computer runs of
pending cases to determine their status. However, the point of our finding
is that monitoring the flow of license applications
2 The Arms Export Control Act and the International Traffic in Arms
Regulations do not mandate or recommend timelines for review of
applications.
Page 3 GAO- 02- 203 Export Controls
needs to be done on a routine basis, not sporadically, which is the current
situation. We modified the language of our report to accommodate this
additional information.
Under the authority of the Arms Export Control Act, 3 the State Department
controls the export and temporary import of defense articles and services.
The State Department?s International Traffic in Arms Regulations explain
specific licensing procedures. 4 Companies that manufacture or export
defense articles or provide defense services are required to register with
the licensing office. Exporters must obtain a license to export defense
articles or an agreement to export defense services. 5
Exporters file license applications either electronically or in paper copy.
Currently, 50 percent of applications are submitted electronically. For both
electronic and paper copy applications, the State Department requires seven
paper copies of supporting documentation, including brochures and technical
data. 6 The supporting documentation for one application can be several
inches thick and occasionally much thicker. Applications are assigned a
number and logged into the licensing office?s database. Applications are
distributed to licensing officers for initial review according to munitions
categories, for example, firearms, aircraft,
3 22 U. S. C. secs. 2751 et seq. 4 22 C. F. R. secs. 120- 130. 5 As
explained in 22 C. F. R. part 120, agreements include manufacturing license
agreements that allow a U. S. person to grant a foreign person an
authorization to manufacture defense articles abroad; technical assistance
agreements that permit the performance of defense services or the disclosure
of technical data; and distribution agreements that allow the establishment
of a warehouse or distribution point abroad for defense articles exported
from the United States for distribution to entities in an approved sales
territory.
6 According to the International Traffic in Arms Regulations, seven copies
of supporting documentation are required for defense articles. The licensing
office guidance also requires seven copies to be made for defense services.
Only two copies are needed if the application is for a license renewal.
Background
Page 4 GAO- 02- 203 Export Controls
ammunition, and spacecraft systems. 7 The names of the parties involved in
an application are automatically screened by the database against a watch
list of parties about whom prior concerns have been raised to determine if
more intensive reviews are necessary. Figure 1 shows the key phases of the
license application review process.
Figure 1: State Department License Process
During the initial review, a licensing officer decides if there is enough
information to make a decision. If there is, the officer makes a decision
and takes final action on the application. If a licensing officer decides
additional review is needed, the officer then decides which organizations,
such as the Defense Department or other State Department offices, should
conduct a further review. The Defense Department conducts a technical
review, identifies national security concerns, and also identifies whether
7 License categories include firearms; artillery projectors; ammunition;
launch vehicles, guided missiles, ballistic missiles, rockets, torpedoes,
bombs, and mines; explosives, propellants, incendiary agents, and their
constituents; vessels of war and special naval equipment; tanks and military
vehicles; aircraft, spacecraft and associated equipment; military training
equipment; protective personnel equipment; military and space electronics;
fire control, range finder, optical and guidance and control equipment;
auxiliary military equipment; toxicological agents and equipment and
radiological equipment; spacecraft systems and associated equipment; nuclear
weapons design and test equipment; classified articles, technical data and
defense services not otherwise enumerated; submersible vessels,
oceanographic and associated equipment; and, miscellaneous articles, 22 C.
F. R. part 121.
Page 5 GAO- 02- 203 Export Controls
an application needs to be reviewed for Missile Technology Control Regime
concerns. 8 State Department offices review applications for foreign policy,
human rights, and non- proliferation concerns. After deciding which offices
need to review the application, the licensing officer forwards the
application to administrative personnel who transmit the application package
to the other agencies and offices. This referral process is not automated
and relies on the physical distribution of paper documents via couriers to
other agencies and inter- office mail to State Department offices.
In fiscal year 2000, the licensing office made 28,496 referrals for 15,512
license applications (about one- third of all applications) to other
agencies and State Department offices. The average processing time for these
referred applications was 91 days. For the 66 percent of applications that
were not referred to other agencies, the average processing time was 23
days.
While applications are undergoing review outside the licensing office,
administrative assistants maintain the application, answer calls from
license applicants concerning the status of reviews, 9 record agencies
recommendations as they are received from reviewing agencies and offices,
and attach the recommendations to the paper copy files of the applications.
Once all recommendations have been received for an application, the
assistants close the referral process and submit the application to the
licensing officer for final review and action.
Under the Arms Export Control Act, the State Department is also required to
notify Congress before approving applications that involve significant
military equipment exports of defense articles and services valued over $50
million, or exports of major defense equipment valued over $14 million. The
State Department cannot approve such applications until 15
8 The Missile Technology Control Regime was founded by the United States and
six allies to limit the proliferation of rocket and unmanned air vehicle
systems capable of delivering nuclear, biological, and chemical weapons of
mass destruction and their associated equipment and technology.
9 Licensing officers and license reviewers in agencies and offices told us
that they get frequent calls concerning the status of license applications.
One licensing officer told us that he receives 30 calls a day from companies
with concerns about license applications. The State Department provides
license applicants the ability to electronically see the status of license
applications. Industry representatives that we spoke with use this data to
monitor the status of their applications and will call if an application
appears delayed.
Page 6 GAO- 02- 203 Export Controls
days after notification for applications to export to North Atlantic Treaty
Organization countries and Australia, Japan, or New Zealand; 15 days after
notification for exports of commercial communication satellites for launch
from and by nationals of the Russian Federation, Ukraine, or Kazakhstan; and
30 days after notification for other countries. If the Congress enacts a
joint resolution during that time period prohibiting the export, the State
Department cannot issue the license. In fiscal year 2000, the State
Department notified Congress of 123 applications. These applications
averaged nearly 7 months to review. Our analysis did not include the
portions of the license application review process associated with
congressional notifications.
Many license applications take substantial time to process because they
require attention by the licensing office, other agencies, and other State
Department offices. License applications that are referred to other agencies
and offices for review take an average of more than two months longer to
review than applications that do not leave the licensing office. However,
the State Department has not established formal guidelines for licensing
officers to use to determine which agencies and State Department offices
need to see certain license applications. As a result, the licensing office
may be referring more applications than necessary. Further, officials in
State Department reviewing offices generally do not receive training on how
the licensing process works or how to conduct a review and consider the
reviews a secondary work priority.
The State Department lacks procedures to control the flow of license
applications through the review process, and as a result, in fiscal year
2000, hundreds of applications were lost and thousands more were delayed. To
improve license processing time, Congress increased the licensing office?s
budget. The licensing office has hired additional license officers and is
planning to develop a new electronic business processing system, but
improvement efforts also need to focus on guidance and training for
referrals, and the new electronic system must incorporate procedures for
ensuring the efficient flow of applications through the process.
Licensing officers lack formal guidelines on when to refer applications to
other agencies and offices. As a result, applications may be unnecessarily
referred, which results in longer processing time. In lieu of guidelines,
licensing officers told us that they rely on prior cases and certain ?rules-
ofthumb? that they have learned, over time, from their predecessors or
Export License
Applications May Require Extensive Review, but Process Inefficiencies Cause
Delays
Lack of Guidelines, Training, and Priority Delay License Reviews
Page 7 GAO- 02- 203 Export Controls
supervisors. For example, applications involving new weapon systems or
technical data and applications for license agreements, except for those
involving minor amendments to previously approved agreements, are all
referred to the Defense Department. When no existing rule applies, some
licensing officers told us that they use their own rule, which is ?when in
doubt, refer it out.? Licensing officers told us that they once used the
State Department?s country policy handbook as a guide for referring
applications, but the handbook has not been updated since 1996 and is too
out- of- date to be used. Licensing officers also told us that because of
the lack of referral criteria, newer licensing officers tend to refer more
applications.
Reviewing agencies and offices generally do not tell the State Department?s
licensing office which applications they need to review. Over half of the
license referrals are sent to the Defense Department, but there is no formal
guidance explaining what applications the Department needs to review. Of the
11 State Department offices that frequently review applications, only one
office, the Bureau of Democracy, Human Rights and Labor, provides written
guidance on the applications it needs to review. An official in the
Political- Military Affairs Bureau?s Office of Regional Security and Arms
Transfer Policy told us that his office asks the licensing office for all
applications that are referred to the geographic bureaus. However, he could
not provide documentation of that guidance and licensing officers did not
mention this guidance when we asked. An official in the Bureau of European
and Eurasian Affairs said that he does not need to see most of the
applications he receives. He told us he only needed license applications
related to three countries, but had not told the licensing office.
The State Department does not provide training to license reviewers so that
they understand how the licensing process works and what to look for when
conducting a license application review. Several officials had only a
limited understanding of the process and the purpose of their reviews. Of
the officials we spoke with in State Department reviewing offices, only one
told us that he attended a training course on the export license process.
Officials in six reviewing offices were military officers on detail,
generally as military attach�s in geographic bureaus, and are only in their
positions for a few years. Several license reviewers told us that they are
not always sure why they have been asked to review specific license
applications and do not always understand the issues or concerns associated
with an application. One official told us that he calls other offices to
make sure his recommendation is consistent with those offices. Two officials
assumed that they received all license applications
Page 8 GAO- 02- 203 Export Controls
associated with their geographic region and were surprised to find out that
they review only a portion of those applications. One senior licensing
officer told us that State Department license application reviewers do not
provide adequate information when recommending a license denial, and
licensing officers must go back to the reviewing official to obtain
additional information to ensure that a denial is justified.
Reviewing officials in 10 State Department offices told us that reviewing
license applications is only one of their duties, and in some offices, it is
a secondary duty. For example, in geographic bureaus the military attach�,
whose primary responsibility is providing military advice related to their
geographic region, is often in charge of ensuring that license reviews are
conducted. One attach� showed us a pile of license applications that he had
accumulated over the past 4 weeks. The attach� explained that he waits for
enough applications to come in so he can review them all in one afternoon.
Other State Department reviewers told us that there are no backup personnel
to handle application reviews. If a reviewer is on leave or work- related
travel, the license applications wait for the reviewer?s return with no
action taken in the interim.
The State Department has not established procedures to ensure that agencies
are conducting timely reviews of referred applications, that license
application referrals are received when they are sent through the mail or by
courier, and that applications that become lost or delayed are quickly
identified.
Timely Reviews of Referred Applications: There are no guidelines governing
the time permitted to review license applications, no requirement for a
reviewing agency or office to justify a lengthy review, and the licensing
office does not routinely check the status of a review unless an applicant
calls to ask why an application is taking a long time. While the majority of
reviews by other agencies and offices are completed in 26 days, 10 percent
of referrals take 57 days or more. Several State Department license
reviewers told us that applications frequently sit on their desk or the desk
of other officials awaiting attention. As explained previously, several
reviewing offices do not have backup personnel to handle application reviews
when the reviewer is out of the office.
Ensuring Referrals Are Received: The licensing office has no procedures to
ensure that other agencies or State Department offices receive license
applications from the licensing office. Licensing office officials told us
that they periodically send the Defense Department a list Lack of Procedures
and
Tracking Cause Delays in the Process
Page 9 GAO- 02- 203 Export Controls
of outstanding applications. However, no lists are routinely sent to State
Department offices. Further, periodic lists do not identify applications
until they are delayed for several weeks or more. State Department license
reviewers told us that they frequently receive calls from applicants asking
why their application is taking a long time. Reviewers told us that many of
these inquiries identified applications that were either sent by the
licensing office but not received by the reviewing organization or
identified applications where the reviewer had returned the recommendation,
but it was never received by the licensing office. When these cases are
identified, the licensing office either sends another copy of the
application to the reviewing office or the reviewing office sends a copy of
its recommendation to the licensing office.
As shown in table 1, our analysis of applications completed in September
2000 that were referred to the Defense Department or State Department
offices identified 233 instances where applications took more than 2 weeks
to travel from the licensing office to a reviewing office or from a
reviewing office back to the licensing office. We identified 101 instances
in that month alone where an application took over 4 weeks to travel from
one office to the next. For fiscal year 2000 as a whole, there were 254
instances where applications were lost between the licensing office and a
reviewing agency or office. Once identified as missing, usually as the
result of a contact from the license applicant, they had to be re- sent.
These applications averaged 7 months in the review process.
Table 1: Time License Applications Take to Be Sent Between the Licensing
Office and Reviewing Agencies, September 2000
0 to 7 days 8 to14
days 15 to 21 days 22 to 28
days 29 plus days
State Department reviewing offices 464 210 68 41 91 Defense Department 2,342
318 17 6 10
Total 2,806 528 85 47 101
Note: Some data fields were blank or had incorrect data and some State
Department reviewing offices did not have data indicating when they received
or returned applications. When this occurred, we did not count the
applications.
Tracking Lost or Delayed Applications: The progress of license applications
are not tracked within the licensing office as applications move from one
stage in the process to the next. While the majority of license applications
took only 2 or 3 days to pass from one administrative point to the next
within the licensing office during fiscal year 2000, we
Page 10 GAO- 02- 203 Export Controls
identified 2,777 instances where applications took over 2 weeks and 674 of
these took over 4 weeks to move from one point to the next while no
substantive review activity occurred. The following describe three key
stages of the licensing process where applications were delayed within the
licensing office. 10
When a licensing officer decides to refer an application for review to
another agency or State Department office, administrative personnel make
copies and send the applications to each reviewing organization selected by
the licensing officer. Licensing officers record the date they make this
decision and administrative personnel record the date the application is
sent to an agency or a State Department office. The majority of applications
were sent to agencies and offices within 2 days of the licensing officers?
decision, but 586 applications took more than 2 weeks and 118 of these took
over 4 weeks. State Department personnel were not able to explain the
delays.
Agencies and State Department offices return a recommendation on each
license application referral. Administrative personnel record the date each
recommendation is returned. When all recommendations are received, the
license referral process is complete and administrative personnel return the
application to the licensing officer. Administrative personnel told us that
they periodically check their files to see if they have overlooked any
applications. These periodic checks depend on their workload. Our analysis
showed that the majority of applications are returned within 3 days after
the last recommendation is received, but 1,861 took over 2 weeks and 443 of
these took over 4 weeks to be sent to a licensing officer for a final
decision on the license application.
Once a licensing officer decides to approve, deny, or return an
application without action, the officer records the date and provides the
application to administrative personnel who send the response to the
applicant. The majority of responses took 3 days from the licensing
officers? decision to the time the response was sent to the applicant, but
330 responses took over 2 weeks and 113 of these took over 4 weeks.
10 Because the licensing office does not record when administrative
personnel send applications to licensing officers and when licensing
officers receive these applications, we were not able to determine if
applications become delayed or lost during the transfer or how long
licensing officers take to conduct their initial reviews.
Page 11 GAO- 02- 203 Export Controls
The licensing office has taken steps to improve license processing time by
hiring additional licensing officers and is planning to upgrade the office?s
electronic business processing system. The office?s expenditures increased
from $4.6 million in fiscal year 1999 to $9. 3 million in fiscal year 2000.
The number of licensing officers has risen from 23 in fiscal year 2000 to 34
in fiscal year 2001. The office reported that increased staffing has
improved median processing time for referred applications from 69 days in
fiscal year 2000 to 60 days in September 2001. The licensing office is also
developing an information technology strategy with the long- term goal of
automating the licensing process. It plans to
automate the process for submitting license applications and supporting
documentation;
develop a means to electronically send license applications and supporting
documentation to the Defense Department, which is also developing its own
electronic system to process applications;
accommodate new processing requirements such as additional reports;
add high- speed scanners and barcode printing and reading equipment; and
support future requirements in the areas of programming and support.
However, the State Department?s plan to automate the licensing process needs
to focus on making significant improvements to the licensing process before
applying new technology. The Director of the licensing office told us that
they will make process adjustments and changes in personnel as they are
upgrading to a new electronic business system. In a 1994 study of
fundamental practices that led to performance improvements in leading
private and public organizations, we reported that electronic business
system initiatives must be focused on process improvement. Information
systems that simply use technology to do the same work, the same way, but
only faster typically fail or reach only a fraction of their potential. 11
In May 2000, we reported that when developing new electronic business
processes, it is important to ensure that current business processes are
working well before applying new technology. 12 In fact, agency heads are
required by the Clinger- Cohen Act of 1996 to analyze an agency?s mission
and revise mission- related processes, as
11 Executive Guide: Improving Mission Performance Through Strategic
Information Management and Technology (GAO/ AIMD- 94- 115, May 1994). 12
Electronic Government: Federal Initiatives Are Evolving Rapidly but They
Face Significant Challenges (GAO- T- AIMD/ GGD- 00- 179, May 2000). State
Department Has
Added Personnel and Plans to Automate the Process, but Needs to Focus on
Correcting Process Weaknesses
Page 12 GAO- 02- 203 Export Controls
appropriate, before making significant investments in information
technology. 13 Not revising business processes prior to investing in new
technology creates the risk of merely automating inefficient ways of doing
business.
In conducting our work, these comments were echoed by officials from other
government agencies who we met with to understand ways to automate business
processes that are similar to the license review process. Officials from the
Defense Electronic Business Program Office and the Patent and Trademark
Office told us that an essential ingredient for effectively transitioning to
a new electronic business system is reengineering and streamlining of work
processes before automating those processes. Automating an inefficient
process will not likely make it more efficient.
License applicants have long complained that they cannot predict how long a
license review may take and are frustrated by delays. Although licensing
officers and license reviewers require time to deliberate and ensure that
license decisions are appropriate, a substantial number of applications
become stalled between reviews by licensing officers and reviewers.
Improving efficiency, predictability, and timeliness of the process may be
achieved with relatively small changes in guidelines and procedures.
To improve the efficiency and timeliness of the munitions licensing process,
we recommend that the Secretary of State direct the Office of Defense Trade
Controls in conjunction with reviewing agencies and offices to
develop criteria for determining which license applications to refer to
other agencies and offices, and formal guidelines and training for
organizations that receive referrals so that reviewers clearly understand
their duties when reviewing license applications, and
establish timeliness goals for each phase of the licensing process. 13 P.
L. 104- 106. Conclusions
Recommendations for Executive Actions
Page 13 GAO- 02- 203 Export Controls
Further, we recommend that the Secretary of State direct the Office of
Defense Trade Controls to establish a mechanism to track license
applications through each phase of the process to ensure timeliness goals
are met and applications are not lost or delayed.
To prevent imbedding an inefficient process into the State Department?s
planned electronic business processing system, we recommend that the
Secretary of State ensure the steps outlined above are taken before
proceeding with a new electronic processing system. The State Department
should coordinate its efforts with the Defense Department because the
Defense Department is also developing a new electronic system and receives
the majority of license application referrals.
In commenting on our draft report, the State Department said that certain of
our findings appear to be premised on conjecture and a failure to comprehend
how foreign policy provides the overall context for munitions export
controls and that other findings appear to be exaggerated and reflect out-
of- context presentations. Also, the Department stated that our presentation
of data was inflammatory and trivialized the licensing officer?s role in
referring license applications for review. Further, our characterization of
its plans to enhance automation was totally inaccurate.
The Department appears to have missed the point that our report, as stated
in our scope and methodology, is primarily concerned with the procedures in
place to ensure that license applications flow smoothly through the review
process and not with the time spent in substantive license application
reviews. In our review of State Department data, we took extreme care not to
confuse legitimately lengthy license application reviews caused by national
security and foreign policy concerns with delays caused by administrative
inadequacies. Regarding the administrative process, the Department provided
only one bit of additional information. That is that the licensing office
reviews computer runs of pending license applications to determine their
status. However, the point of our finding is that such monitoring needs to
be done on a routine basis, not sporadically, which is the current
situation. Licensing office personnel told us that these reviews of pending
applications are generally done on an
?as time permits? basis. We have modified our report to accommodate this
additional information.
The Department referred to our point, early in the report, that industry has
raised concerns about the effect of the process on U. S. defense industry
sales as an example of our exaggeration and out- of- context presentation.
It is not clear from the Department?s comment whether it is taking issue
with the validity of the comment or our statement that industry has raised
the Agency Comments
and Our Evaluation
Page 14 GAO- 02- 203 Export Controls
concern. This statement was not intended to validate industry concerns but
was merely meant to explain the reason why we were asked to examine the
State Department?s licensing process.
The Department?s statement that the report is inflammatory relates to our
statement that ?hundreds? of applications were lost and ?thousands? were
delayed while no substantive reviews occurred. Our report provides a
detailed explanation of the data on which our comment was based. Our use of
the term ?lost? refers to the fact that applications referred for review
were sent by the licensing office but not received by the reviewing office
and had to be re- sent. The Department states that no licenses were lost
because the licensing office retains the original. The Department also
pointed out that the ?lost? applications are a very small percentage of the
total number of license application referrals. We agree. Our point, however,
is that applications that are lost could be easily identified and forwarded
by a routine status review. Currently, the time required to process these
lost applications, as we point out in the report, averages about 7 months.
In terms of the delayed applications, the Department commented that it does
not keep detailed diaries on every application and that the lack of an audit
trail should not be a basis for ?unqualified
conjecture or speculation.? Our statement that thousands of applications
were delayed is based solely on detailed data provided by the State
Department.
The Department stated that we trivialized the role of the licensing officer
when we explained that there are no formal guidelines to assist in referring
license applications and the Department further stated that decisions to
refer license applications rely on practice, precedent, and the current
state of foreign policy. The comments explained that licensing officers are
trained to consider applications with the utmost seriousness. In our
opinion, the lack of agreement and understanding between the licensing
office and reviewing offices on the referral process demonstrates the
problems that can occur when a process that requires actions and
interpretations by a variety of people lacks formal guidelines. Our findings
and recommendations were based on lengthy and structured interviews with all
licensing officers who had over one year of experience and officials in
State Department offices that receive these referrals. Based on the
information provided by these officials, it is clear that State Department
offices that receive referrals are at times confused about the referral
process and licensing officers believe that further guidance would assist in
making decisions to refer or not to refer a license application.
In regard to the Department?s comment that our report is inaccurate
concerning its automation plans, we held lengthy discussions with
Page 15 GAO- 02- 203 Export Controls
managers from the Office of Defense Trade Controls concerning their
information technology plans and evaluated existing copies of automation
plans. Based on the State Department comments, we requested any additional
information on technology modernization plans that we had not seen. The
Department provided no further information concerning its plans. As stated
in the report, the Director of the Office of Defense Trade Controls told us
that he plans to correct inadequacies in the licensing process during the
modernization. As we pointed out, past GAO work has proven that proceeding
with information technology modernization without first correcting problems
in current systems risks merely automating inefficient ways of doing
business.
The State Department did not agree with our recommendation to develop
criteria for determining which license applications to refer to other
agencies and offices and to develop guidelines and training for offices that
receive referrals. The Department commented that they have made a conscious,
deliberate, decision not to develop guidelines that address every country or
commodity. The Department explained that they have written operational and
policy guidelines that are used extensively. The guidelines, however, are
not written down in a single document and are heavily reliant on practice
and the current state of foreign policy. The Department acknowledged that
practice within certain regions needs to be updated and made uniform. During
our structured interviews with licensing officers, we asked if there were
written guidelines to guide license referral decisions and the licensing
officers explained that there were none except for referrals related to the
State Department?s Bureau of Democracy, Human Rights and Labor. The
Department?s response to this recommendation did state that training for
reviewing officers in State Department offices is needed, and the Department
intends to discuss this issue as their information technology system is
enhanced.
In response to our recommendation to establish timeliness goals, the
Department said that it is considering a timeliness goal of 25 working days
for license referrals, which is similar to the Department of Defense?s
selfimposed goal. The Department also explained that licensing officers have
timeliness goals in their performance plans. Our concern in making this
recommendation was not with the time spent in substantive review of
applications but rather with the administrative procedures in the process.
That is, those portions of the process in which paper moves from one desk to
another during which there are no ?value- added? steps occurring. The
comments did not mention timeliness goals for administrative phases of the
process within the Office of Defense Trade Controls.
Page 16 GAO- 02- 203 Export Controls
The Department agreed with our recommendation to establish a mechanism to
track license applications; however, it also stated that the capability to
track already exists and the information technology modernization plan that
is under development will be engineered to enable tracking. We agree that
tracking is a current capability. Our recommendation is to begin using that
capability to routinely track license applications. We hope that the
Department intends to do that rather than waiting for a new system that has
not yet been developed.
The Department did not comment on our recommendation to ensure the steps
outlined in the previous recommendations are taken before proceeding with a
new electronic processing system.
To determine conditions that cause delays in the licensing process, we
reviewed regulations governing the process, met with personnel who are
involved in the licensing process, reviewed license applications, and
collected and analyzed databases that show the flow of applications. We
reviewed the Arms Export Control Act and the International Traffic in Arms
Regulations to understand the rules that govern license processing. We also
discussed guidelines with licensing office officials and license reviewers
to understand written and verbal guidelines associated with the process.
To understand the process of reviewing license applications, we met with all
licensing officers with more than one year of experience, and administrative
personnel from the licensing office. Our interviews with the licensing
officers were detailed and structured and we provided our questions to
Office of Defense Trade Controls management in advance. To understand the
role of license reviewers, we met with reviewers in the 11 State Department
offices that review nearly all referred applications within the State
Department. We also met with Defense Department officials who manage the
review of license applications. We selected a random sample of applications
that were completed in September 2000 and took over 90 days to process in
order to understand the progress of license applications that take longer to
review.
To analyze the flow of license applications through the process, we obtained
the licensing office?s database that has dates associated with the progress
of license application reviews. We reviewed data on all license applications
completed in fiscal year 2000. To determine how efficiently applications
were transferred from one office to another, we compared data logs from the
Defense Department and State Department reviewing offices with the licensing
office?s database for applications completed in Scope and
Methodology
Page 17 GAO- 02- 203 Export Controls
September 2000. We cannot be certain of the reliability of the data we
reviewed. The State Department does not have a data dictionary that explains
the data. As a substitute, we discussed key elements of the database with a
State Department representative to ensure that we accurately interpreted the
data. In a recent review of the Office of Defense Trade Controls, the State
Department Inspector General sampled selected elements of the database and
found data entry errors. While conducting our analysis, we also found data
entry inaccuracies. We worked with a State Department representative to
correct some of these inaccuracies. However, some data fields did not have
entries. As a result, data for some license applications was incomplete.
We also collected information from the licensing office on their plans to
improve license processing. We obtained information on their budget,
staffing, and plans for a new electronic business system. We reviewed prior
work to determine appropriate ways to implement new electronic business
systems and met with the Defense Electronic Business Program Office and the
Patent and Trademark Office to learn from their experiences. We also met
with Defense Department officials who review State Department license
applications to understand their efforts to coordinate the implementation of
their electronic business system with State Department efforts.
We conducted our work between May 2001 and November 2001 in accordance with
generally accepted government auditing standards.
As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 10 days after
its issuance. At that time, we will send copies to the Chairmen and Ranking
Minority Members of the Senate Committee on Foreign Relations, the Senate
Committee on Banking, Housing, and Urban Affairs, and the House Committee on
International Relations. We will also send copies to the Secretaries of
State, Defense, and the Director, Office of Management and Budget. This
report will also be made available on GAO?s home page http:// www. gao. gov.
Page 18 GAO- 02- 203 Export Controls
If you or your staff have questions concerning this report, please contact
me at (202) 512- 4841. Others making key contributions to this report were
Blake Ainsworth, Heather Barker, Raymond H. Denmark, Thomas J. Denomme,
Minette D. Richardson, and John P. Ting.
Katherine V. Schinasi Director, Acquisition and Sourcing Management
Appendix I: Comments From the U. S. Department of State
Page 19 GAO- 02- 203 Export Controls
Appendix I: Comments From the U. S. Department of State
Note: GAO comments supplementing those in the report text appear at the end
of this appendix.
Appendix I: Comments From the U. S. Department of State
Page 20 GAO- 02- 203 Export Controls
See comment 1.
Appendix I: Comments From the U. S. Department of State
Page 21 GAO- 02- 203 Export Controls
Appendix I: Comments From the U. S. Department of State
Page 22 GAO- 02- 203 Export Controls
See comment 4. See comment 3. See comment 2.
Appendix I: Comments From the U. S. Department of State
Page 23 GAO- 02- 203 Export Controls
See comment 6. See comment 5.
Appendix I: Comments From the U. S. Department of State
Page 24 GAO- 02- 203 Export Controls
See comment 7.
Appendix I: Comments From the U. S. Department of State
Page 25 GAO- 02- 203 Export Controls
Now on pp. 5 and 6. See comment 9. See comment 8.
Now on p. 2.
Appendix I: Comments From the U. S. Department of State
Page 26 GAO- 02- 203 Export Controls
Appendix I: Comments From the U. S. Department of State
Page 27 GAO- 02- 203 Export Controls
Appendix I: Comments From the U. S. Department of State
Page 28 GAO- 02- 203 Export Controls
Appendix I: Comments From the U. S. Department of State
Page 29 GAO- 02- 203 Export Controls
1. We changed the text to reflect that the U. S. export licensing process
can be lengthy because of foreign policy and national security
considerations, not just national security considerations.
2. We changed the text on page 8 to state that the licensing office does not
routinely check the status of license reviews.
3. This State Department comment is not correct. Through discussions with
State Department budgeting officials, we determined that the information in
the draft report is correct. The data we reported are actual Office of
Defense Trade Controls expenditures for fiscal years 1999 and 2000. The
State Department comments refer to authorized funding levels that were not
actually spent in fiscal year 1999.
4. The report states that the State Department does not have formal
guidelines for referring license applications to other agencies and offices.
5. The licensing office did not provide sufficient information for us to
validate this statement.
6. We revised text on page 8 of the report to say that no lists are
routinely sent to State Department offices.
7. Text revised. 8. Text revised. 9. Text revised. GAO Comments
(120052)
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