    Container Security: Expansion of Key Customs Programs Will
    Require Greater Attention to Critical Success Factors (25-JUL-03,
    GAO-03-770).

    Since September 11, 2001, concern has increased that terrorists
    could smuggle weapons of mass destruction in the 7 million ocean
    containers that arrive annually at U.S. seaports. In response to
    this concern, the U.S. Customs Service (Customs) implemented the
    Container Security Initiative (CSI) to screen for high-risk
    containers at overseas ports and Customs-Trade Partnership
    Against Terrorism (CTPAT) to improve global supply chain security
    in the private sector. GAO (1) describes the purpose and elements
    of these new programs, (2) examines Customs' implementation of
    CSI and C-TPAT during the first year, and (3) assesses the extent
    to which Customs has focused on factors critical to the programs'
    long-term success and accountability.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-03-770
        ACCNO:   A07720
      TITLE:     Container Security: Expansion of Key Customs Programs
    Will Require Greater Attention to Critical Success Factors
         DATE:   07/25/2003
      SUBJECT:   Counterterrorism
    	     Customs administration
    	     Inspection
    	     National preparedness
    	     Program evaluation
    	     Program management
    	     Strategic planning
    	     Terrorism
    	     Weapons
    	     Customs Service Container Security
    	     Initiative Program

    	     Customs Service Trade Partnership
    	     Against Terrorism Program

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    GAO-03-770

                                           A

    Report to Congressional Requesters

    July 2003 CONTAINER SECURITY Expansion of Key Customs Programs Will
    Require Greater Attention to Critical Success Factors

    GAO- 03- 770

    Contents Letter 1

    Results in Brief 2 Background 5 Key Customs Programs Developed to Address
    Container Security 9 Customs Quickly Rolled Out CSI and C- TPAT, Adapting
    Programs to Meet Challenges 17

    Customs Has Not Adequately Incorporated Factors Critical to Programs*
    Success and Accountability 26 Conclusions 33 Recommendations for Executive
    Action 33 Agency Comments and Our Evaluation 34

    Appendixes

    Appendix I: Scope and Methodology 36

    Appendix II: Comments from the Bureau of Customs and Border Protection 39
    GAO Comments 47

    Appendix III: GAO Contact and Staff Acknowledgments 51 GAO Contact 51
    Staff Acknowledgments 51

    Tables Table 1: Top 10 Foreign Ports, by Number of U. S.- bound
    Containers, 2001 5

    Table 2: Top 10 U. S. Ports, by Number of U. S.- bound Containers, 2002 6
    Table 3: CSI Budget Plans and Obligations, Fiscal Years 2002* 2004 13
    Table 4: C- TPAT Budget Plans and Obligations, Fiscal Years 2002*

    2004 17 Table 5: Dates of CSI Bilateral Arrangements and Deployments by

    Targeted Ports, May 2003 19 Table 6: Status of C- TPAT Membership by
    Industry Sector and Key

    Program Elements, January 2003 and May 2003 24 Figures Figure 1: Steps in
    Supply Chain and Some Points of Potential

    Vulnerability 7 Figure 2: CSI Task Force Organization Chart, March 2003 12
    Figure 3: C- TPAT Organizational Structure, May 2003 16

    Figure 4: Time line of C- TPAT Enrollment Opportunities 23 Figure 5:
    Budgets and Anticipated Growth for CSI Ports and

    C- TPAT Staff, Fiscal Years 2002 and 2004 27

    Abbreviations

    CSI Container Security Initiative C- TPAT Customs- Trade Partnership
    Against Terrorism DOD Department of Defense DHS Department of Homeland
    Security PIERS Port Import Export Reporting Service WMD weapons of mass
    destruction

    This is a work of the U. S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
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    separately.

    Letter

    July 25, 2003 The Honorable Charles E. Grassley Chairman, Committee on
    Finance United States Senate The Honorable Max Baucus Ranking Minority
    Member, Committee on Finance United States Senate The Honorable Bill
    Thomas Chairman, Committee on Ways and Means House of Representatives The
    Honorable Charles B. Rangel Ranking Minority Member, Committee on Ways and
    Means House of Representatives Ocean containers play a vital role in the
    movement of cargo between global trading partners. In 2002, more than 7
    million ocean cargo containers arrived at U. S. seaports. Responding to
    heightened concern about national security since September 11, 2001,
    several U. S. government agencies have

    acted to prevent terrorists from smuggling weapons of mass destruction
    (WMD) in cargo containers from overseas locations to attack the United
    States and disrupt international trade. Because of its frontline
    responsibilities for inspection at U. S. ports of entry, the U. S. Customs
    Service 1 assumed the lead role in improving ocean container security and
    reducing the vulnerabilities associated with the overseas supply chain. By
    January 2002, Customs had initiated the Container Security Initiative
    (CSI) and Customs- Trade Partnership Against Terrorism (C- TPAT) to
    enhance the security of the global supply chain and deter international
    acts of terrorism, as well as facilitate the smooth passage of commerce
    across U. S. borders. The purpose of CSI is to enable Customs to screen
    for high- risk containers in key ports overseas, while the purpose of C-
    TPAT is to improve global supply chain security in the private sector.

    1 On March 1, 2003, the U. S. Customs Service was transferred to the new
    Department of Homeland Security. The border inspection functions of the
    Customs Service, along with other U. S. government agencies with border
    protection responsibilities, were organized into the Bureau of Customs and
    Border Protection. Throughout this report, we will use the term *Customs*
    to refer to both the Customs Service and the Bureau of Customs and Border
    Protection.

    In response to your interest in Customs* efforts to counter potential
    threats posed by ocean containers as they move through the global supply
    chain, we have (1) described the purpose and program elements of the new
    CSI and C- TPAT programs, (2) examined Customs* implementation of the
    programs during the first year, and (3) assessed the extent to which
    Customs has focused on factors critical to the programs* long- term
    success and accountability.

    To address our objectives, we met with U. S. Customs officials in
    Washington, D. C., with program responsibilities for CSI and C- TPAT. We
    also met with private companies and industry associations in the United
    States to learn how C- TPAT affects the private sector. To learn about
    Customs* early experiences with CSI, we visited Canada, the Netherlands,
    and France, the countries where CSI was first implemented, to meet with
    the U. S. Customs attaches responsible for managing the implementation in
    the ports of Vancouver, Rotterdam, and Le Havre, respectively. We also met
    with members of the CSI team deployed at these three ports. In addition,
    we interviewed officials representing the governments of Canada, the
    Netherlands, and France who were involved in CSI negotiations and
    implementation. We also spoke with private sector officials in these
    countries to understand their perspectives on both CSI and C- TPAT. In
    addition, we reviewed Customs* Web site for information on the programs*
    status and activities. Finally, we used GAO reports on factors critical to
    the long- term success of organizations such as the Department of Homeland
    Security (DHS). Our methodology primarily relied on interviews with
    knowledgeable officials because both programs are new and Customs was not
    able to provide documentation regarding many of the issues that were the
    subject of our review. (For additional information on our scope and
    methodology, see app. I.)

    Results in Brief Customs developed CSI and C- TPAT in response to security
    vulnerabilities created by ocean container trade and to the concern that
    terrorists could

    exploit these vulnerabilities to transport or detonate WMDs in the United
    States. Announced in January 2002, CSI allows U. S. Customs to screen
    containers at CSI- designated foreign seaports. Placement of a CSI team
    overseas allows Customs to work with foreign customs officials to identify

    and examine high- risk containers prior to their arrival at U. S. ports.
    Customs initially targeted the top 20 foreign ports that shipped 66
    percent of total containers to the United States for CSI inclusion, and
    then expanded the program to additional strategic ports. In November 2001,
    Customs initiated C- TPAT to improve the security of containers as they

    move through the global supply chain. Under C- TPAT, Customs officials
    work in partnership with private industry, reviewing supply chain security
    plans and recommending improvements. In return, C- TPAT members receive
    the benefit of a reduced likelihood that containers traveling along their
    supply chains will be inspected for WMDs. For fiscal year 2003, the CSI
    budget is about $28 million, and the C- TPAT budget is about $9 million.
    These budgets combined are expected to increase to more than $73 million

    for fiscal year 2004 as the programs expand. During the first year,
    Customs quickly designed and rolled out CSI and CTPAT, modifying
    operations over time. Customs achieved strong participation among the
    countries and companies, respectively, that it sought to enroll in CSI and
    C- TPAT. In CSI*s first year, Customs reached agreement with 15
    governments to place Customs personnel at 24 ports and placed four or
    five- member CSI teams in 5 of these ports. 2 In C- TPAT*s first year,
    more than 1, 700 companies agreed to participate in the program, and most
    received the key benefit, a reduced likelihood of inspections for

    WMDs. As participation in these programs grew, Customs implementation
    evolved in response to challenges as they arose. For example, the first
    CSI team deployed in Europe discovered that critical information that it
    needed from the host customs administration was not readily available and,
    as a result, the CSI team was unable to achieve its goal of thoroughly
    screening containers overseas. To address this challenge, Customs
    implemented a *24- Hour Rule* requiring carriers to supply key information
    directly to Customs. Similarly, Customs initially expected that its
    account managers, who had experience working with the trade community,
    would recruit new

    C- TPAT members and assist companies with the development of their action
    plans. However, Customs later realized that C- TPAT needed staff with
    greater knowledge of supply chain security to help with the action plans
    as well as assist with other program elements. In response, Customs
    created a new supply chain specialist position, which was announced in May
    2003. These supply chain specialists will play a key role in implementing
    critical program elements designed to ensure that member companies are
    improving and maintaining supply chain security practices.

    2 The United States and Canada do not have a CSI arrangement covering
    three of these five ports because the Smart Border Accord, which was
    signed in December 2001, governs the placement of Customs personnel at
    three Canadian seaports, and preceded the announcement of CSI. However,
    Customs refers to these seaports as CSI ports.

    Customs* management and operations of CSI and C- TPAT to date show that
    Customs has not taken adequate steps to incorporate factors crucial to the
    programs* long- term success and accountability. More than 1 year into the
    implementation of CSI, Customs has not developed a systematic human
    capital plan to recruit, train, and assign the more than 120 CSI program
    staff that may be needed for long- term assignments in a wide range of

    foreign ports, some of which may require unique language capabilities and
    diplomatic skills. Likewise, Customs has not developed such a plan to
    govern the planned 15- fold expansion of C- TPAT, from a 10- person
    organization to one with more than 160 staff positions. Without human

    capital plans, Customs may be unable to anticipate potential challenges
    and put in place the workforce needed to implement CSI and C- TPAT in a
    timely manner. Similarly, Customs lacks performance measures that
    demonstrate program achievements and establish accountability, although
    they are tracking elements such as the number of countries and companies
    involved in CSI and C- TPAT. For example, the existing performance
    measures do not assess how CSI*s presence overseas helps improve the
    targeting of high- risk containers beyond Customs* existing capabilities.
    In addition, Customs has not developed any effective indicators to
    ascertain whether C- TPAT has had an impact on the members* supply chain
    security

    practices. Without indicators that measure program outcomes, Customs may
    not be able to accurately assess the programs* success or establish a
    basis for program oversight. Finally, Customs* focus on short- term
    operational planning in order to quickly implement the programs impeded
    its ability to systematically carry out strategic planning. As a result,
    Customs lacks elements of strategic planning that would improve the
    management of the programs and allow Customs to establish accountability
    for approximately $73 million in planned expenditures for

    fiscal year 2004. This report makes recommendations to the Secretary of
    the Department of Homeland Security to improve the management and
    oversight of CSI and CTPAT as they expand by developing human capital
    plans that will drive future recruitment, training and retaining
    strategies, expanding on existing performance measures to reflect outcome-
    oriented indicators, and developing strategic plans that clearly lay out
    the programs* goals, objectives, and detailed implementation strategies.
    Customs agreed with

    our recommendations and overall observations that it needs to take
    adequate steps to incorporate human capital planning, expand efforts to
    develop performance measures and develop strategic plans* factors
    necessary for the long- term success and accountability of CSI and C-
    TPAT.

    Background Ocean- going cargo containers are a critical link in the system
    of global trade. With the rise of the *just- in- time* delivery system,
    which allows companies to reduce their inventories, as well as the
    efficiencies of the maritime transportation system, the U. S. and world
    economies have become increasingly reliant on the cargo container to
    transport their goods. In fact, approximately 90 percent of the world*s
    trade moves by cargo container. Although these containers arrive from
    various ports throughout the world, about 49 percent of U. S.- bound
    containers arrive from the top 10 international ports listed in table 1.

    Table 1: Top 10 Foreign Ports, by Number of U. S.- bound Containers, 2001
    Percentage of total Number of U. S. containerized U. S.- bound Foreign
    ports bound containers

    cargo, by volume

    Hong Kong, China 558,600 9.8 Shanghai, China 330,600 5.8 Singapore 330,600
    5.8 Kaohsiung, Taiwan 319,200 5.6 Rotterdam, The Netherlands 290,700 5.1
    Pusan, South Korea 285,000 5.0 Bremerhaven, Germany 256,500 4.5 Tokyo,
    Japan 159,600 2.8 Genoa, Italy 119,700 2.1 Yantian, China 114,000 2.0

    Total (top 10 ports) 2, 764,500 48.5

    Source: GAO analysis of Customs data. Note: Number of containers has been
    rounded.

    In 2002, roughly 7 million containers entered U. S. seaports. About 87
    percent of these ocean containers entered 10 U. S. seaports, as shown in
    table 2. More than half* approximately 58 percent* of ocean container
    arrivals are concentrated in three of the largest U. S. ports: Los
    Angeles, Long Beach, and New York- New Jersey.

    Tabl e 2: Top 10 U. S. Ports, by Number of U. S.- bound Containers, 2002
    Number of U. S. bound Percentage of total containerized U. S. bound U. S.
    ports containers cargo, by volume

    Los Angeles 1,774,000 24.7 Long Beach 1,371,000 19.1 New York- New Jersey
    1,044,000 14.6 Charleston 376,000 5.2 Savannah 312,000 4.3 Norfolk 306,000
    4.3 Seattle 284,000 4.0 Tac oma 273,000 3.8 Oakland 268,000 3.7 Houston
    233,000 3.3

    Tot al (top 10) 6,241,000 87.0

    Source: GAO analysis of Port Import Export Reporting Service (PIERS) data
    as reported by U. S. Maritime Administration. Note: Number of containers
    has been rounded.

    According to research initiated by the U. S. Department of
    Transportation*s Volpe National Transportation Systems Center (Volpe),
    cargo security is affected by the number of individual companies
    contracted to facilitate the handling and movement of cargo through its
    supply chain. 3 To move a container from production facilities overseas to
    distribution points in the United States, an importer faces various
    choices regarding the logistical process such as routes and the selection
    of freight forwarders. For

    example, importers can own and operate key aspects of the overseas supply
    chain process, such as warehousing and trucking operations. Conversely,
    importers can contract with logistical service providers, such as freight
    consolidators and nonvessel operating common carriers. 4 In

    addition, importers must choose which modes of transportation to use, such
    as rail, truck or barge, to move containers from the manufacturer*s
    warehouse to the seaport of lading. According to this Volpe study, 3 DOT
    Volpe National Transportation Systems Center, Intermodal Cargo
    Transportation: Industry Best Security Practices (Cambridge,
    Massachusetts: June 2002). 4 A freight consolidator is a firm that accepts
    partial container shipments from individual shippers and combines the
    shipments into a single container for delivery to the carrier. A nonvessel
    operating common carrier is a company that buys shipping space, through a
    special arrangement with an ocean carrier, and resells the space to
    individual shippers, instead of receiving a commission.

    importers who own and operate the entire supply chain route from start to
    finish suffer the least amount of security breaches because they have
    greater control over their supply chains. Figure 1 depicts basic
    characteristics of the overseas portion of the supply chain and some areas
    of vulnerability to terrorists intent on placing a WMD in a container.
    Figure 1: Steps in Supply Chain and Some Points of Potential Vulnerability

    A report prepared by the National Defense University*s Center for
    Technology and National Security Policy states that an ocean container
    itself is ideally suited to deliver a WMD. 5 The likelihood that a
    terrorist will use a container to deliver a WMD depends on the type of WMD
    and the likelihood an ocean container would be used as the means of
    delivery. These researchers believe that it is feasible for a terrorist
    group to make a

    radiological *dirty bomb* which uses standard explosives to disperse
    radiological material, and that the ocean container would provide an ideal
    mode of transportation. On the other hand, these researchers have
    concluded, a terrorist attack using a nuclear WMD has a much lower
    feasibility because it is deemed less probable that terrorists have the
    resources and technical ability to build or obtain a workable nuclear
    weapon at this time and the nuclear WMD might be too valuable an asset to
    relinquish control by shipping it in a container. But some experts agree
    that the possibility of terrorists smuggling a nuclear WMD by ocean
    containers merits attention because the consequences would be much more
    severe than those of other types of WMDs. While there have been no known
    incidents of containers being used to transport WMDs, criminals

    have exploited containers for other illegal purposes, such as smuggling
    weapons, people, and illicit substances. Such activities demonstrate the
    vulnerability of the freight transportation industry and suggest
    opportunities for further exploitation of containers by criminals,
    including terrorist groups.

    Various experts have estimated that the cost to the U. S. economy of port
    closures due to the discovery or detonation of WMDs could be significant.
    For example, in May 2002, the Brookings Institution estimated that costs
    associated with U. S. port closures resulting from a detonated WMD could
    amount to $1 trillion. 6 Estimating the cost of discovering an undetonated
    WMD at a U. S. seaport, Booz, Allen and Hamilton reported in October 2002

    that a 12- day closure would cost approximately $58 billion. 7 5 National
    Defense University, The Virtual Border: Reducing the Risk of Seaborne
    Container Terrorism (Washington, D. C.: August 2002). 6 Brookings
    Institution, Protecting the American Homeland: A Preliminary Analysis,

    Michael O*Hanlon, et al. (Washington, D. C.: 2002). 7 Mark Gerencser, Jim
    Weinberg, and Don Vincent, Port Security War Games: Implications for U. S.
    Supply Chains, (Booz, Allen and Hamilton, 2002).

    Key Customs Programs Customs developed CSI to detect and deter acts of
    container- related Developed to Address

    terrorism at the earliest point feasible along the supply chain, and it
    developed C- TPAT to address concerns about supply chain vulnerabilities.
    Container Security

    CSI placed Customs officials in key foreign ports to detect WMDs in
    containers prior to their arrival to the United States and to deter
    terrorists from using containers to deliver a WMD. 8 C- TPAT established a
    partnership between the private sector and Customs to improve the overall
    security of international supply chains, offering participating companies
    the incentive that their containers will have a lower chance of being
    inspected for WMDs. For fiscal year 2003, CSI*s budget is about $28
    million, and CTPAT*s budget is about $9 million. Customs has proposed
    budget increases, combined total of $73 million, for fiscal year 2004 to
    support the programs* expansion plans.

    CSI Placed Customs Announced in January 2002, CSI allows Customs to screen
    for high- risk,

    Officials Overseas to Screen U. S.- bound containers at key foreign ports,
    9 a task previously carried out

    Containers only at U. S. seaports. To do this, Customs negotiates and
    enters into

    bilateral arrangements with foreign governments. These arrangements
    contain common language that specifies the placement of Customs officials,
    on a pilot basis, at foreign ports and the exchange of information between
    U. S. Customs and foreign customs administrations. Customs first targeted
    for CSI the 20 foreign ports that shipped the highest volume of ocean
    containers to the United States. These top 20 ports are located in 14
    nations and shipped a total of 66 percent of all containers that arrived
    in U. S. seaports in 2001. Customs also plans to expand CSI to an
    additional 20 to 25 strategic ports that ship a significant volume of
    containers to the United States and are considered to be strategic
    locations. According to

    Customs, these strategic ports must meet minimum requirements such as
    having nonintrusive inspection equipment and having customs officials

    8 CSI has two other program components: the use of detection technology to
    inspect highrisk containers and the use of technology to secure
    containers. However, these components were outside the scope of our
    review. We have conducted previous work in the area of inspection
    technology. See U. S. General Accounting Office, Homeland Security, Title
    III of

    the Homeland Security Act of 2002: Addendum, GAO- 02- 930T (Washington D.
    C.: July 9, 2002). In a separate effort, an interagency Container Working
    Group, co- chaired by Department of Transportation and Customs, is
    currently working on improving the physical security of the container.

    9 The CSI ports are generally the last foreign ports of lading before
    vessels arrive into U. S. seaports.

    capable of conducting inspections to support the CSI program. Customs
    proposed to increase CSI*s budget from $28.4 million in fiscal year 2003
    to $61.2 million in fiscal year 2004.

    CSI Operations To prepare a CSI team for deployment overseas, Customs
    sends an assessment team to the CSI port to collect information about the
    port*s physical and informational infrastructure and the host country*s
    customs

    operations. Customs then deploys a CSI team of approximately four to five
    Customs officials to work with the host country*s customs administration
    to identify high- risk containers departing from these ports for the
    United States. 10 Containers targeted for CSI inspection arrive at CSI
    ports by land,

    rail, or sea en route to the United States. The CSI team uses Customs*
    Automated Targeting System to screen container data and identify high-
    risk containers for inspection. 11 This system evaluates U. S.- bound
    cargo manifest data electronically and determines a container*s risk
    level. 12 To improve its screening capabilities, the CSI team further
    analyzes U. S. bound

    containers by means of data provided by host countries* customs
    administration. Host countries* customs officials then inspect containers
    that both U. S. and host customs officials identify as high risk. Although
    the arrangements do not specify that U. S. Customs officials must be able
    to observe inspections, Customs officials told us that a central tenet of
    the

    CSI concept is that U. S. Customs inspectors be able to observe and verify
    the inspections and that all partner Customs administrations accept this
    tenet.

    According to Customs officials, the most important benefits of CSI derive
    from the collocation of U. S. Customs officials with foreign customs
    officials. Prior to the implementation of CSI, Customs officials in U. S.
    ports screened container data using the Automated Targeting System and
    inspected high- risk containers on their arrival in the United States.
    With

    10 The CSI program includes a reciprocity option for partner governments
    that allows foreign customs administrations to station officers at U. S.
    seaports. As of May 2003, two countries have placed customs officers at U.
    S. seaports: Canada and Japan.

    11 In a separate review, GAO is currently assessing Customs* Automated
    Targeting System and its overall ability to identify and process cargo
    containers considered to be *high risk* for terrorism.

    12 A manifest is a document that lists in detail the total cargo of a
    vessel and is issued by a carrier or its agent or master for a specific
    voyage. Examples of data elements in a manifest include shipper,
    consignee, point and country of origin of goods, export carrier, port of
    lading, port of discharge, description of packages and goods, and date of
    lading.

    the placement of officials overseas, Customs expects that the added value
    of real- time information sharing will improve Customs* ability to target
    high- risk containers. For example, using the Automated Targeting System,
    U. S. Customs officials may identify unfamiliar consignees that have been
    flagged as high risk but are later determined not to be high risk based on
    the host customs* knowledge and experiences. Customs* presence overseas is
    intended to help ensure that containers identified as high risk are
    inspected prior to arrival in the United States. In addition, Customs
    officials hope that the collocation of its officials with foreign customs
    officials will result in relationships that enhance cooperation and
    intelligence sharing.

    Customs officials believe that CSI should facilitate the flow of trade to
    the United States and could reduce the processing time for certain
    shipments, because the screening at CSI ports will in most cases take
    place during *down time* while containers wait at the port terminal prior
    to being loaded onto vessels. In addition, CSI eliminates the necessity of
    inspecting containers for security purposes, absent additional information
    affecting their risk analyses, when they reach the United States. CSI also
    offers benefits to foreign ports that participate in the program,
    including deterrence of terrorists that may target their ports and a
    shorter time frame to resume operations in the event of a catastrophic
    incident. CSI Staffing Customs created an intra- agency task force to
    manage and operate the

    program, headed by Customs* Office of International Affairs and staffed
    with representatives from different offices within Customs. 13 In
    addition, the assessment teams that travel to CSI ports to survey the
    operational needs comprise members from these various offices. Customs
    officials state that Customs relies on its overseas attaches to facilitate
    CSI negotiations with foreign governments, oversee CSI operations at one
    or more CSI ports, 14 and report CSI operations to the task force, in
    addition to their existing Customs duties. Each CSI team deployed at a
    foreign port consists of four to five team

    members: two to three inspectors from Customs* Office of Field 13 The CSI
    Task Force consists of individuals from Customs offices, such as the
    Offices of International Affairs, Field Operations, Intelligence,
    Information and Technology, and Training and Development.

    14 For example, the Attache in France is responsible for Customs
    operations in Belgium, France, and Spain.

    Operations, one intelligence research analyst, and one agent serving as a
    CSI team leader representing the Office of Investigations. (See fig. 2.)
    According to Customs officials, while Customs inspectors review container
    data using the Automated Targeting System and seek assistance from local
    customs to screen containers, the intelligence analyst conducts further
    analyses using additional research tools and real- time information
    sharing with local customs* intelligence analysts. The team leader serves
    as a liaison between the CSI team and the foreign customs administration
    and reports to the Customs Attache regarding CSI operations. Currently,
    each

    CSI team is assigned to a foreign port under a temporary duty assignment
    and is replaced by other Customs personnel after a 120- day period.
    However, Customs officials told us that they are currently seeking to
    convert these temporary positions to permanent CSI staff positions at
    foreign ports.

    Figure 2: CSI Task Force Organization Chart, March 2003

    CSI Funding The budget for the CSI program is expected to grow as the
    program expands, as shown in table 3. In fiscal year 2002, Customs spent
    about $3. 3 million, using emergency supplemental no- year funds to
    support

    preliminary CSI needs. 15 These funds were budgeted for such needs as
    travel to promote the program to foreign customs, the purchase of computer
    equipment for CSI ports, and the maintenance of a CSI team in Rotterdam.
    Customs* fiscal year 2003 budget is approximately $28.4 million to support
    CSI operations in an anticipated 21 foreign ports and conduct assessments
    of 6 additional ports. As of March 2003, Customs had spent $3.4 million of
    fiscal year 2003 funds to support operations in 9 ports. As part of the
    new DHS budget, Customs requested $61.2 million to support anticipated CSI
    operations in 30 foreign ports in fiscal year 2004.

    Tabl e 3: CSI Budget Plans and Obligations, Fiscal Years 2002* 2004 Fiscal
    year CSI budget plan Budget amount Obligations

    2002 Operate in 1 port and conduct assessments in additional ports. a $4.
    3 million $3.3 million b

    2003 Operate in 21 ports and conduct assessments in 6

    $3.4 million additional ports. $28. 4 million (as of 3/ 14/ 03) 2004
    Operate in 30 ports. $61. 2 million proposed Not applicable Source: GAO
    analysis of Customs information. a The budget plan for FY 2002 does not
    include funds for CSI operations in the 3 Canadian ports

    because these were funded separately until fiscal 2003, when they were
    combined into the overall CSI program. b These funds were expended.

    15 Emergency supplemental funds were provided to Customs under P. L. 107-
    117. The fiscal year 2002 amounts do not include the costs of operating in
    three Canadian ports, which were funded separately by Office of Field
    Operations.

    C- TPAT Works with Private Announced in November 2001, C- TPAT is a
    voluntary partnership program

    Sector to Improve Supply between the business community and Customs,
    designed to enhance the

    Chain Security security of international supply chains and thus reduce the
    number of

    containers that otherwise might be screened for WMDs because of risk
    considerations. Customs plans to achieve these objectives by encouraging
    importers, freight forwarders, carriers, and other logistics service

    providers to improve security practices and to persuade their service
    providers along their supply chain to do the same. Customs accomplishes
    this through partnership agreements and by reviewing and following- up on
    company supply chain security profiles. In return, Customs offers a number
    of incentives, including the key benefit of a reduced likelihood of
    inspection for WMDs. 16 Customs is still developing critical aspects of
    the program intended to ensure that member companies respond to C- TPAT
    recommendations for improving and maintaining supply chain security

    practices. Like CSI, the budget for C- TPAT is expected to increase as the
    program expands. C- TPAT Operations Prior to recruiting C- TPAT members,
    Customs worked with industry

    leaders to develop a set of recommendations intended to improve the
    security practices for specific segments of the supply chain (e. g., air/
    sea/ land carriers, customs brokers, importers, manufacturers,

    warehouses, freight forwarders, and domestic ports). The C- TPAT security
    recommendations are meant to serve as a guide for members to follow and
    are not mandatory. For example, a common C- TPAT recommendation encourages
    carriers, warehouses, importers, and manufacturers to affix, replace,
    record, track, and verify seals on containers, but its implementation is
    not obligatory. As a first step in C- TPAT membership, a company must sign
    an agreement

    with Customs signifying its commitment to enhance its supply chain
    security by embracing C- TPAT security recommendations and to work with
    its service providers throughout its supply chain to enhance security
    processes. At this point, the company becomes a C- TPAT member, and its
    risk score is partially reduced. 17 After signing the agreement, the
    company

    16 C- TPAT member companies are not exempt from Customs trade compliance
    and enforcement activities. 17 Specifically, Customs reduces a company*s
    overall risk score in Custom*s Automated Targeting System. A lower score
    indicates lower risk and a decreased likelihood of being inspected for a
    WMD.

    is required to self- assess its supply chain security practices, using the
    CTPAT industry security recommendations as a guideline, and document its
    observations in a security profile. The security profile is intended to be
    an executive summary of the company*s current and future supply chain

    security practices and vulnerabilities, as well as an indication of how
    these recommendations were communicated to its business partners overseas.

    Using a checklist based on the C- TPAT recommendations, C- TPAT officials
    review the security profile to understand the company*s security practices
    and decide whether to further reduce the company*s risk score. To help
    complete their assessments of companies, C- TPAT officials also seek

    information from other Customs offices on the company*s historic
    relationship with Customs, such as the results of trade compliance
    examinations or any past criminal investigations. Once any concerns that
    C- TPAT officials may have raised are resolved, Customs will further
    reduce the company*s risk score. Through standard feedback letters,
    Customs notifies companies of the results of the review process and
    requests additional information on security practices.

    According to Customs, C- TPAT participants are never rejected from the
    program because of an inadequate security profile or for adverse
    information discovered during the review process. On the contrary, Customs
    officials say that they are committed to working with these companies,
    even if there are serious security or trade compliance weaknesses.
    However, Customs may, under certain circumstances, withhold or reduce C-
    TPAT benefits. Furthermore, Customs officials stated that they may remove
    a company from C- TPAT membership if they

    determine that its commitment is not serious or that it has intentionally
    misled Customs. Other program elements are intended to ensure that member
    companies have taken action to improve and maintain supply chain security
    practices. Customs intends to use validations to establish accountability
    by verifying

    that information on a company*s security profile is accurate and complete.
    Customs intends to use action plans to communicate the weaknesses it
    identifies and outline the steps that companies need to take to strengthen
    their supply chains. Customs also plans to use annual assessments, or
    questionnaires, to follow up on a variety of open- ended security issues.
    C- TPAT Staffing Customs created a C- TPAT management team to oversee and
    implement

    the program. Currently, C- TPAT staff includes a director, four program
    managers, and five program officers, working at Customs* headquarters

    and organized by trade sectors that cover all aspects of C- TPAT
    membership (see fig. 3). According to C- TPAT officials, program managers
    provide overall program direction and guidance, as well as program
    promotion within trade sectors. Program officers, with help from program
    managers, provide guidance to companies on how to complete their security
    profiles as well as review security profiles and prepare feedback letters.
    In addition to C- TPAT staff, account managers who are located at

    Customs sites across the country and manage a portfolio of companies on
    trade compliance matters, also assist with the C- TPAT program. 18 Over
    300 account managers promote the program and serve as points of contact
    for many companies seeking information about C- TPAT.

    Figure 3: C- TPAT Organizational Structure, May 2003

    18 Under the Office of Field Operations* Trade Compliance and
    Facilitation, account managers work with selected companies to help
    increase their level of trade compliance through one- on- one interaction.
    For companies that do not have an account manager, being

    designated an account and assigned an account manager is considered a
    benefit of joining C- TPAT.

    C- TPAT Funding The budget for C- TPAT is expected to increase as the
    program expands. Funding for C- TPAT began in April 2002, with emergency
    supplemental noyear funds totaling $8.3 million. 19 According to Customs,
    it carried over unexpended funds to support a C- TPAT budget of $8.8
    million for operations in fiscal year 2003. Customs* proposed C- TPAT
    budget for fiscal year 2004 is $12.1 million and includes a request for
    157 security specialist positions. 20 Table 4 depicts budget plans and
    obligations for fiscal years 2002 to 2004. Tabl e 4: C- TPAT Budget Plans
    and Obligations, Fiscal Years 2002* 2004

    Fiscal year C- TPAT budget plan Budget amount Obligations

    2002 Program promotion, equipment, personnel, and other expenses. $8. 3
    million $184, 694 2003 Program promotion, equipment, personnel,

    $4.7 million and other expenses. $8. 8 million (as of 3/ 31/ 03) 2004
    Program promotion, equipment, personnel,

    and other expenses. $12. 1 million (proposed) Not applicable Source: GAO
    analysis of Customs information.

    Customs Quickly Responding to concerns about container security, Customs
    quickly rolled

    Rolled Out CSI and out CSI and C- TPAT, adjusting its implementation of
    the programs to meet challenges. Early on, the programs enlisted the
    participation of many

    C- TPAT, Adapting countries and companies, respectively. By January 2003,
    Customs had

    Programs to Meet entered into bilateral arrangements with foreign
    governments to place

    Challenges Customs officials at 24 ports and soon deployed CSI teams to 5
    of them. Similarly, by the end of C- TPAT*s first year, Customs had
    recruited

    approximately 1, 700 companies to become C- TPAT members, received
    security profiles from about half of these companies, and sent feedback
    letters to half of the companies submitting security profiles. As CSI and
    CTPAT evolved, Customs adapted its implementation of the programs as it

    19 Emergency supplemental funds were provided to Customs under P. L. 107-
    117. 20 Beginning in fiscal year 2004, C- TPAT is assuming greater level
    of responsibility for funding all of Customs industry partnership
    programs, such as the Business Anti- Smuggling Coalition and the Carrier
    Initiative Program.

    encountered challenges. For example, experiences at one of the first CSI
    ports of deployment showed Customs that it needed to change the way it
    collected the manifest data necessary for targeting high- risk containers
    and the way it selected staff for CSI assessment teams. Similarly, as
    Customs realized that its account managers, who were on the *front lines,*
    were not prepared to provide companies the level of assistance they
    required, Customs developed a new supply chain specialist position to
    assist with key program elements and limited the role of account managers
    to promoting the program. These supply chain specialists will play a key
    role in ensuring that member companies are improving and maintaining
    supply chain security practices.

    Many Countries Agreed to In CSI*s early stage of implementation, Customs
    entered into numerous

    Join CSI; Program bilateral arrangements with foreign governments to place
    Customs officials

    Modifications Made in at CSI ports and soon deployed several CSI teams;
    however, at the port of

    Response to Early Rotterdam, Customs found that logistical and legal
    challenges limited the

    CSI team*s ability to obtain manifest data essential to screen high- risk
    Challenges

    containers. To ensure that it would obtain complete and timely manifest
    data, Customs implemented the 24- Hour Rule, which allows Customs to
    directly receive from carriers information necessary for screening
    containers overseas. In addition, after realizing that the early
    composition of CSI assessment teams and the survey instrument used by the
    teams were inadequate, Customs modified the teams by building in
    additional expertise and developed comprehensive and standardized port
    surveys.

    Most Target Governments During CSI*s first year of implementation, Customs
    completed

    Agreed to CSI in First Year, Some arrangements with 15 governments to
    place officials at 24 seaports. First,

    CSI Teams Deployed Canada agreed to the placement of U. S. Customs
    personnel at 3 seaports

    under the Smart Border Declaration, which preceded the announcement of
    CSI. 21 Then, between January 2002 and January 2003, Customs concluded
    bilateral arrangements with 12 governments covering 18 of the 20 seaports

    that ship the highest volume of containers to the United States, as well
    as 2 other governments representing 3 strategic ports.

    During the program*s initial year, Customs deployed CSI teams to 5 ports,
    a few months after the arrangements were signed. As of May 2003, Customs

    21 U. S. Customs officials at Canadian seaports monitor containers shipped
    from Canada to the United States, as well as containers shipped from other
    foreign ports, off- loaded at Canadian ports, then transported to the
    United States by land.

    had placed CSI teams at 7 additional ports. The number of CSI deployments
    as of May 2003 represented about half of the 21 anticipated CSI ports
    outlined in the CSI budget for fiscal year 2003. Deployments are sometimes
    delayed, according to Customs officials, for reasons such as the logistics
    of placing Customs staff overseas and the readiness of the foreign ports.
    (See table 5 for list of CSI arrangements and deployments.)

    Tabl e 5: Dates of CSI Bilateral Arrangements and Deployments by Targeted
    Ports, May 2003 Date arrangement

    CSI team deployments CSI team deployments Country Port signed in first
    year after first year Smart border accord

    Canada Halifax December 2001 March 2002 Montreal December 2001 March 2002
    Vancouver December 2001 March 2002

    Top 20 por t s

    Belgium Antwerp June 2002 February 2003 China Shanghai October 2002 a

    Yantian October 2002 a France Le Havre June 2002 December 2002 Germany
    Bremerhaven August 2002 February 2003

    Hamburg August 2002 February 2003 Hong Kong Hong Kong September 2002 May
    2003 Italy Genoa November 2002

    La Spezia November 2002 Japan Tokyo September 2002

    Nagoya September 2002 Kobe September 2002 Yo k o h a ma September 2002
    March 2003 The Netherlands Rotterdam June 2002 August 2002 Singapore
    Singapore September 2002 March 2003 South Korea Pusan January 2003 Spain
    Algeciras January 2003 Tai wan Kaohsiung Thailand Laem Chabang United
    Kingdom Felixstowe December 2002

    (Continued From Previous Page)

    Date arrangement CSI team deployments CSI team deployments Country Port
    signed in first year after first year

    CSI strategic ports

    Malaysia Klang January 2003 Tanjung Pelepas January 2003 Sweden Gothenburg
    January 2003 May 2003 Source: GAO analysis of Customs data.

    a China has *agreed in principle* to join CSI but has not signed a CSI
    bilateral arrangement.

    According to Customs, between the time of the initial deployments for the
    first five CSI ports and May 2003, the CSI teams screened manifest data
    for more than 606,000 containers, looking for high- risk cargo. Their
    screening efforts identified a total of 2,091 containers they considered
    to be high risk that were then inspected by host customs administrations.
    Officials from the three foreign customs administrations we visited told
    us that, so far, the CSI requests for inspection had not been a burden,
    and that they had often invited the CSI teams to observe inspections. At
    the three CSI ports in Canada, around 343,000 containers were screened,
    and 2,022 containers

    were inspected between the time of the CSI deployments in March 2002 and
    May 2003. At the port of Rotterdam, the CSI team screened more than
    203,000 containers, and Dutch customs inspected 54 containers between
    September 2002 and May 2003. At the port of Le Havre, the CSI team
    screened more than 59, 000 containers, and French customs inspected 15
    containers between December 2002 and May 2003. A Customs official

    informed us that these inspections did not reveal any WMDs. Program
    Operations Evolved as

    As the first CSI team arrived in Rotterdam, Customs encountered data CSI
    Team in First Port Faced

    limitations that required revising its approach to obtaining needed
    Challenges

    information for screening containers. CSI operations overseas involve the
    utilization of complete, accurate, and timely manifest data to target
    highrisk containers bound for the United States. However, the manifest
    information in Customs* Automated Targeting System was insufficient,
    because carriers did not always submit manifest data to U. S. Customs
    electronically, completely, and prior to the containers* departure from
    foreign ports to the United States. Therefore, Customs planned to
    supplement its own manifest database with manifest data provided by

    foreign customs administrations at CSI ports. Soon after deploying CSI
    teams at the first European CSI port of Rotterdam, Customs realized that
    its ability to effectively screen containers was limited by the host
    customs administration*s lack of sufficient export

    manifest data for container traffic leaving Rotterdam and headed for U. S.
    seaports. According to U. S. Customs officials, like most customs
    administrations, Dutch customs does not completely track export data.
    Although the CSI team was provided manifest data on U. S.- bound
    containers by the host customs, this information generally was limited to
    containers transferred from one vessel to another at Rotterdam, and even
    then, the data sometimes arrived after the vessel*s departure. In
    addition,

    the CSI team did not have information for containers remaining on board a
    vessel that was destined for the United States but that stopped at the
    port of Rotterdam. Furthermore, the CSI team did not have manifest data
    for containers leaving Rotterdam after arriving via truck, train, or barge
    from other countries.

    Customs also learned soon after the CSI team*s arrival in Rotterdam that
    the physical layout of the port and the sovereign laws of the Netherlands
    posed other challenges to the CSI team*s receipt of needed manifest
    information. For example, the CSI team discovered that in the port of
    Rotterdam there were 40 different physical locations where Dutch Customs
    received paper manifests. In addition, the CSI team learned that under
    Dutch law, paper manifests could not be removed from certain locations.
    Given the logistical challenges of compiling information from the 40

    locations, as well the limitations posed by existing Dutch law, the two
    customs administrations realized that providing the CSI team with this
    information would not be feasible. Customs officials told us that without
    complete and accessible manifest data, the CSI team could not achieve its
    goal of screening containers at foreign ports.

    On the basis of its experiences in Rotterdam, Customs took steps to modify
    its approach. First, Customs expedited the development and finalization of
    its 24- Hour Rule, which established new requirements that carriers
    present complete vessel cargo declarations to Customs 24 hours before
    loading cargo aboard a vessel at foreign ports, regardless of whether
    these ports are CSI or non- CSI ports, for transport to the United States.
    22 This

    22 The 24- Hour Rule is Customs* rule on the *Presentation of Vessel Cargo
    Declaration to Customs Before Cargo Is Laden Aboard Vessel at Foreign Port
    for Transport to the United States,* implemented in December 2002. For
    example, according to Customs officials, for a U. S.- bound container
    initially loaded onto a vessel in St. Petersburg, Russia that then stops
    at the port of Rotterdam before arriving at a U. S. port, the carrier must
    submit a manifest to U. S. Customs 24 hours before the container is loaded
    onto the vessel in St. Petersburg. For a container that is transported to
    the port of Rotterdam by train then loaded onto a vessel to be shipped to
    the United States, the carrier must submit a manifest 24 hours before the
    container is loaded onto a vessel in Rotterdam.

    amendment allowed Customs to overcome the obstacle of obtaining manifest
    data on containerized exports bound for the United States at foreign
    ports* a critical element in the process of screening containers overseas.
    Instead, the CSI teams would now have direct access to the needed manifest
    data, thus lessening their dependence on foreign customs to provide it.
    Customs also modified the composition and procedures of CSI assessment

    teams in order to gather all information needed for a full understanding
    of port operations prior to the CSI team*s arrival. Customs officials
    stated that the insufficiency of information collected by the assessment
    teams at Rotterdam delayed Customs* discovery that the port*s manifest
    data for U. S.- bound containers was incomplete. The inadequacy of the
    information collected by the team resulted, in large part, from the team*s
    lack of subject matter expertise and a tool to standardize the collection
    of relevant information at CSI ports. Customs officials told us that they
    have since identified the required skills and have incorporated staff with
    significant expertise from various offices within Customs to properly
    survey foreign ports. In addition, Customs developed a standardized survey
    questionnaire to obtain information about a host nation*s port, such as
    the physical infrastructure and the availability of manifest and cargo
    information. Furthermore, Customs now collects the same information from
    foreign customs administrations in advance in an effort to inform the
    assessment teams prior to their visits.

    Many Companies Enrolled Customs quickly designed C- TPAT and rolled- out
    some key program

    in C- TPAT, Program elements, adjusting its implementation over time.
    Since the beginning of

    Evolving Over Time the program, Customs enrolled a large number of
    companies across the

    United States, receiving security profiles from half of those companies
    and providing feedback letters to half of the companies that submitted
    security profiles. More recently, Customs began pretesting another program
    element, validations, with a few companies. Initially, Customs expected
    that its account managers, who had experience working with the trade
    community, could promote the program and help companies develop action
    plans. However, Customs soon realized that it needed staff with a
    different skill set, supply chain security expertise, to help with future
    program elements, including validations and action plans. In response,
    Customs created a new supply chain specialist position, which was
    finalized in May 2003. Customs will continue to modify the program as it
    becomes aware of needed changes and implements other key program elements.

    Numerous Companies Enrolled In December 2001, the first charter members,
    seven importers, signed

    in C- TPAT Program agreements and enrolled in C- TPAT. 23 Beginning in
    February 2002, C- TPAT invited importers that were already participating
    in Customs* Low- Risk

    Importer Initiative to join C- TPAT. 24 Open enrollment for all other
    importers began in April 2002, and enrollment for other trade sectors
    opened thereafter. Customs* outreach targeted large to medium- sized
    companies in order to immediately cover a large percentage of the trade
    entering the United States. C- TPAT, in consultation with private- sector
    partners, plans to expand the program to foreign warehouse operators and
    manufacturers. Figure 4 depicts C- TPAT enrollment time line by type of
    industry. Figure 4: Time line of C- TPAT Enrollment Opportunities

    According to C- TPAT officials, in January 2003, approximately 1,700
    companies had signed C- TPAT agreements, becoming C- TPAT members and
    receiving the benefit of a partially reduced risk score. During the first
    year of the program, more than 800 of these companies had completed the
    next step in the program and submitted security profiles to Customs.
    Customs sent feedback letters to 429 companies, granting 416 of them full

    23 The seven charter members included British Petroleum, DaimlerChrysler,
    Ford Motor Company, General Motors Corporation, Motorola, Sarah Lee
    Corporation, and Target Corporation. 24 The Low- Risk Importer Initiative
    is a trade compliance program designed to significantly

    reduce Customs examinations for high compliant importers. The low- risk
    designation means that Customs has conducted a review of the importer's
    compliance assessments, targeted cargo exams and document reviews, account
    manager evaluations, compliance measurement, enforcement results, and
    financial health.

    program benefits, including a further reduction in their company risk
    scores. The remaining 13 companies received feedback letters from Customs
    informing them that their profiles were insufficient for the

    companies to be granted full benefits. Table 6 provides information on the
    status of the C- TPAT program membership by type of industry sector and
    status of key program elements. By May 2003, the number of agreements
    signed nearly doubled to 3,355.

    According to C- TPAT officials, the 10 program staff were able to review
    all 1,837 security profiles and prepare all 1, 105 feedback letters in a
    timely manner. Customs officials told us that they had not removed any

    companies from C- TPAT membership due to the determination that a member
    company*s commitment is not serious or that a member company had
    intentionally misled Customs or for other matters. As of the end of May
    2003, Customs had not fully implemented other critical program

    elements, such as validations, company action plans, and annual
    assessments, designed to ensure that companies have taken action to
    improve and maintain supply chain security practices. A few validations

    had been completed, as the concept was being pretested. No action plans or
    annual assessments had been prepared.

    Table 6: Status of C- TPAT Membership by Industry Sector and Key Program
    Elements, January 2003 and May 2003 Brokers, freight forwarders, Domestic
    port nonvessel

    authorities and operating

    terminal Key program

    Importers Carriers common carriers

    operators Total elements

    Jan. May Jan. May Jan. May Jan. May Jan. May

    Agreements signed 1,106 2,119 134 410 466 806 0 20 1,706 3,355

    Security profiles submitted to Customs 517 1,088 88 242 254 499 0 8 859
    1,837

    Feedback letters sent by Customs 306 623 37 163 86 312 0 7 429 1,105

    Validations (pretested) 0 15 0 0 0 0 0 0 0 15

    Action plans 0 0 0 0 0 0 0 0 0 0

    Annual assessments 0 0 0 0 0 0 0 0 0 0

    Source: Customs.

    C- TPAT Program Operations Are Customs has adjusted elements of C- TPAT
    operations since the program*s

    Evolving Over Time inception and plans to continue doing so as it gains
    experience and begins

    implementing other program elements. Initially, Customs expected to use
    account managers to recruit companies and field general questions about
    the application process. Customs also expected that account managers

    would help companies develop action plans in response to Customs
    assessments of supply chain security practices. However, C- TPAT officials
    later realized that account managers lacked the skill set necessary to

    provide more than basic program information to companies. In response,
    Customs took action to hire supply chain specialists to provide the
    requisite skill set needed to implement various C- TPAT program elements
    and limited the role of account managers to promoting the program. Account
    managers were instructed to refer any technical inquiries from

    applicants about completing their security profiles to the four C- TPAT
    program managers. In October 2002, Customs began the process of developing
    a new position description for supply chain specialists and obtaining
    authorization to hire more than 150 such specialists. In May 2003, the
    specialist position was announced. C- TPAT officials plan to hire 40
    specialists by the end of fiscal

    year 2003. According to C- TPAT officials and program documents,
    specialists will be used to guide companies in the development of their
    security profiles, conduct validations, develop action plans, and
    facilitate annual assessments. However, given the need to complete over
    3,000 validations and establish accountability, the C- TPAT officials most
    recently told us that the specialists would focus on conducting
    validations and action plans. Early implementation of the program focused
    on recruiting companies and

    collecting information on companies* security practices. So far, companies
    have only had to report on their existing and planned security practices.
    As the program evolves, validation and action plans will be used by
    Customs to advise C- TPAT members to adopt new security measures that
    could impose increased costs if adopted. According to C- TPAT officials,
    supply

    chain specialists will play a critical role in implementing the next C-
    TPAT program elements while balancing the dual goals of improving security
    with facilitating trade. The supply chain specialists, according to C-
    TPAT officials, will increase the program*s creditability by bringing on
    experts who can make feasible and meaningful recommendations that will
    compel companies to change their security practices. C- TPAT officials
    told us the program will continue to evolve as the other program elements
    such as the

    company action plans and annual assessments are developed and implemented
    and lessons are learned.

    Customs Has Not Although CSI and C- TPAT are evolving into major tools in
    the U. S. war

    Adequately against terrorism, in implementing the programs, Customs has
    not taken

    adequate steps to incorporate human capital planning, develop Incorporated
    Factors performance measures, and plan strategically* factors essential to
    the

    Critical to Programs* programs* long- term success and accountability. 25
    While Customs was able

    Success and to meet the programs* initial staffing needs, it has not
    devised a systematic

    plan to recruit, train, and retain the expected fivefold increase in CSI
    Accountability

    overseas staff by fiscal year 2004. In addition, Customs lacks a plan for
    increasing the number of C- TPAT staff almost 15- fold, from 10 to more
    than 160, while it rolls out new program elements. Although Customs had
    created some performance measures, such as tallying the number of
    countries and companies that have enrolled in the CSI and C- TPAT,
    respectively, it has not developed measures that establish accountability

    and measure program achievements. For example, Customs lacks measures that
    assess the impact of CSI and C- TPAT on improving targeting and security
    practices, respectively* the programs* fundamental goals. In its effort to
    rapidly implement the programs and enroll participants, Customs focused on
    short- term operational planning. As a result, Customs lacks the elements
    of strategic planning that would allow it to establish program
    accountability for approximately $73 million in funds budgeted for fiscal
    year 2004.

    CSI and C- TPAT at Critical Customs has come to a critical point in its
    management of CSI and C- TPAT,

    Point as they transition from start- up programs to mature global programs
    on the

    front lines of the U. S. effort to address container security and protect
    25 In a report on the formation of DHS, we identified from our body of
    work the major success factors that DHS officials will need to consider to
    successfully manage the new department. Drawing on that list, we
    identified three factors critical to the management of CSI and C- TPAT.
    Human capital planning includes thinking strategically about how to put
    people with the right set of skills, in the right jobs at the right time.
    Performance measures help demonstrate an organization*s level of progress
    in achieving results and inform decision making. Strategic planning
    includes involvement of stakeholders; assessment of

    environments; and the alignment of activities, core processes, and
    resources to support mission objectives. See U. S. General Accounting
    Office, Major Management Challenges and Program Risks: Department of
    Homeland Security, GAO- 03- 102 (Washington, D. C.: January 2003).

    global commerce. Whereas Customs quickly launched the programs in response
    to homeland security concerns, the programs have now reached the stage
    where Customs projects a rapid expansion to additional countries and
    companies, as well as additional C- TPAT program elements, such as
    validations. Furthermore, Customs has proposed to commit significantly
    more resources to both of these programs. (See fig. 5.) For example, the
    CSI budget will increase from $4.3 million in the first year to more than
    $61 million proposed for fiscal year 2004, and C- TPAT staff levels will
    jump from approximately 10 to more than 160 by the end of fiscal year
    2004.

    Figure 5: Budgets and Anticipated Growth for CSI Ports and C- TPAT Staff,
    Fiscal Years 2002 and 2004

    Customs Has Not Created Over 1 year into the implementation of CSI and C-
    TPAT, Customs has not

    Human Capital Plans for CSI developed a human capital plan that
    systematically addresses long- term

    and C- TPAT staffing needs such as recruiting, training, and retaining
    personnel for these programs. A key element of human capital planning
    includes thinking

    strategically about how to put the right people in the right jobs at the
    right time. By the end of fiscal year 2004, Customs will need to attract
    at least 120 CSI employees with the skills to identify high- risk
    containers at 30 ports and who are willing to live in challenging
    environments. Ultimately,

    Customs envisions maintaining CSI teams at 43 or more ports. C- TPAT
    intends to hire and train more than 150 supply chain specialists within
    the next few years to review company security profiles for weaknesses,
    identify solutions, and maintain company relations to ensure that
    voluntary improvements are made. While short- term human capital decision
    making

    was necessary in the programs* first year to address the challenge of a
    rapid start- up, Customs is now required, as a result of its transfer to
    DHS, to face these and other important human capital questions to ensure
    CSI*s and CTPAT*s long- term success. 26 Deploying Customs staff to
    overseas CSI ports will be a complex, multiyear

    task. Customs seeks CSI candidates with targeting, diplomatic, and
    language skills. Customs officials stated that they did not experience
    significant difficulties in finding qualified staff to fill its short-
    term human capital needs from among the pool of existing Customs
    employees, such as inspectors from the Office of Field Operations.
    However, Customs anticipates creating 2- to 3- year permanent assignments
    to replace its current 120- day temporary duty assignments, which could
    strain existing resources. In spite of the potential challenges Customs
    could face, CSI officials said that they had not documented a human
    capital plan and would instead, in the near term, rely exclusively upon
    other Customs offices such as the Office of Field Operations to use their
    own standards to screen and

    make final selections of CSI staff for placement at CSI ports overseas.
    Customs faces a daunting task as it prepares for its future human capital
    needs at key CSI ports overseas, including strategic ports in countries
    where it may be difficult to attract U. S. personnel. Specifically,
    Customs* port status planning document projects the deployments of CSI
    teams in fiscal year 2004 to seven countries (Brazil, China, Greece, Sri
    Lanka, Thailand, Turkey and the United Arab Emirates) for which the
    Department of State requires pay compensation to U. S. government
    officials for hardships they may encounter while working in these
    locations. 27 As an example of how challenging it can be to place staff
    overseas, we found that the Department of State, whose staff routinely
    serves overseas, had

    difficulty filling positions in hardship posts and that, as a consequence,
    the affected embassies were hampered in their ability to effectively carry
    out U. S. foreign policy objectives. The difficulties faced by the
    Department of State demonstrate that staffing posts abroad with
    appropriately skilled

    26 P. L. 107- 296, Nov. 25, 2002, established the new department. The
    legislation requires all agencies moving into DHS, such as Customs, to
    appoint chief human capital officers and include human capital planning in
    performance plans and performance reports. See U. S. General Accounting
    Office, Homeland Security: Management Challenges Facing Federal
    Leadership, GAO- 03- 260 (Washington, D. C.: Dec. 20, 2002).

    27 As of May 2003, Customs had not reached agreements with six of these
    countries, but had reached *agreement in principle* with China.

    personnel is a challenge even for agencies with a long history of
    recruiting and placing staff overseas. Without a human capital plan that
    includes recruiting and training strategies, Customs may be unable to
    identify and develop the human resources necessary to handle the staffing
    for the expanded number of CSI ports.

    As with CSI, Customs plans to expand C- TPAT by hiring over 150 additional
    staff that will help implement new program elements such as validations
    and actions plans. The duties of these new staff, or supply chain
    specialists, are to identify, recommend, and negotiate with member
    companies to undertake corrective actions to improve supply chain
    security, as well as to guide companies through the C- TPAT process.
    Customs officials said that they expect to hire 40 supply chain
    specialists in

    fiscal year 2003 and the remaining number after that. However, although
    Customs acknowledged the importance of human capital planning for CTPAT,
    Customs officials indicated that they have been unable to devote resources
    to developing a human capital plan that outlines how C- TPAT will increase
    its staff 15- fold and implement new program elements that

    will require training. A human capital plan that emphasizes recruitment,
    retention, and training is particularly important given the unique
    operating environments and personnel requirements of the two programs.
    According to Customs

    officials, the professional and personal relationships that CSI team
    members and C- TPAT supply chain specialists build with their clients over
    time will be critical to the long- term success of both programs. For
    example, Customs has indicated that a key benefit of CSI is the ability of
    Customs officials to work with their foreign counterparts to obtain
    sensitive information that enhances its targeting of high- risk containers
    at the foreign ports. If Customs fails to establish these good working
    relationships, the added value of targeting from foreign ports is called
    into question. Similarly, Customs officials indicated that C- TPAT*s
    success at improving supply chain security will depend, in large part, on
    supply chain specialists* ability to persuade companies to voluntarily
    adopt C- TPAT recommendations. Given the reliance of CSI and C- TPAT staff
    on

    relationships and persuasion rather than authority, a human capital plan
    that regularly places personnel with language skills and the ability to
    work effectively in these environments will maximize the programs*

    performance. In the absence of a human capital plan, Customs may be unable
    to anticipate potential obstacles to placing the right people in the right
    jobs at the right time.

    Customs Developed Limited Customs has attempted to create some performance
    measures for CSI and

    Performance Measures C- TPAT, but neither program has developed measures
    that reflect progress

    in achieving program goals. Organizations use performance measures to help
    demonstrate the level of progress in achieving results, to inform decision
    making, and to hold managers accountable. To better articulate a results-
    orientation, organizations create a set of performance goals and measures
    that addresses important dimensions of program performance.

    Using intermediate goals and measures, such as outputs or intermediate
    outcomes, would allow Customs to measure progress toward enhancing the
    security of U. S.- bound ocean container trade, the primary goal of these
    programs. 28 As other programs are proposed to address homeland security
    needs, DHS and the Congress must have access to credible performance
    information that allows them to make resource allocation decisions across

    programs and hold managers accountable. Customs officials had developed
    some measures for CSI and C- TPAT that simply quantify program results
    like operational activities and efforts. For example, Customs tracks the
    number of CSI teams operating in foreign ports and the number of countries
    that have signed up to participate in CSI, as well as the number of CSI
    inspections. Similarly, for C- TPAT, Customs tracks results like the
    number of companies from different industrial sectors that participate in
    the program and the percentage value of cargo imported by C- TPAT
    companies. These measures have served as useful indicators of operational
    results.

    However, Customs had not developed measures to help assess how CSI*s
    presence overseas helps improve targeting of high- risk containers beyond
    Customs* existing capabilities. As previously discussed, Customs officials

    stated that the most important benefit derives from the collocation of U.
    S. and foreign customs officials, which provides them with additional
    information that should enhance Customs* targeting abilities. However,
    Customs does not analyze statistics to ascertain the nature and extent of

    the contributions made by foreign customs administrations in determining
    whether a particular container should be targeted or inspected. Customs
    officials told us that they had not had the opportunity to prepare
    performance measures that will help evaluate CSI*s outcomes. In the

    28 U. S. General Accounting Office, Agency Performance Plans: Examples of
    Practices That Can Improve Usefulness to Decisionmakers, GAO/ GGD/ AIMD-
    99- 69 (Washington, D. C.: Feb. 26, 1999).

    absence of performance indicators that provide a measure of the program*s
    success, the benefits of placing personnel overseas are unclear. On the
    other hand, Customs developed a performance measure to indicate

    whether C- TPAT has resulted in improved security practices, using the
    results of trade compliance audits as a proxy. This indicator uses select
    data elements derived from trade compliance audits, such as whether the
    container seals indicated possible tampering and whether the manifest
    contained data discrepancies (e. g., whether cargo weight significantly
    changed between export and arrival). While this is a useful first step,
    its effectiveness is limited by the fact that it compares two different
    populations, contrasting the behavior of C- TPAT members with that of
    nonC-

    TPAT members. A more reliable measure of program impact would compare
    companies* trade compliance before and after they enroll in CTPAT. As of
    May 2003, Customs had not developed any other indicators to ascertain
    whether C- TPAT has had an impact on the members* supply chain security
    practices. Recent efforts to validate the C- TPAT security profiles
    provide Customs with an opportunity to establish baseline data to later
    determine whether members* security practices improve over time. The
    validations also provide Customs an opportunity to authenticate the
    information contained in security profiles and determine whether the
    company merits a continued reduction in its risk score.

    Customs Planning Efforts Customs does not have a strategic plan that
    describes how it intends to

    Do Not Reflect Strategic achieve CSI and C- TPAT goals and objectives and
    that makes full

    Approach accountability possible. According to Customs, the short- term

    requirements of implementing the programs quickly and encouraging program
    participation by countries and companies impeded Customs* ability to
    systematically carry out strategic planning. Strategic planning helps
    organizations manage their programs more effectively by requiring that
    they clearly establish mission goals and objectives and, after assessing
    their environment and involving stakeholders, describe how program
    activities serve program goals. In addition, strategic plans can provide a
    basis for communication and mutual understanding between stakeholders and
    contribute to program accountability.

    Although Customs has taken some steps that demonstrate operational
    planning for CSI implementation in key ports throughout the world, its
    efforts do not reflect a strategic approach to planning. While Customs
    intends to continue deploying CSI teams to the 20 top ports and to 20 to
    25 strategic ports, it has not prepared strategic plans that show how it
    will

    accomplish this enormous task. Whereas Customs told us that it intends to
    develop strategic plans, so far, the only available record regarding its
    expansion plans is a table outlining when Customs expects to deploy CSI
    teams to foreign ports for fiscal years 2003 and 2004. Without the benefit
    of strategic planning, Customs quickly rolled out CSI in

    France but failed to involve primary stakeholders in making key decisions.
    Although Customs officials pointed to their collaboration with the French
    government as a model of cooperation in setting up this port, a lack of
    communication between the partner countries caused French customs
    officials to impose unnecessary demands on private industry shipping out
    of Le Havre to provide the CSI team with complete manifest information
    needed for effective targeting. Customs had failed to inform the French
    that it was implementing the 24- Hour Rule, which essentially negated the
    need for the French effort. When we met with French government officials,
    they expressed frustration that they had not been kept informed. Poor
    communication, as evidenced by this experience, can lead to a lack of
    cooperation between the two partners and make attainment of CSI goals more
    difficult. Good communication is essential for a program like CSI, which
    relies on the exchange of information between the U. S. and foreign
    customs administrations to improve the targeting of high- risk containers.

    Customs* experience in rolling out C- TPAT similarly demonstrates a lack
    of strategic planning. This is particularly true with regard to Custom's
    communicating how it plans to implement critical C- TPAT program elements*
    validations, action plans, and annual assessments* designed to verify that
    companies have security measures in place and follow through with
    recommended changes. Customs does not have a planning document that
    describes the operational objectives for each element, how those
    objectives support C- TPAT's overall goals, and how they intend to meet
    those objectives. Although Customs recently pilot- tested the validation
    process with 15 companies, they have yet to incorporate results and
    lessons learned into a planning document to guide the validation process
    for the more than 3,300 companies currently receiving C- TPAT's key
    benefit of reduced risk scores.

    Customs lacks a strategic plan that describes how Customs intends to
    achieve its programs* goals and establish program accountability for
    approximately $73 million in funds budgeted for fiscal year 2004.
    Furthermore, Customs does not have strategic planning documents that
    establish measurable objectives, detailed implementation strategies,
    resource needs, and project time frames for CSI and C- TPAT. The effective

    implementation of CSI and C- TPAT programs depends, in part, on rigorous
    strategic planning. Without strategic plans, Customs may discover that CSI
    cannot place CSI teams in strategic ports in a timely fashion, or that
    they place the teams but do not achieve any improvement in security.
    Similarly, Customs may find that the security of C- TPAT companies' supply
    chains is

    not improved and that, as a result, reductions in risk scores are granted
    to undeserving companies.

    Conclusions Customs quickly launched CSI and C- TPAT to secure ocean
    containers bound for U. S. seaports. However, accomplishing the desired
    outcome of

    securing containers bound for the United States and achieving the longterm
    effectiveness of both programs would be aided by human capital planning,
    the development of performance measures, and strategic planning, elements
    that Customs has not fully incorporated into the programs. As CSI and C-
    TPAT make the transition from early implementation to full- scale
    operations, Customs* management of these programs has not evolved from its
    short- term focus to a long- term strategic approach. Customs faces
    unprecedented demands as it expands CSI to other countries and C- TPAT
    begins rolling out the critical validation phase of the program. Planning
    and measuring program performance to determine if goals and objectives are
    being met play an important role in the management of Customs operations
    and enable internal and external

    decision makers to assess the programs* effectiveness, make resource
    allocation decisions, and hold managers accountable. Recommendations for
    To help ensure that CSI and C- TPAT achieve their objectives as they
    Executive Action transition from smaller start- up programs to larger
    programs with an increasingly larger share of the Department of Homeland
    Security*s budget,

    we recommend that the Secretary of Homeland Security, working with the
    Commissioner of Customs and Border Protection and the CSI and C- TPAT
    program directors, takes the following steps: Develops human capital plans
    that clearly describe how CSI and C- TPAT will recruit, train, and retain
    staff to meet their growing demands as they

    expand to other countries and implement new program elements. These plans
    should include up- to- date information on CSI and C- TPAT staffing and
    training requirements and should be regularly used by managers to identify
    areas for further human capital planning, including opportunities for
    improving program results.

    Expands efforts already initiated to develop performance measures for CSI
    and C- TPAT that include outcome- oriented indicators. These measures
    should be tangible, measurable conditions that cover key aspects of
    performance and should enable agencies to assess accomplishments, make
    decisions, realign processes, and assign accountability. Furthermore, the

    measures should be used to determine the future direction of these Customs
    programs.

    Develops strategic plans that clearly lay out CSI and C- TPAT goals,
    objectives, and detailed implementation strategies. These plans should not
    only address how the strategies and related resources, both financial and
    human, will enable Customs to secure ocean containers bound for the United
    States, but should also reinforce the connections between these programs*
    objectives and both Customs* and the Department of Homeland Security*s
    long- term goals. Agency Comments and

    Customs provided written comments on a draft of our report. Customs Our
    Evaluation

    agreed with our recommendations and overall observations that it needs to
    take adequate steps to incorporate human capital planning, expand efforts
    to develop performance measures and develop strategic plans* factors
    necessary for the long- term success and accountability of CSI and C-
    TPAT. Customs reported that is has already taken some steps and will
    continue to

    take prudent steps to address these factors. Customs, however, raised
    concerns about the draft report*s characterization of some information.
    Customs also provided technical comments, which we incorporated as
    appropriate. The following summarizes their general comments and our
    responses. Customs* comments, along with our responses to specific points,
    are contained in appendix II.

    We made changes to our report to address Customs* concerns that we
    overlooked CSI*s central tenet* U. S. Customs inspectors must be able to
    observe the inspections conducted by host customs officials* which,

    according to Customs, is accepted by all partner Customs administrations.
    We revised the report to note CSI*s central tenet and its acceptance by
    all partners, but we also noted that the bilateral arrangements do not
    specify that U. S. inspectors must be able to observe inspections
    conducted by host customs officials. Although Customs requested, we did
    not drop our statement that CSI teams are often invited to attend
    inspections because this is what officials from three foreign customs
    administrations told us.

    Customs raised concerns about our characterization of the expected role of
    account managers in C- TPAT. In its general comments, Customs noted that
    account managers were never expected to help companies develop action
    plans. This statement directly contradicts previous statements by Customs
    officials as well as an early program document. Therefore, we maintain
    that Customs account managers were initially expected to help companies
    develop action plans.

    Customs noted that its policy is not to reject companies because of an
    inadequate security profile or for adverse information discovered during
    the review process. However, Customs provided further clarification that
    it may, under certain circumstances, withhold or reduce C- TPAT benefits.

    Furthermore, Customs stated that it may remove a company from C- TPAT
    membership if it determines that its commitment is not serious or that it
    has intentionally misled Customs. We incorporated changes in our report to
    reflect these clarifications. We are sending copies of this report to
    other interested members of

    Congress, the Secretary of the Department of Homeland Security, and the
    Commissioner of Customs. We also will make copies available to others upon
    request. In addition, the report will be available at no charge on the GAO
    Web site at http:// www. gao. gov.

    If you or your staff have any questions about this report, please contact
    me on (202) 512- 4347. Other GAO contacts and staff acknowledgments are
    listed in appendix III.

    Loren Yager Director, International Affairs and Trade

    Appendi Appendi xes x I

    Scope and Methodology To describe the Container Security Initiative (CSI)
    and the Customs- Trade Partnership Against Terrorism (C- TPAT), we met
    with U. S. Customs officials in Washington, D. C. with program
    responsibilities for CSI and CTPAT. Specifically, we met with officials in
    the Office of International Affairs to discuss the planning and start- up
    of the CSI program. In examining the CSI program, we limited the scope of
    our work to two of the CSI program*s four elements*( 1) identifying *high-
    risk* containers and (2) screening the *high- risk* containers at the
    foreign CSI ports before they are shipped to U. S. ports. Our examination
    of those two elements focused on the planning and management issues
    specific to the rollout of this program

    abroad in the program*s first year. We did not examine the adequacy of
    Customs- wide tools and technology, such as the Automated Targeting
    System, for successfully targeting high- risk ocean containers. We
    reviewed documents on CSI including testimony and speeches by Customs
    officials, as well as information on the Customs Web site, which outlined
    CSI goals, implementation strategies, and operations plans. In addition,
    we reviewed Customs documentation, to understand CSI procedures including
    agreements with the foreign countries to set up CSI at designated ports,
    CSI assessment teams* survey questionnaire at ports, and CSI budget and
    staffing data. We visited the ports of New York- New Jersey, Los Angeles,
    and Long Beach to familiarize ourselves with Customs* standard operating

    procedures in a seaport environment. At the ports, we interviewed Customs
    officials and observed operations, with particular emphasis on Customs
    cargo container targeting units charged with using the Automated

    Targeting System to screen cargo containers entering U. S. ports. We also
    met with C- TPAT officials from the Office of Field Operations to discuss
    program goals, implementation strategies, and plans. We reviewed C- TPAT
    program documents outlining the early planning efforts for the program. We
    also met with private companies and industry associations in the United
    States to obtain their views on C- TPAT, supply chain vulnerabilities and
    corroborate information provided by Customs. We attended conferences in
    Phoenix and Chicago that included remarks by

    Customs officials and private sector representatives on the start- up of
    CTPAT, including the process for application for membership. We met with
    officials from both the Office of Naval Intelligence and the National
    Defense University to understand threats and vulnerabilities associated
    with the overseas container supply chain.

    To examine Customs* implementation of CSI and C- TPAT during the first
    year, we interviewed Customs officials at the Washington, D. C.,
    headquarters as discussed earlier. For CSI, we reviewed Customs press

    releases to learn the status of CSI bilateral arrangements with various
    countries and the deployment of CSI staff at foreign ports. We also
    reviewed and analyzed Customs documentation, including arrangements with
    the foreign countries to set up CSI at designated ports, trip reports to
    prospective CSI ports, port assessments, plans for CSI operations at the

    port of Rotterdam, and statistics on the number of containers screened by
    CSI teams and the number of containers inspected by local customs at CSI
    ports to date. For the C- TPAT program, in Washington, D. C., we reviewed
    and analyzed C- TPAT paperwork for selected member companies, including
    partnership agreements, company profiles of their supply chains, and
    security measures taken to secure their supply chains, as well as CTPAT*s
    feedback letters welcoming companies as certified members and recommending
    improvements to their supply chains. We discussed with

    representatives of U. S. companies their experiences in becoming members
    of C- TPAT and their efforts to improve the security of their supply
    chains, particularly those parts of the supply chain controlled by their
    foreign

    suppliers. As part of our examination of the first year of implementation
    of CSI and CTPAT, we also visited four countries* Canada, the Netherlands,
    France, and Germany. In Canada, the Netherlands, and France, we met with
    U. S. Embassy officials, particularly the U. S. Customs attaches
    responsible for

    managing CSI implementation in the ports of Vancouver, Rotterdam, and Le
    Havre. We discussed the issues that came up during the CSI negotiations
    and the substance of the final arrangements between the U. S. and host

    governments. We also discussed the start- up of the CSI program, as well
    as any issues that had arisen during implementation in each country. We
    interviewed CSI team members at each port to obtain detailed explanations

    of CSI operations there and any available related documentation. At the
    ports of Vancouver and Le Havre, we were able to observe customs
    operations and the interaction of the CSI team with its host country
    officials. We were not able to observe CSI operations at the port of
    Rotterdam, owing to a decision by the Dutch government to restrict the
    number of foreign delegations that could access customs operations at
    Rotterdam. However, in the Netherlands, as well as in France and Canada,
    we were able to interview foreign government officials about the
    negotiations to start up CSI in their ports, issues and problems related
    to the start- up of the program, and their views regarding the future of
    the CSI

    program in their ports. For the C- TPAT program, we interviewed trade
    associations, port authorities, suppliers, and supply chain service
    providers during our visits to Canada, Germany, France, and the
    Netherlands. With trade associations, we discussed their impressions of C-
    TPAT, and the

    potential impact that C- TPAT security expectations could have on members*
    operations. With port authorities, suppliers, and supply chain service
    providers, we observed their operations and discussed the potential

    impact that implementing C- TPAT security recommendations could have on
    their operations and the vulnerabilities that they faced. To assess the
    extent to which Customs has focused on factors critical to

    the long- term success of the programs, we first reviewed a broad range of
    GAO reports examining management factors that were necessary components
    for the successful management of cabinet departments, agencies, and, by
    extension, individual programs. As the result of our review of GAO*s work
    on best management practices, we chose to focus this analysis on three
    management factors* human capital planning, the development of performance
    measures, and strategic planning *because of their general importance in
    the literature. (In particular, a recent GAO report identified critical
    factors, including the three listed above, that the new Department of
    Homeland Security would need to incorporate for the successful long- term
    management of the new department. 1 ) In addition to interviewing Customs
    officials in Washington, as described above, we examined available
    budgetary and other documentation to ascertain management plans for the
    expansion of CSI and C- TPAT. We assessed the extent to which Customs
    expansion plans incorporated human capital planning, the development of
    performance measures, and strategic planning. We performed our work from
    April 2002 to June 2003 in accordance with generally accepted government
    auditing standards.

    1 U. S. General Accounting Office, Major Management Challenges and Program
    Risks: Department of Homeland Security, GAO- 03- 102 (Washington, D. C.:
    January 2003).

    Comments from the Bureau of Customs and

    Appendi x II

    Border Protection Note: GAO comments supplementing those in the report
    text appear at the end of this appendix.

    See comment 1. See comment 2.

    See comment 3. Now on p. 3. See comment 4. Now on pp. 10 and 20. See
    comment 5.

    Now on p. 15. See comment 6.

    See comment 6. See comment 6. Now on p. 18. See comment 4. See comment 7.
    Now on p. 18. See comment 8.

    Now on p. 25. See comment 4.

    Now on p. 25. See comment 9. See comment 10. Now on p. 30. See comment 11.

    Now on p. 32. See comment 12.

    The following are GAO*s comments on the letter from the Bureau of Customs
    and Border Protection, dated July 16, 2003. 1

    GAO Comments 1. Customs agreed with our findings that human capital
    planning is needed, and Customs indicated that it is developing a
    comprehensive

    training plan for Customs- Trade Partnership Against Terrorism (C- TPAT).
    However, while training is an important aspect of human capital planning,
    our report shows that human capital plans should also systematically
    address other long- term staffing needs, such as recruitment and retention
    for the more than 150 supply chain specialists Customs plans to hire.

    2. Customs commented that it is making progress in developing further
    performance measures that are based on trade compliance data. As our
    report states, to ensure that C- TPAT performance indicators are reliable,
    the measures should compare trade compliance data for companies before and
    after they enroll in the program. Customs also indicated that it intends
    to review the results of the validation process in order to develop
    possible baselines for measurements. These efforts are responsive to the
    recommendation in our report.

    3. Customs noted that more accurate budget data are available. Between the
    fall 2002 and June 2003, we requested clarification and updated budget
    information for our report. Our report presents the budget data that
    Customs provided us. Furthermore, we did not use the fall 2002 container
    data in our report; our report presents the number of ocean containers
    inspected under the Container Security Initative (CSI) program through May
    2003, which was provided by Customs officials in June 2003.

    4. Customs raised several concerns about our characterization of the
    expected role of account managers in C- TPAT. Customs indicated that *at
    no time was it certain or probable that account managers would 1 On March
    1, 2003, the U. S. Customs Service was transferred to the new Department
    of

    Homeland Security. The border inspection functions of the Customs Service,
    along with other U. S. government agencies with border protection
    responsibilities, were organized into the Bureau of Customs and Border
    Protection. Throughout this report, we used the term *Customs* to refer to
    both the Customs Service and the Bureau of Customs and Border Protection.

    become involved beyond the communication function.* This statement
    contradicts previous statements by Customs officials and an early CTPAT
    program document that account managers would be involved in developing
    action plans. Therefore, we maintain that Customs account managers were
    initially expected to help companies develop action plans.

    5. Regarding Customs* assertion that U. S. Customs inspectors must be able
    to observe inspections at CSI ports, we do not question the need for
    Customs inspectors to make such observations. However, our analysis of the
    bilateral arrangements show that the arrangements do not specify that U.
    S. Customs must be able to inspect containers or observe inspections. In
    addition, our analysis of Customs* documents

    and our discussions with Customs officials reveal that bilateral
    arrangements with foreign governments are not legally binding documents.
    We will not revise the sentence that states *Officials from

    the three foreign customs administrations visited told us that, so far,
    the CSI requests for inspections had not been a burden and that they had
    often invited the CSI teams to observe inspections* because this is what
    foreign customs officials told us. However, we will revise the report to
    clarify that the ability of the U. S. Customs officials to observe and
    verify inspections is a central tenet of the CSI concept and, according to
    U. S. Customs officials, all partner Customs administrations accept this
    tenet.

    6. Customs stated that company participants are not rejected from the
    program and are instead engaged by C- TPAT to increase the security of the
    international supply chain. This statement is consistent with information
    in our report. Customs also noted that it withholds benefits when this
    action is warranted by adverse information or identified security
    weaknesses and that it can reduce benefits, for less serious reasons, to
    encourage a company to rectify a security gap or problem. We revised the
    report to clarify these two points. We also added a footnote to capture
    Customs* comments that C- TPAT participants are not exempt from Customs
    trade compliance and enforcement activities. We further revised the report
    to clarify that

    Customs can remove a company from C- TPAT membership if it determines that
    the company has not made a serious commitment or has intentionally misled
    Customs. To date, Customs reported that it has

    not removed a company from C- TPAT membership.

    7. Customs noted the evolution of the supply chain specialist position.
    This is consistent with our report. 8. We believe that our portrayal of
    the relationship between the 24- Hour

    Rule and CSI is accurate. Our report states that the 24- Hour Rule was
    implemented to ensure that Customs would obtain complete and timely
    manifest data. This is based on specific evidence found in our examination
    of the 24- Hour Rule, as published in the Federal Register.

    The 24- Hour Rule, as found in the Federal Register, specifically states,
    under the heading Necessity for Advance Presentation of Vessel Cargo
    Manifest to Customs, that *CSI is already operational in Canada and the
    Netherlands*. Given this explosive growth, it is critical that the
    information necessary to implement CSI fully be provided to Customs in the
    near term. For this reason, Customs proposed this rulemaking on August 8,
    2002.*

    9. Customs noted that the development of action plans and assessment of
    security improvements are part of the validation process. In earlier
    interviews with Customs officials, we were told that supply chain
    specialists would focus on validating the company security profiles,
    because Customs needed to validate the large number of security profiles
    that they had received. We revised the report to eliminate the statement
    that other program elements would be a lower priority and clarified that
    supply chain specialists would focus on validations and action plans. We
    also added that supply chain security specialists would help facilitate
    the annual assessments.

    10. We have deleted the second paragraph. 11. Customs noted that the
    statement in our report that Customs does not track the contributions made
    by foreign customs administrations in determining whether a particular
    container should be targeted or inspected is inaccurate. We revised the
    report to reflect that Customs does not analyze statistics to ascertain
    the nature and extent of the contributions made by foreign customs
    administrations in determining whether a particular container should be
    targeted or inspected.

    12. We disagree with Customs* assertion that our report implied that U. S.
    Customs imposed unnecessary demands on private industry. To the contrary,
    our report states that French Customs imposed demands on private industry
    that proved unnecessary. However, our central point still stands. French
    Customs officials told us that they updated their

    manifest system in anticipation of the implementation of CSI in the port
    of Le Havre, but without knowledge of the imminent implementation of the
    24- Hour Rule. In our interviews with French Customs officials, they
    expressed dissatisfaction with the confusion surrounding the

    implementation of the 24- Hour Rule. That benefits derived from French
    Customs* efforts to update the manifest system is beside our point that
    good communication is vital between CSI partners.

    Appendi x III

    GAO Contact and Staff Acknowledgments GAO Contact Christine Broderick
    (415) 904- 2000 Staff

    In addition to the individual named above, Patricia Cazares- Chao, Richard
    Acknowledgments

    Boudreau, Hector Wong, Victoria Lin, Jill Johnson, and Reid Lowe made key
    contributions to this report.

    (320106)

    a

    GAO United States General Accounting Office

    Announced in January 2002, CSI places Customs staff at designated foreign
    seaports to screen containers for weapons of mass destruction. In November
    2001, Customs also initiated C- TPAT, in which private companies improve
    the security of their supply chains in return for the reduced likelihood
    that their containers will be inspected for weapons of mass destruction.

    Customs quickly implemented both programs in the first year. It concluded
    bilateral arrangements with foreign governments to place Customs personnel
    at 24 foreign ports and deployed staff to 5 of these ports under CSI, and
    it enrolled more than 1,700 companies in C- TPAT. Customs is developing
    critical program elements intended to ensure that C- TPAT companies
    improve and maintain their security practices. GAO found that Customs*
    implementation of these programs evolved in response to challenges it
    encountered.

    Although Customs is preparing to devote significantly more resources to
    CSI and C- TPAT as it expands the programs, it has not taken adequate
    steps to incorporate factors necessary for the programs* long- term
    success and accountability. These factors include human capital planning,
    development of performance measures, and strategic planning. GAO found the
    following:

     Although CSI seeks to staff Customs officials at more than 30 overseas
    ports and C- TPAT expects to hire more than 150 additional staff, Customs
    has not devised systematic human capital plans to meet longterm

    staffing needs for both programs.  While Customs has created some
    performance measures to quantify operational activities and efforts, it
    has not developed measures to establish accountability and measure program
    achievement.  In its efforts to rapidly implement the programs and enroll
    participants,

    Customs focused on short- term planning. Customs lacks a strategic plan
    that would allow it to establish accountability for approximately $73
    million in planned expenditures for fiscal year 2004. Budgets and
    Anticipated Growth for CSI Ports and C- TPAT Staff, Fiscal Years 2002 and
    2004

    Since September 11, 2001, concern has increased that terrorists could
    smuggle weapons of mass destruction in the 7 million ocean containers that
    arrive annually at U. S. seaports. In response to this concern, the U. S.
    Customs Service (Customs) implemented the Container Security Initiative
    (CSI) to screen for high- risk containers at overseas ports and Customs-
    Trade Partnership Against Terrorism (CTPAT) to improve global supply chain
    security in the private sector. GAO (1) describes the purpose and elements
    of these new programs, (2) examines Customs* implementation of CSI and C-
    TPAT

    during the first year, and (3) assesses the extent to which Customs has
    focused on factors critical to the programs* long- term success and
    accountability. To ensure that CSI and C- TPAT

    achieve their long- term objectives, GAO recommends that the Secretary of
    Homeland Security, working with the Commissioner of Customs and Border
    Protection and managers for both programs

     develops human capital plans that clearly describe how the programs will
    recruit, train, and retain staff;  expands efforts to develop performance
    measures that include outcome- oriented indicators; and

     develops strategic plans that clearly lay out the programs* goals,
    objectives, and implementation strategies. www. gao. gov/ cgi- bin/
    getrpt? GAO- 03- 770. To view the full product, including the scope

    and methodology, click on the link above. For more information, contact
    Loren Yager at (202) 512- 4347 or yagerl@ gao. gov. Highlights of GAO- 03-
    770, a report to

    congressional requesters

    July 2003

    CONTAINER SECURITY

    Expansion of Key Customs Programs Will Require Greater Attention to
    Critical Success Factors

    Customs expects increased budgets and rapid expansion of two programs to
    address container security. CSI budget increase represents an anticipated
    growth from 1 to 30 ports. C- TPAT budget

    increase represents an anticipated growth from 10 to 167 staff.

    Page i GAO- 03- 770 Container Security

    Contents

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    Page 1 GAO- 03- 770 Container Security United States General Accounting
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    A

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    Appendix I

    Appendix I Scope and Methodology

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    Appendix I Scope and Methodology

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    Appendix II

    Appendix II Comments from the Bureau of Customs and Border Protection Page
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    Appendix II Comments from the Bureau of Customs and Border Protection

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    Appendix III

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