U.S. Customs Service: Prospective Rulings More Timely, but	 
Database Reliability Questions Remain (06-AUG-03, GAO-03-828).	 
                                                                 
GAO previously reported that the U.S. Customs Service Office of  
Regulations and Rulings (OR&R) headquarters was not timely in	 
issuing most of its prospective rulings, which establish the	 
duties importers pay on imported goods. The Trade Act of 2002	 
required GAO to determine whether OR&R has improved the 	 
timeliness of its prospective rulings. In addition, GAO 	 
determined what actions OR&R took to improve the timeliness of	 
rulings and whether OR&R resolved challenges it faced with the	 
reliability of automated rulings data.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-828 					        
    ACCNO:   A07873						        
  TITLE:     U.S. Customs Service: Prospective Rulings More Timely,   
but Database Reliability Questions Remain			 
     DATE:   08/06/2003 
  SUBJECT:   Customs administration				 
	     Data integrity					 
	     Import regulation					 
	     Internal controls					 
	     Strategic planning 				 
	     Legal opinions					 
	     Performance measures				 

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GAO-03-828

Report to Congressional Requesters

United States General Accounting Office

GAO

August 2003 U. S. CUSTOMS SERVICE

Prospective Rulings More Timely, but Database Reliability Questions Remain

GAO- 03- 828

OR& R headquarters improved its response time for issuing prospective
rulings since GAO issued a September 2000 report concluding that most
rulings were untimely. GAO*s review of a sample of prospective ruling
request cases opened and closed from February through October 2002 showed
that OR& R headquarters completed about 75 percent of these cases within
its prior goal of 120 days, with about 64 percent of the cases completed
within the 90- day goal mandated by the Customs Commissioner in January
2002. For cases in the latter part of our sample that were opened and
closed from July through October 2002, after significant progress had been
made in reducing a backlog of ruling requests, OR& R completed an
estimated 94 percent of the cases within 90 days. OR& R also reported that
it was successful in its efforts to eliminate the February 1, 2002 backlog
of 757 ruling requests that had been open more than 90 days.

Since the Commissioner*s January 2002 mandate to issue rulings within 90
days, OR& R has given ruling requests the highest priority, with increased
attention to balancing workloads and increased management oversight. OR& R
has also taken other actions to help issue rulings within 90 days and
prevent delays.

OR& R continued to face data reliability challenges with its automated
rulings database. OR& R has taken corrective actions to improve the
accuracy and reliability of the database. However, these corrective
actions do not provide assurance that OR& R has resolved the data
reliability challenges because some of the actions lack specific
procedures for their effective implementation.

Findings of Three GAO Reviews of the Timeliness of Prospective Ruling
Request Cases Percent of cases completed within 120- day goal

0 25

50 75

100 47

33 75

64 a OR& R headquarters classification cases closed in 1996. b OR& R
headquarters classification, valuation, marking, and drawback cases opened
and closed between January 1, 1997 and October 26, 1999. c OR& R
headquarters classification, valuation, and marking cases opened and
closed from February 1, 2002 through October 31, 2002. Source: GAO reviews
of OR& R headquarters data.

120 days 90 days GAO

report, 2000 b

GAO report,

2003 c GAO testimony,

1997 a

0 25

50 75

100 0 25

50 75

100 Percent of cases completed

within 120- day goal Percent of cases completed within prior 120- day goal
and current 90- day goal

GAO previously reported that the U. S. Customs Service Office of
Regulations and Rulings (OR& R)

headquarters was not timely in issuing most of its prospective rulings,
which establish the duties importers pay on imported goods. The Trade Act
of 2002 required GAO to determine whether OR& R has improved the
timeliness of its prospective rulings. In addition, GAO determined what
actions

OR& R took to improve the timeliness of rulings and whether OR& R resolved
challenges it faced with the reliability of automated rulings data.

GAO recommends that OR& R continue to assess the reliability of automated
rulings data to determine whether recent improvements sufficiently resolve

data reliability challenges. Customs OR& R generally agreed with our
conclusions and recommendation and indicated it was taking steps to
implement it.

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 828. To view the full product,
including the scope and methodology, click on the link above. For more
information, contact Seto J. Bagdoyan at (202) 512- 8658 or bagdoyans@
gao. gov. Highlights of GAO- 03- 828, a report to

congressional requesters

August 2003

U. S. CUSTOMS SERVICE

Prospective Rulings More Timely, but Database Reliability Questions Remain

Page i GAO- 03- 828 U. S. Customs Service Letter 1 Results in Brief 3
Background 5 OR& R Headquarters Improved Response Time for Issuing

Prospective Rulings 7 Actions Taken by OR& R Headquarters to Improve the
Timeliness of Rulings and Eliminate the Backlog 13 OR& R Has Taken Actions
to Improve LCIS Data Reliability, but Challenges Remain 18 Conclusions 23
Recommendation for Executive Action 23 Agency Comments and Our Evaluation
24 Appendix I Scope and Methodology 26

Response Time for OR& R Headquarters Rulings 26 OR& R Headquarters Actions
on Rulings 28 OR& R Data Reliability Challenges 28 Trade Community
Perspective on OR& R Headquarters Rulings 29 Appendix II Comments from the
Bureau of Customs and Border Protection 31

Appendix III GAO Contacts and Staff Acknowledgments 36 GAO Contacts 36
Staff Acknowledgments 36 Tables

Table 1: Timeliness of Prospective Ruling Request Cases Opened and Closed
from February 1, 2002, through October 31, 2002 9 Table 2: OR& R
Headquarters Ruling Request Backlog, February 1,

2002, through April 30, 2003 11 Table 3: Comparison of LCIS and Case File
Data for 281 Prospective Ruling Request Cases Closed from February 1,
2002, through October 31, 2002 20 Contents

Page ii GAO- 03- 828 U. S. Customs Service

Table 4: File Review Strata for OR& R Headquarters Cases Categorized as
Prospective Rulings and Closed from February 1, 2002, through October 31,
2002 27 Table 5: 95- Percent Confidence Intervals for Estimates to

Populations of Total Cases 28 Figure

Figure 1: Findings of Three GAO Reviews of the Timeliness of Prospective
Ruling Request Cases 10 Abbreviations

COAC Commercial Operations of the U. S. Customs Service LCIS Legal Case
Inventory System OR& R Office of Regulations and Rulings SOP Standard
Operating Procedure

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
copyright holder may be necessary if you wish to reproduce this material
separately.

Page 1 GAO- 03- 828 U. S. Customs Service

August 6, 2003 The Honorable Charles E. Grassley Chairman The Honorable
Max Baucus Ranking Member Committee on Finance United States Senate

The Honorable William M. Thomas Chairman The Honorable Charles B. Rangel
Ranking Member Committee on Ways and Means House of Representatives

As mandated by the Trade Act of 2002, 1 we are providing you with a report
on the U. S. Customs Service*s 2 Office of Regulations and Rulings (OR& R)
progress in issuing timely prospective rulings. OR& R issues prospective
rulings on such matters as the proper classification and valuation of
imported goods in response to requests from importers and others. OR& R
rulings advise importers of Customs regulations and assist importers in
making marketing and pricing decisions. Delayed rulings can adversely
affect importers* ability to make plans to import, price, and sell their
products. In March 1997, we testified before the Subcommittee on Trade,
House Committee on Ways and Means that OR& R had not consistently

met its timeliness requirement for classification rulings. 3 More
recently, in September 2000, we issued a report also concluding that OR&
R*s headquarters office in Washington, D. C., had not issued the majority
of its

1 P. L. 107- 210, sec. 335 (2002). 2 While our work was being conducted,
the U. S. Customs Service was transferred from the Department of the
Treasury to the Department of Homeland Security and is now known as the
Bureau of Customs and Border Protection. For this report, we refer to the
agency as Customs. 3 U. S. General Accounting Office, U. S. Customs
Service: Office of Regulations and Rulings

Has Yet to Establish Performance Measures, GAO/ T- NSIAD- 97- 115
(Washington, D. C.: Mar. 11, 1997).

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 03- 828 U. S. Customs Service

prospective rulings in a timely manner. 4 The Subcommittee on OR& R of the
Treasury Advisory Committee on Commercial Operations of the U. S. Customs
Service (COAC), a private sector group composed of those affected by
Customs* operations, had also expressed concern about the timeliness of
OR& R headquarters rulings in its January 2000 report on the structure,
staffing, and performance of OR& R. Based on concerns

surrounding delayed rulings, in January 2002, the U. S. Customs
Commissioner, on his own initiative, instructed OR& R by memorandum to
issue its rulings within 90 days and eliminate the backlog of ruling
requests that existed. As required by the Trade Act of 2002, we studied
the extent to which

OR& R headquarters has made improvements to decrease the amount of time
taken to issue prospective rulings on the classification, valuation, and
marking of imported goods. 5 Specifically, we addressed the following
questions:

 Did OR& R headquarters response time for issuing prospective rulings on
the classification, valuation, and marking of imported goods improve since
our September 2000 report?

 What actions did OR& R headquarters take to improve the timeliness of
its prospective rulings and to eliminate its backlog of ruling request
cases?

 Did OR& R resolve the data reliability challenges it faced with its
Legal Case Inventory System, the automated database used to monitor and
track the timeliness of prospective rulings?

To address these questions, we reviewed files for a sample of 325 cases,
from a random sample of 344 cases, categorized as prospective rulings that
were closed by OR& R headquarters from February 1, 2002, through October
31, 2002, covering the classification, valuation, and marking of

4 U. S. General Accounting Office, U. S. Customs Service: OR& R Needs to
Resolve Timeliness and Data Problems Involving Headquarters Rulings, GAO/
GGD- 00- 181 (Washington, D. C.: Sept. 7, 2000).

5 Classification rulings involve the classification of goods within the U.
S. Harmonized Tariff Schedule (which provides duty rates for goods);
valuation rulings involve the valuations of goods; and rulings on marking
are those concerning country- of- origin issues, such as the clarity of
the marking of goods so that buyers can determine where products are made.

Page 3 GAO- 03- 828 U. S. Customs Service

imported goods. 6 We interviewed OR& R management officials and reviewed
and collected other pertinent information, such as procedures established
to ensure the consistent recording of data on ruling cases in the Legal
Case Inventory System (LCIS). We also interviewed the chair of COAC*s
Subcommittee on OR& R, representatives of the American Bar Association
Customs Law Committee 7 and five selected trade associations (e. g.,
American Association of Exporters and Importers) identified as being
knowledgeable about OR& R headquarters prospective rulings, and selected
importer representatives. 8 Appendix I discusses our scope and methodology
in greater detail and provides information about our sampling of cases. We
conducted our work between October 2002 and June 2003 in accordance with
generally accepted government auditing standards.

OR& R headquarters improved its response time for issuing prospective
rulings. Our review of a sample of prospective ruling request cases opened
and closed from February through October 2002 showed that OR& R

headquarters completed about 75 percent of these cases within its prior
timeliness goal of 120 days, and about 64 percent were completed within
OR& R*s current goal of 90 days. For cases in the latter part of our
sample (i. e., cases opened and closed from July through October 2002,
after OR& R made significant progress in reducing the size of its ruling
request case backlog), OR& R completed an estimated 94 percent of the
cases within 90 days. We previously reported, in September 2000, that OR&
R headquarters did not meet the goal of 120 days for most of the cases we

reviewed. Representatives of COAC*s Subcommittee on OR& R, the American
Bar Association Customs Law Committee, and five trade associations that we
contacted agreed that OR& R headquarters had

6 We attempted to review a random sample of 344 OR& R case files,
representing 387 cases categorized as prospective rulings, but OR& R staff
could not locate 19 of the files. 7 The American Bar Association Customs
Law Committee is concerned with the full range of laws and regulations
administered by the Customs Service in connection with the importation and
exportation of merchandise. The Committee provides information,
educational programs and materials, and a forum for reviewing, advising,
commenting on, and participating in the development of Customs laws,
regulations, and practices.

8 We attempted to conduct structured telephone interviews with a
judgmental sample of 76 importer representatives. We successfully
interviewed 35 of these importer representatives; the remaining 41 either
did not return our messages, did not answer our questions, or could not be
contacted at the telephone number we obtained from OR& R files. Results in
Brief

Page 4 GAO- 03- 828 U. S. Customs Service

improved the timeliness of its rulings. In addition, OR& R headquarters
reported that it was successful in its efforts started in February 2002 to
eliminate the backlog of 757 ruling requests that were open (i. e., had
not been completed) for 90 days or more.

Since the Customs Commissioner*s January 2002 mandate to issue rulings
within 90 days, OR& R headquarters managers and attorneys have given
ruling requests the highest priority, with increased attention to
balancing workloads and increased management oversight so that the

Commissioner*s mandate is met and delays are prevented. Prior to 2002, OR&
R attorneys spent most of their time on tasks and responsibilities other
than ruling requests, such as providing training, participating in trade
negotiations, and providing advice to other Customs offices. According to
OR& R management, other actions were also taken to help improve the
timeliness of rulings. For example, OR& R rejects ruling requests more
frequently than in the past when needed information is not

provided by importers, and OR& R attorneys started using teleconferences
instead of in- person meetings to discuss ruling requests with importer
representatives. Continuing to give priority to rulings should help
institutionalize and sustain the progress OR& R has made in improving the
timeliness of headquarters prospective rulings.

Our review of prospective ruling request cases showed that LCIS, OR& R*s
automated database, continued to face data reliability challenges
potentially hindering its effectiveness as a management tool for tracking
and monitoring the progress and history of cases and measuring timeliness.
For example, our comparison of LCIS data to case files showed that 88 of
the 325 cases we reviewed were inaccurately coded as rulings in LCIS. In
response to recommendations made in our September 2000 report, and to data
errors we found during this review, OR& R has taken corrective actions to
improve the accuracy and reliability of LCIS data, such as developing
uniform procedures for recording cases in LCIS. However, these corrective
actions may not resolve the LCIS data reliability challenges. Although the
corrective actions include goals, such as correctly coding cases and
entering timely and accurate information into the database, some of the
actions lack specific procedures for their effective implementation. For
example, OR& R did not provide specific guidance as to how, when, and by
whom the coding of information letters is to be done. This report contains
a recommendation to the OR& R Assistant Commissioner regarding continued
assessment of LCIS data reliability to determine whether the corrective
actions taken are sufficient.

Page 5 GAO- 03- 828 U. S. Customs Service

We provided Customs with a draft of this report for comment. On July 21,
2003, we received written comments from Customs* Acting Director, Office
of Policy and Planning. Customs generally agreed with our findings and
recommendations. However, Customs said that while the report acknowledges
the improvement that OR& R has made in the timeliness of its rulings, it
does not recognize the dramatic turnaround that OR& R accomplished in
eliminating the February 2002 backlog of ruling requests and issuing
nearly every prospective ruling request received since July 2002 within 90
days. Customs also commented on the steps OR& R has taken to improve LCIS
data reliability, including issuing a policy requiring that OR& R managers
verify the accuracy of LCIS data for each case as it is closed, as
recommended in our draft report. Accordingly, we eliminated

this recommendation. Customs also agreed to continue to assess LCIS* data
reliability to determine whether recent improvements sufficiently
corrected past problems. Customs* written comments are contained in
appendix II of this report.

Customs enforces the nation*s trade laws and policies, including
collecting duties on imported merchandise. OR& R plays an important role
in carrying out Customs* trade mission by (1) drafting regulations
implementing U. S. trade laws; (2) issuing rulings on the proper
classification, valuation, marking, and entry of imported goods, as well
as the application of drawback laws (drawbacks involve refunds on duties
of imported merchandise when they are exported from the United States)

and navigation laws (these laws govern the movement of vessels in
international trade), in response to requests from importers and others;
and (3) providing guidance to the trade community and other Customs
offices on their compliance duties under Customs laws, and other laws
enforced by Customs, as well as related regulations. OR& R provides
compliance information to the trade community through various mechanisms,
including issuing regulations, publications, and rulings, which establish
the duty an importer will owe. These rulings advise importers on how they
can stay in compliance with Customs laws and help them and importers of
similar goods make marketing and pricing decisions by providing
information on the cost of importing their goods. For example, OR& R*s
prospective classification rulings give both the requesting importer and
importers of similar goods vital information to help them determine the
amounts of the duties and fees they will be charged when they import their
goods. Customs uses its Web site to disseminate information on completed
rulings to the trade community and communicate other information, such as
U. S. import requirements and Background

Page 6 GAO- 03- 828 U. S. Customs Service

how to request a ruling from OR& R. Customs reported collecting about
$19.8 billion in duties in fiscal year 2002. 9 OR& R is headed by an
Assistant Commissioner and has offices in

Washington, D. C., and New York. OR& R reported 9,053 prospective ruling
request cases closed in fiscal year 2002, most of which were processed by
its New York office in 30 days or less, according to OR& R officials. Most
of the rulings issued by the New York office concern the classification of
imported goods and generally provide a brief description the merchandise
along with the classification and the duty rate. OR& R*s headquarters
office in Washington, D. C., processes cases that are expected to take
longer than 30 days to complete. OR& R headquarters rulings contain much
more

elaboration, including a detailed explanation of the legal basis for the
conclusion reached by OR& R. Ruling requests received in OR& R*s New York
office that are considered highly complex or highly sensitive, or that
involve novel issues never presented to Customs before, are referred

to OR& R headquarters for a decision. OR& R reported 815 headquarters
prospective ruling request cases closed in fiscal year 2002, or about 9
percent of all prospective ruling requests. OR& R had 232 total staff as
of October 2002: 117 headquarters staff, including 90 attorneys; and 115
staff in the New York office, including 93 import specialists (about 45 of
which are national commodity specialists) who classify imported
merchandise. For fiscal year 2002, OR& R*s budget was over $23 million.

In January 2002, the Customs Commissioner, in a memorandum to the
Assistant Commissioner for OR& R, set a requirement that rulings were to
be issued within 90 days. The Commissioner noted that timeliness of the
guidance contained in rulings is essential in ensuring compliance with the
law. The Commissioner further instructed the OR& R Assistant Commissioner
to take appropriate measures to eliminate the backlog of ruling requests
that existed. The backlog was to be eliminated by December 31, 2002, but
the Customs Commissioner later changed this deadline to September 30,
2002.

9 Performance and Annual Report, Fiscal Year 2002, U. S. Customs Service.
This report contains Customs Fiscal Year 2002 Financial Statements,
unaudited, which includes total duties collected.

Page 7 GAO- 03- 828 U. S. Customs Service

OR& R uses its automated database, LCIS, to internally track cases,
including rulings, pending before OR& R. 10 This system was designed as a
management tool and was to serve as the principal means for recording

and monitoring the progress and history of individual cases. According to
OR& R officials, LCIS became OR& R*s principal case tracking system in
1983 and is used to help ensure that ruling request cases are closed
within 90 days. In our September 2000 report, however, we concluded that
LCIS was not an effective tool for measuring the timeliness of
headquarters rulings because it did not contain accurate and reliable
data, and we recommended actions to address the LCIS data problems.

Our review of a sample of prospective ruling request cases showed that in
response to the Customs Commissioner*s January 2002 mandate, OR& R
headquarters improved its response time for issuing prospective rulings.
We previously concluded in September 2000 that OR& R headquarters did not
issue the majority of its prospective rulings in a timely manner (i. e.,
within OR& R*s 120- day goal). Our work for this report, on the other
hand, demonstrated that OR& R headquarters completed the majority of its
prospective ruling request cases opened and closed from February through
October 2002 within the newly established goal of 90 days. 11 Further, OR&
R reported that, with a few exceptions beyond Customs*

control, it had eliminated its February 2002 backlog of prospective ruling
requests that were still open after 90 days or more. Representatives of
COAC*s Subcommittee on OR& R, the American Bar Association Customs Law
Committee, and five trade associations that we contacted agreed that OR& R
headquarters had improved the timeliness of its rulings.

10 OR& R processes other types of cases in addition to prospective
rulings, such as internal advice decisions, protest reviews, and ruling
revocation and modification decisions. OR& R uses LCIS to track all such
cases.

11 OR& R headquarters improvement in its response time for issuing
prospective rulings (i. e., the improvement in the percentage of cases
that met OR& R*s 120- day goal) cannot be quantified by comparing the
percentage for the OR& R headquarters cases included in this

review to the percentages for the cases included in our March 1997
testimony and September 2000 report. The percentages are not directly
comparable because the samples and populations covered differ for each of
the three reviews we conducted. For example, our March 1997 testimony
discussed the percentage of classification cases (and not valuation or
marking cases) that met the 120- day goal, while our September 2000 report
included drawbacks (not considered by OR& R to be prospective cases) along
with

classification, valuation, and marking cases. While we cannot directly
compare percentages, we compared the conclusions reached in our prior
work, to arrive at our current conclusion that OR& R improved the
timeliness of its prospective rulings. OR& R Headquarters

Improved Response Time for Issuing Prospective Rulings

Page 8 GAO- 03- 828 U. S. Customs Service

Before 2002, OR& R headquarters had a 120- day goal for processing and
issuing rulings from the date a ruling request was assigned to an OR& R
attorney. 12 In March 1997, we testified that OR& R had not consistently
met its 120- day timeliness goal. Specifically, OR& R did not meet this
requirement for 53 percent of the 81 classification cases closed in 1996
that we reviewed. Later, in September 2000, we reported that our review of
a random sample of 70 case files, representing approximately 610
prospective rulings, showed that about two- thirds of the rulings that
were requested and issued between January 1, 1997, and October 26, 1999,
were not completed within OR& R*s 120- day goal. At the time, OR& R
acknowledged having problems issuing headquarters rulings on a timely
basis and attributed the problems to staffing shortages and competing
workload demands.

To determine the amount of time taken by OR& R headquarters to issue
prospective rulings after the Customs Commissioner established the 90- day
timeliness goal in January 2002, we reviewed files for 124 prospective
ruling request cases opened and closed from February 1, 2002, through
October 31, 2002. 13 Our review showed that about 75 percent of the cases
were completed in 120 days or less, the old goal, and about 64 percent
were completed within 90 days, the new goal. Table 1 shows the number and
percent of cases that took 90 days or less, from 91 to 120 days, and more
than 120 days to complete from the date they were assigned to

OR& R attorneys for processing. As also shown in table 1, most of the
cases resulted in rulings being issued by OR& R, while some cases resulted

12 A 1989 Customs directive, which applied solely to classification
rulings, stated that rulings that were referred to OR& R headquarters* i.
e., those deemed to be the most complex and sensitive* were to be issued
within 120 days of the date of receipt by Customs. According to OR& R
officials, ruling requests are typically assigned to attorneys within a
few days of receipt at headquarters, and the date of assignment (referred
to as the *date assigned* in LCIS) has been used to start the 120- day
clock for all types of rulings since about 1996.

13 In our sample of 325 cases categorized by OR& R as prospective rulings,
150 cases were opened and closed from February 1, 2002, though October 31,
2002 (the remaining 175 cases were opened before February 1, 2002). We
attempted to review all of the 150 cases. However, 26 of these 150 cases
did not meet our criteria (i. e., these cases were not ruling requests but
were miscoded in LCIS). The 124 ruling request cases we reviewed allow us
to make estimates to the entire population of prospective ruling cases
opened and closed

from February 1, 2002, though October 31, 2002. We determined the amount
of time that OR& R took to process each of the cases using data we
collected from OR& R*s hard- copy case files.

Page 9 GAO- 03- 828 U. S. Customs Service

in information letters sent to the requesters and other cases were
administratively closed. 14 Table 1: Timeliness of Prospective Ruling
Request Cases Opened and Closed from

February 1, 2002, through October 31, 2002 Number of days taken to
complete cases a Action taken 90 days or less 91* 120

days 121 days or more

Ruling issued 58 13 28 Information letter sent 5 0 1 Administratively
closed 17 1 1

Total 80 (64%) 14 (11%) 30 (25%)

Source: GAO review of OR& R headquarters data. Note: We adjusted the
percentages to account for cases that were missing and that did not meet
our criteria (i. e., inaccurately coded as rulings in LCIS). a Our
analysis covers time from the date each ruling request was assigned to an
OR& R attorney for

processing to the date OR& R completed and closed the case.

Our review of the 124 prospective ruling request case files also indicates
that OR& R improved its response time during the latter part of the
February through October 2002 time period, after OR& R had made
significant progress in reducing the size of the backlog. For the 93 cases
in our sample that were opened during the 5- month period from February

through June 2002, OR& R completed an estimated 55 percent of the cases
within 90 days. In contrast, OR& R completed an estimated 94 percent of
the 31 cases in the latter part of our sample, cases opened and closed

14 Some cases in our review resulted in an information letter while other
cases were closed administratively. An information letter may be sent to
an importer instead of a ruling letter if the importer*s request lacks
needed information or is insufficiently detailed to permit a ruling but
OR& R can provide other helpful information. According to federal
regulation (19 C. F. R. Part 177.1( d)( 2)), an information letter is *a
written statement issued by the Customs Service that does no more than
call attention to a well- established interpretation

or principle of Customs law, without applying it to a specific set of
facts.* According to OR& R officials, an information letter often takes
less time to process than a ruling. OR& R may administratively close a
ruling request case for various reasons, such as if needed information is
missing that cannot be quickly obtained or the ruling request involves a
current transaction that is not prospective in nature and a ruling would
be inappropriate. OR& R sends a letter notifying the importer of the
administrative closure and the reason the ruling request cannot be
processed.

Page 10 GAO- 03- 828 U. S. Customs Service

during the 4- month period from July through October 2002, within 90 days.
15 Figure 1 summarizes the findings regarding the timeliness of OR& R

headquarters prospective ruling request cases in our March 1997 testimony,
September 2000 report, and work for this report. Specifically, figure 1
shows the percent of cases we examined during each of those reviews that
were completed within OR& R*s stated goals. As noted earlier, these
percentages are not directly comparable because the samples and
populations covered differ for each of the three reviews we conducted.

Figure 1: Findings of Three GAO Reviews of the Timeliness of Prospective
Ruling Request Cases OR& R reported that its efforts to eliminate the
backlog of 757 headquarters ruling request cases open 90 days or more as
of February 1, 2002, were successful. Table 2 shows the size of the ruling
backlog as

15 Our analysis of prospective ruling request cases opened and closed from
July 1, 2002, through October 31, 2002, is limited because our sample does
not include cases closed after October 31, 2002. However, OR& R data,
which we did not independently verify, suggest that OR& R continued to
issue most of its rulings within 90 days after October 31, 2002, as shown
in table 2.

Percent of cases completed within 120- day goal

0 25

50 75

100 47

33 75

64 a OR& R headquarters classification cases closed in 1996. b OR& R
headquarters classification, valuation, marking, and drawback cases opened
and closed between January 1, 1997 and October 26, 1999. c OR& R
headquarters classification, valuation, and marking cases opened and
closed from February 1, 2002 through October 31, 2002. Source: GAO reviews
of OR& R headquarters data.

120 days 90 days GAO

report, 2000 b

GAO report,

2003 c GAO testimony,

1997 a

0 25

50 75

100 0 25

50 75

100 Percent of cases completed

within 120- day goal Percent of cases completed within prior 120- day goal
and current 90- day goal

Page 11 GAO- 03- 828 U. S. Customs Service

reported by OR& R for each month from February 2002 though April 2003. OR&
R reported having two prospective ruling request cases that were open 90
days or more as of October 31, 2002, the last date of the cases included
in our case file review, and the backlog did not substantially increase
through April 30, 2003, when there were 6 such cases. According to OR& R,
these cases took more than 90 days for reasons beyond

Customs* control, such as being held at the request of the Department of
the Treasury. Table 2: OR& R Headquarters Ruling Request Backlog, February
1, 2002, through

April 30, 2003 Date Number of ruling requests open 90 days or more Number
of ruling requests

open less than 90 days

February 1, 2002 757 187 March 1, 2002 672 228 April 1, 2002 565 254 May
1, 2002 509 277 June 1, 2002 442 262 July 1, 2002 448 261 August 1, 2002
298 217 September 1, 2002 185 191 October 1, 2002 14 a 208 October 31,
2002 2 75 November 30, 2002 3 86 December 31, 2002 5 65 January 31, 2003 4
66 February 28, 2003 6 62 March 31, 2003 5 72 April 30, 2003 6 91 Source:
Developed by GAO from OR& R data. Note: OR& R initially reported the
number of all administrative ruling requests that were open,

including cases other than prospective rulings, such as protest review
decisions, decisions on revocations and modifications to rulings, and
internal advice decisions. For October 31, 2002, and later, OR& R reported
only the number of open prospective ruling requests. a According to OR& R,
these 14 cases were not yet closed on October 1, 2002, for reasons beyond

Customs* control. For example, OR& R officials said cases were being held
at the request of the Treasury Department because of its involvement with
the North American Free Trade Agreement Working Group on Rules of Origin
and at the request of the Committee for the Implementation of Textile
Agreements (an interagency group chaired by the Department of Commerce).

To determine how long some of the headquarters ruling request backlog
cases were open before they were completed, we examined case files for

Page 12 GAO- 03- 828 U. S. Customs Service

157 prospective ruling request cases opened before February 1, 2002, and
closed from February 1, 2002, through October 31, 2002. 16 We determined
that 131 of these cases were part of OR& R*s backlog of ruling request
cases open 90 days or more as of February 1, 2002. According to OR& R,
these 131 cases were among the oldest cases in LCIS at that time. We
determined that the 131 backlog cases took an average of 581 days to
complete, from the date each case was assigned to an OR& R attorney
(before OR& R started its efforts in 2002 to eliminate the ruling request
backlog) until the date each case was closed. The amount of time taken to
complete each of these 131 backlog cases ranged from 136 to 1,586 days, 17
with 501 days as the median.

The chair of COAC*s Subcommittee on OR& R, as well as representatives of
the American Bar Association Customs Law Committee and five trade
associations we contacted, told us that OR& R started issuing prospective

rulings in 2002 more quickly than in the past. In April 2003, the chair of
the COAC subcommittee told us that OR& R*s efforts since February 2002 to
eliminate the backlog of rulings and issue rulings within 90 days of
receipt had been *outstanding.* All of the association representatives
said that

OR& R headquarters had improved the timeliness of its rulings. One
association*s representative said OR& R*s new policy of responding to all
ruling requests within 90 days of receipt is a very positive development

that should improve OR& R*s responsiveness to the trade community. 16 In
our sample of 325 cases categorized by OR& R as prospective rulings, 175
cases were opened before February 1, 2002, and closed from February 1,
2002, though October 31, 2002 (the remaining 150 cases were opened and
closed from February 1, 2002, through October 31, 2002). We attempted to
review all of the 175 cases. However, 18 of these cases did not

meet our criteria (i. e., these cases were not ruling requests but were
miscoded in LCIS), and we reviewed 157 cases. We determined the amount of
time that OR& R took to process each of the cases using data we collected
from OR& R*s hard- copy case files.

17 This range of days is for only those cases for which we could identify
the days in progress and does not include cases that had missing data.
Trade Community Agreed

OR& R Improved the Timeliness of Headquarters Prospective Rulings

Page 13 GAO- 03- 828 U. S. Customs Service

Since the Customs Commissioner required in January 2002 that OR& R issue
rulings within 90 days and the existing backlog of ruling requests be
eliminated, OR& R has given ruling requests its highest priority,
according to OR& R officials. OR& R first concentrated its efforts
starting in February

2002 primarily on eliminating the ruling backlog. Then, starting in July
2002 when significant progress had been made in reducing the size of the
backlog, OR& R intensified its focus on issuing rulings within 90 days.
According to OR& R officials and documentation we reviewed, OR& R
increased the amount of attorney time spent on rulings to carry out these
efforts. OR& R managers also provided increased oversight to the
processing of rulings. In addition, OR& R took other actions to help
address the backlog and issue rulings within 90 days, such as rejecting
ruling requests when needed information could not be quickly obtained and
holding teleconferences instead of face- to- face meetings with

importers and their attorneys to discuss their requests and obtain further
information or clarification. OR& R officials said OR& R will permanently
maintain the high- priority status for rulings and will continue efforts
to issue rulings within 90 days. We believe continuing to give priority to
rulings, and continuing to streamline the processing of rulings, should
help institutionalize and sustain the progress OR& R has made in improving
the

timeliness of headquarters prospective rulings. OR& R reported that nine
OR& R attorneys, who had been dividing their time between OR& R units,
were reassigned in February 2002 to work fulltime on rulings within the
units that had the largest number of overdue ruling requests. Also, in
July 2002, after the Customs Commissioner changed the deadline for
eliminating the ruling request backlog to September 30, 2002, ruling cases
were assigned to nine additional attorneys working in OR& R units that did
not process rulings. Each of these nine attorneys had prior experience
with rulings, according to an OR& R report, and they continued to handle
their normal workload in addition to assisting with the elimination of the
backlog. In addition, OR& R delayed the rotation of attorneys among its
units while efforts were being taken to eliminate the ruling request
backlog in 2002. 18 According to

18 OR& R has a rotation policy in which, approximately every 18 months,
attorneys are asked to specify whether they wish to rotate to a new OR& R
unit in order to learn and master the various substantive legal areas
within the office. Rotation also satisfies the diversity

criterion in the current OR& R Attorneys GS- 14 Promotion Plan. OR& R
management noted that the policy of rotating attorneys is contingent on
OR& R*s staffing needs and that it was decided not to rotate attorneys
while efforts were being taken to eliminate the ruling request backlog in
2002. According to OR& R, with the successful elimination of the ruling
backlog, an attorney rotation took place in April 2003. Actions Taken by

OR& R Headquarters to Improve the Timeliness of Rulings and Eliminate the
Backlog

Page 14 GAO- 03- 828 U. S. Customs Service

OR& R officials, OR& R managers have continued to provide sustained
attention to balancing attorney workloads so that rulings are issued
within 90 days.

OR& R managers explained to the attorneys that rulings were to be their
highest priority. Previously, the attorneys would likely carry out other
responsibilities and tasks before turning their attention to processing
ruling requests. According to OR& R officials, prior to 2002, on the basis
of priorities established by Customs management, OR& R attorneys spent a

far greater percentage of their time on tasks and responsibilities other
than ruling requests, such as providing domestic and international
training, participating in trade negotiations, providing advice to other
Customs offices, commenting on pending legislation, and assisting in
Customs litigation. OR& R officials told us that OR& R is fully committed
in its strategic planning to maintaining this high- priority status for
rulings on a permanent basis in order to facilitate legitimate trade and
informed compliance by the trade community.

According to OR& R officials, OR& R managers started giving increased
attention and review to rulings because of their high priority, including
interacting more often with attorneys regarding the processing of rulings,
as well as providing additional oversight and monitoring of the entire
effort, to help ensure that ruling requests are issued within 90 days. OR&
R officials told us that OR& R managers will continue to give increased
attention and review to the rulings process, and this responsibility is
emphasized in OR& R management staff meetings and in the evaluation of
each manager*s performance.

OR& R also started providing monthly reports to the Customs Commissioner
regarding the status of its efforts to implement procedural changes to
issue rulings within 90 days and eliminate the backlog, indicative of the
high priority the Commissioner placed on rulings. OR& R officials said the
monthly reports on the status of its work on rulings will continue to be
provided to the Commissioner.

In addition, as part of its efforts in 2002, OR& R drafted procedures to
provide a standardized approach for reviewing, researching, and finalizing
rulings within OR& R. According to OR& R officials, each OR& R unit
previously used its own procedures for processing rulings. OR& R officials
said they believe use of the draft Standard Operating Procedure (SOP),

Page 15 GAO- 03- 828 U. S. Customs Service

starting in February 2002, has streamlined their processes for issuing
rulings, helped OR& R*s efforts to issue rulings within 90 days, and will
help sustain the elimination of the ruling backlog. 19 In July 2002, OR& R
also issued a SOP on the use of the LCIS. According to OR& R officials,
this SOP contains valuable guidance for attorneys with respect to the

processing of ruling requests, including, for example, specifying that
ruling requests are to be carefully reviewed for completeness when
received.

During 2002, OR& R also revised its policy regarding the type of meetings
scheduled with importer representatives if it is considered that
discussions would be helpful in deciding ruling issues or a decision

contrary to that advocated in a ruling request is contemplated. OR& R
officials told us that, previously, such meetings were typically held in
person; but to help meet the 90- day benchmark for issuing rulings, OR& R

attorneys started primarily holding teleconferences for the discussions.
Using teleconferences is consistent with the federal regulation providing
for these conferences, 20 and, according to OR& R officials, saves time
and is as effective as in- person meetings. According to OR& R officials,
in- person meetings are almost always held at OR& R*s office, are
logistically harder and more time- consuming to schedule and hold than
teleconferences, and tend to take longer than teleconferences. OR& R
officials noted that inperson

meetings used to be scheduled as a matter of course, and while they have
not been entirely eliminated, OR& R attorneys now have fewer such
meetings.

OR& R also took actions intended to reduce the amount of time spent
writing ruling letters that are sent to importers, according to OR& R
officials. Where appropriate, OR& R started using more standardized
language in rulings, often using the same language that was used in
previously issued rulings for similar products. Also, efforts were made to
curtail the length of ruling letters. OR& R officials said that attorneys
were told to be succinct and write only what is needed to rule on the
matter at hand.

19 According OR& R officials, the SOP was being used by OR& R but was
still in draft form as of June 2003. The OR& R officials noted that the
latest version of the draft SOP was dated June 2003, and the final version
was expected to be issued by August 2003.

20 This regulation provides that: *A person submitting a request for a
ruling and desiring an opportunity to orally discuss the issue or issues
involved should indicate that desire in writing at the time the ruling
request is filed.* 19 C. F. R. 177.4( a). *If a request for a conference
is granted, the person making the request will be notified of the time and
place of the conference.* 19 C. F. R. 177.4( b).

Page 16 GAO- 03- 828 U. S. Customs Service

OR& R officials said that another change made to help eliminate the ruling
backlog and issue rulings within 90 days was that OR& R started holding
importers making ruling requests to a more rigorous standard for
submitting information. Some ruling requests did not contain all the
information needed, or were insufficiently detailed, for OR& R to issue a
ruling. Previously, OR& R attorneys would generally spend whatever amount
of time it took to communicate with importers and obtain the needed
information, according to OR& R officials. In 2002, however, rather than
keeping cases open while waiting for more information, OR& R started
administratively closing cases or sending information letters, which
provide some information that may be helpful and often take less time to
process than rulings, when missing information could not be quickly
obtained. For administrative closures, OR& R sends a letter advising the
importer that the ruling request case is being administratively closed and
providing the importer with the reason the ruling request cannot be
processed. OR& R also started generally closing ruling request cases
administratively when they are contingent on other pending decisions, such
as decisions for related rulings, litigation, legislation, or regulations,
rather than keeping such cases open and postponing activity on them.

Fourteen of 35 importer representatives we interviewed who had requested
prospective rulings, but either did not receive a ruling or received one
that took longer than 120 days to issue, 21 were critical of OR& R*s
actions in handling their requests. We interviewed these representatives
to obtain their views on how OR& R handled their requests.

Seven importer representatives we interviewed noted that they disagreed
with reasons generally given by OR& R to administratively close ruling
request cases. In the sample of cases we reviewed, OR& R administratively
closed cases because either the requests involved current transactions
that

21 For the interviews, we selected importer representatives who were
involved with ruling request cases in our sample that were either
untimely, administratively closed, or resulted in an information letter.
The 35 representatives we interviewed were involved with 41 ruling
requests that were in the sample of 325 cases we reviewed. Trade Community

Expressed Some Concerns about OR& R Headquarters Actions

Page 17 GAO- 03- 828 U. S. Customs Service

were not prospective in nature 22 or information needed to issue rulings
was missing and could not be quickly obtained. Four of the 7 importer
representatives said that OR& R administratively closing cases because
importation transactions are no longer prospective is unfair, primarily
because OR& R had, in the past, loosely defined prospective transactions,
such as either transactions that had not yet begun or that had begun and
were still in progress. One representative said that OR& R now seems to

define prospective importation transactions only as those that have not
yet begun, but did not officially alert importers to this change. 23 In
addition, 4 of the 7 importer representatives said that OR& R*s closing of
cases almost immediately because information is missing is an inefficient
practice. They said that it takes more time for OR& R to close a case and
later receive a resubmitted request with complete information than it does
for OR& R to allow importers to submit additional information while a case

remains open. In response, OR& R officials said that one of the factors
that lead to substantial delays in issuing rulings prior to 2002 was the
willingness of OR& R to hold cases open while awaiting additional
information from importers. OR& R management decided that it is a more
efficient process to administratively close such cases.

Ten of the 35 importer representatives we interviewed disagreed with OR&
R*s decision in 2002 to have telephone discussions instead of inperson
meetings with importers and/ or their attorneys to discuss ruling
requests. 24 Two of the 10 representatives said they believed that in the
long run, this practice will be more time- consuming for OR& R than
granting inperson

meetings. Six of the importer representatives said that the discussions
and the information presented at in- person meetings have, in 22 For 8 of
31 prospective ruling request cases we reviewed that OR& R had
administratively

closed, OR& R explained to the importers that the importation transactions
were current and not prospective and advised them to seek internal advice.
Similarly, for 3 of 13 prospective ruling request cases we reviewed that
resulted in an information letter, OR& R advised the importers to seek
internal advice. Internal advice is a type of OR& R

headquarters decision which has the same effect as a ruling, but it is
given for current transactions (i. e., goods are at a Customs port or have
already entered the country) when an importer disputes a decision made at
a port and asks OR& R headquarters for a decision.

OR& R*s 90- day goal for issuing rulings does not apply to its issuance of
internal advice. 23 Federal regulation defines a prospective transaction
as ** one that is contemplated or is currently being undertaken and has
not resulted in any arrival or the filing of any entry or other document,
or in any other act to bring the transaction, or any part of it, under the
jurisdiction of any Customs office.* 19 C. F. R. 177.1( d)( 3).

24 Three of these 10 importer representatives also disagreed with reasons
given by OR& R to administratively close ruling request cases.

Page 18 GAO- 03- 828 U. S. Customs Service

their experience, often led OR& R attorneys to change their contemplated
ruling decisions. The representatives also believe that by having
telephone discussions instead of in- person meetings, OR& R will likely
make less informed ruling decisions, resulting in additional importer
protests and requests for revocations of rulings. In response, OR& R
officials said that OR& R has found conference calls to be a very
effective means of obtaining needed information from importers in addition
to informal contacts

between staff attorneys and importers and their representatives. OR& R
officials noted that where the nature of an issue suggests that an in-
person meeting is needed to clarify the matter, OR& R may still schedule
such a

meeting. Our review of a sample of 325 OR& R headquarters cases, from a
random sample of 344 cases, closed from February 1, 2002, through October
31, 2002, showed that LCIS continued to face data reliability challenges

potentially hindering its effectiveness as a tool for monitoring cases and
measuring the timeliness of rulings. 25 In response to recommendations we
made in our September 2000 report, 26 OR& R completed certain actions by
February 2003 to improve the accuracy and reliability of LCIS data. OR& R
also initiated additional corrective actions based on data errors we found
in our case file review. However, these actions may not sufficiently
correct problems with LCIS because some of the actions lack specific
procedures

for their effective implementation. According to our internal control
standards, for an agency to run and control its operations, it must have
relevant, reliable information relating to internal events. 27 That
information should be recorded and communicated to management and others
within the agency who need it to carry out their responsibilities.

25 We attempted to review a random sample of 344 OR& R headquarters case
files, representing 387 cases categorized as prospective rulings, but OR&
R staff could not locate 19 of the files. The 387 cases were categorized
in LCIS as prospective rulings involving the

classification, valuation, and marking of imported goods. 26 Our case file
review for our September 2000 report showed that most of the cases had
missing or incorrect data in LCIS. 27 U. S. General Accounting Office,
Standards for Internal Control in the Federal Government, GAO/ AIMD- 00-
21. 3.1 (Washington, D. C.: Nov. 1999); Internal Control Management and
Evaluation Tool, GAO- 01- 1008G (Washington, D. C.: Aug. 2001). OR& R Has
Taken

Actions to Improve LCIS Data Reliability, but Challenges

Remain

Page 19 GAO- 03- 828 U. S. Customs Service

Our comparison of LCIS data to 325 case files showed that LCIS data were
often inaccurate, did not match the case files, or could not be easily
verified. A total of 88 cases were inaccurately coded in LCIS as rulings.
In addition, LCIS data for 153 of the 281 prospective ruling request cases
in the sample either did not match data in the case files or could not be
easily verified because case file data were missing for at least one of
four key data elements (i. e., the *type of case code,* *case category
code,* *date assigned,* and *date closed*). 28 Although OR& R uses LCIS to
track the progress of its headquarters rulings, LCIS is not an effective
tool for measuring the timeliness of rulings when it does not contain
accurate and reliable dates. 29 In our review of the 325 OR& R
headquarters case files, we found that 44 of

the cases did not involve prospective ruling requests and were
inaccurately coded in LCIS as rulings. These 44 inaccurately coded cases
were internal advice decisions, protest reviews, and ruling revocation and
modification decisions. Such cases have different codes to be entered into

LCIS. Separately, we found that OR& R had not issued rulings for an
additional 44 of the remaining 281 prospective ruling request cases. The
cases originated with letters requesting rulings, but OR& R
administratively closed 31 of the cases and issued information letters for
the other 13 cases. However, the cases remained inaccurately coded in LCIS
as rulings. We brought the cases to the attention of OR& R management
while reviewing OR& R*s case files. OR& R agreed that when the cases were
closed they should no longer have been coded in LCIS as rulings because
rulings were not issued (i. e., the codes should have been changed after
OR& R decided

28 Our comparison of data from the case files with corresponding data in
LCIS focused on four pieces of information that are required data elements
in LCIS and that are key to tracking OR& R cases and determining the
number of days each case has been in progress: (1) type of case code* a
numeric code used to define each type of case received and recorded in
LCIS, such as a ruling case or an internal advice case; (2) case category
code* a numeric code used in LCIS to further define the unique
circumstances regarding an individual case, such as further defining a
ruling as a valuation case; (3) date assigned* the actual date a case is
assigned to an OR& R attorney, starting the clock used for the 90- day
turnaround benchmark; and (4) date closed* the actual date a case is
closed, which may involve actions such as issuing a ruling,
administratively closing a case, or issuing an information letter.

29 In our calculations of the amount of time that OR& R took to process
ruling request cases, we used data that we collected from OR& R*s hard-
copy case files containing documents showing the dates cases were assigned
to attorneys and the dates cases were closed. We did not use LCIS data for
these calculations. LCIS Data Often

Inaccurate and Unreliable

Page 20 GAO- 03- 828 U. S. Customs Service

not to issue rulings for these cases). Consequently, OR& R officials
advised us that they had decided to establish a uniform approach to the
coding of such cases, including the identification of specific codes to be
entered into LCIS, and had taken corrective action on the 44 cases we
brought to their attention.

In reviewing the 281 prospective ruling request cases, we also found that
153 cases had LCIS data for at least one of four key data elements which
either did not match data in the case files or we could not verify because
case file data were missing. Table 3 shows our estimates of the extent to
which these key data elements in LCIS matched, did not match, or could

not be easily verified with data in individual case files for the 281
prospective ruling requests. 30 Table 3: Comparison of LCIS and Case File
Data for 281 Prospective Ruling

Request Cases Closed from February 1, 2002, through October 31, 2002 Data
element

Number of cases where LCIS data matched case file data a

Number of cases where LCIS data did not match case

file data a Number of cases where LCIS data

could not be easily verified b

Type of case code 203 20 58 Case category code 210 12 59 Date assigned 190
64 27 Date closed 264 12 5 Source: GAO review of OR& R files. a We defined
a match as any numeric code or date for which the data recorded in LCIS
matched the

numeric code or date in the ruling request case file. For the type of case
code and case category code, we compared LCIS data to the codes written on
the Case Assignment sheet in each case file. For the date assigned and
date closed, we compared LCIS data to all documentation in each case file,
including the Case Assignment sheet, ruling, and Case History form. b
*Could not be easily verified* means that the data were missing from the
case files. According to

OR& R management, it is possible to verify the type of case codes and case
category codes by examining documentation in case files, including
rulings, that does not specifically state these codes. We do not have the
expertise to make such determinations and relied on the Case Assignment
sheets in the case files to verify these codes.

30 Because our review focused on prospective rulings, the 44 OR& R
headquarters cases (of the 325 cases in our sample) that were not ruling
requests, but were incorrectly coded in LCIS as rulings, did not meet our
sample criteria. Therefore, we did not review the case files of these 44
cases as thoroughly as the 281 prospective ruling request cases, and we
did

not compare their case category codes, dates assigned, and dates closed.

Page 21 GAO- 03- 828 U. S. Customs Service

OR& R*s ability to measure the timeliness of rulings is hindered when
either the date a case is assigned to an attorney for processing or the
date a case is closed is inaccurate in LCIS. These two dates are used by
LCIS to

automatically calculate and record the number of days in progress for each
case. 31 OR& R managers monitor the timeliness of rulings using each
case*s days in progress from the date a case is assigned. However, LCIS

errors with the date assigned and date closed can be substantial. For
example, documents in one case file we reviewed showed that the case took
157 days from the date assigned to the date closed, but LCIS showed 35
days in progress for the case. In another case, we determined from the

case file that it took 1,225 days from the date assigned to the date
closed, but LCIS showed 587 days in progress. In our September 2000
report, we concluded that LCIS was not an effective tool for measuring the
timeliness of OR& R headquarters prospective rulings because it did not
contain accurate and reliable data. We recommended that the OR& R
Assistant Commissioner take steps to

 modify LCIS to enable the system to record and retain key data so that
managers can more readily monitor and track the history of cases;

 provide clear and complete guidance to ensure that staff that use LCIS
understand and consistently interpret the guidance, as well as train staff
on any modifications to LCIS; and

 establish an ongoing LCIS monitoring system to ensure the quality and
integrity of the data entered and maintained in the system. In response to
our recommendations, OR& R took corrective actions that were completed by
February 13, 2003. Specifically, OR& R developed and issued a new SOP for
LCIS. 32 The purpose of the LCIS SOP is to ensure a consistent process for
receiving, acknowledging, assigning, recording, tracking, updating,
signing, and closing ruling cases in LCIS. For example,

31 Days in progress is the number of calendar days from the date a case is
assigned to an OR& R attorney for processing to the date the case is
closed. Days in progress is automatically determined by LCIS. 32 U. S.
Customs Service Office of Regulations and Rulings, Standard Operating
Procedure, Subject: Using the Legal Case Inventory System (LCIS) to
Control & Track Rulings, Date: July 10, 2002. It Is Uncertain Whether OR&
R*s Corrective Actions

Will Improve LCIS Data Reliability

Page 22 GAO- 03- 828 U. S. Customs Service

the SOP explains how a Case Assignment sheet is to be used to enter,
review, and update data in LCIS.

OR& R also began producing monthly LCIS reports of open and closed cases
and reports for cases nearing or over the 90- day ruling issuance
turnaround benchmark. OR& R managers are to use these reports to determine
case status and resolve barriers to completion. At the same time, the OR&
R managers are to review the monthly reports to help ensure the accuracy
of the information entered into LCIS for these cases.

Another corrective action taken by OR& R was to conduct training of
employees to ensure that they are familiar with LCIS requirements and
capabilities. A training session was conducted in November 2002, and two
more sessions were planned for fiscal year 2003. In addition, according to
OR& R officials, informal training of employees, such as new employees and
employees transferring among OR& R units, has taken place on a oneon- one
basis.

OR& R initiated additional corrective actions based on LCIS data errors we
found and discussed with an OR& R official as we conducted our case file
review for this report. As discussed earlier, OR& R decided to establish a

uniform approach to the coding of ruling requests that result in
administrative closures or the issuance of information letters, including
the identification of specific codes to be entered into LCIS. In addition,

OR& R units responsible for processing prospective rulings were instructed
to check the accuracy of the LCIS *type of case code* for all cases closed
between October 1, 2002, and March 3, 2003. The OR& R units compared hard
copy documentation to LCIS data and made the necessary corrections to
LCIS. In the future, the OR& R units are to perform a similar check of a
selected percentage of LCIS data on a quarterly basis.

OR& R*s corrective actions to improve the accuracy and reliability of LCIS
data are steps in the right direction, but they do not provide assurance
that LCIS data reliability challenges have been resolved. Although the
corrective actions include goals, some actions lack specific procedures
indicating how the goals will be met. For example, OR& R*s recent decision
to establish a uniform approach to the coding of administrative closures
and information letters did not include any specific guidance as to how
and when the coding is to be done and by whom. According to OR& R
management, as of June 2003, the OR& R Assistant Commissioner was drafting
a memorandum to provide such guidance.

Page 23 GAO- 03- 828 U. S. Customs Service

In addition, the LCIS SOP does not provide specific and thorough guidance
to ensure consistent recording, updating, and verification of LCIS data.
The SOP directs administrative staff to enter timely and accurate
information into LCIS, but it does not provide detailed guidance for the
verification of LCIS data during the life of a case. Although the LCIS SOP
instructs OR& R attorneys to compare LCIS data hard- copy summaries to
Case Assignment sheets in case files to ensure that the information

matches, the SOP appears to suggest that attorneys carry out this task
before conducting research and other work on cases. The SOP does not
specifically require the verification of LCIS data for individual cases at
other times, such as when each case is closed. After we discussed this
with OR& R officials, the OR& R Assistant Commissioner issued a memorandum
on July 8, 2003, requiring OR& R managers to verify the accuracy of LCIS
data for each case as it is closed.

OR& R headquarters improved the timeliness of its prospective rulings
since we issued our September 2000 report concluding that most rulings
were untimely. Starting in February 2002, OR& R gave ruling requests its
highest priority and took other actions to help issue rulings within 90
days and eliminate the backlog of ruling requests that existed. By
continuing to give priority to rulings and continuing to streamline the
processing of

rulings, OR& R headquarters may be able to institutionalize and sustain
the progress it has made in improving timeliness. This would benefit the
trade community and help ensure compliance with U. S. trade law.

LCIS, OR& R*s automated database, continued to face data reliability
challenges. OR& R has taken corrective actions to improve the accuracy and
reliability of LCIS data. However, these actions do not provide assurance
that OR& R has resolved its LCIS data reliability challenges because some
of the actions lack specific procedures for their effective
implementation. LCIS needs accurate and reliable data so that it can
effectively serve as an OR& R management tool for recording and monitoring
the progress and history of individual prospective ruling requests and
measuring timeliness. To achieve this, additional corrective actions may
be necessary.

To help ensure that LCIS data are accurate and that OR& R can reliably use
the database as a management tool to record and monitor prospective
rulings and measure timeliness, we recommend that the OR& R Assistant
Commissioner take steps to continue to assess LCIS data reliability to
Conclusions

Recommendation for Executive Action

Page 24 GAO- 03- 828 U. S. Customs Service

determine whether recent improvements sufficiently correct past problems.

Customs provided written comments on a draft of this report and generally
agreed with our findings and recommendations. Customs* comments are
contained in appendix II.

While Customs said that the report acknowledges OR& R*s improvement in the
timeliness of its rulings, Customs believed the report did not convey that
OR& R has dramatically improved the timeliness of its rulings and

eliminated timeliness as a problem. Customs also said that the report did
not recognize the dramatic turnaround that OR& R accomplished, including
the elimination of the backlog of 757 ruling requests that existed on
February 1, 2002; the issuance of nearly every prospective ruling request
received since July 2002 within 90 days; and the issuance of nearly every
prospective ruling request received since September 2002 within 70 days.
Customs also said that the report did not sufficiently emphasize

that OR& R has maintained its record of issuing rulings well within the
90- day time frame in the months since September 30, 2002, when the
backlog was eliminated. We believe that the report appropriately reflects
the improvements OR& R has made in the timeliness of its prospective
rulings. Regarding OR& R*s

issuance of prospective rulings since September 2002, we did not assess
OR& R*s timeliness for cases closed after October 31, 2002. Rather, we
assessed OR& R*s timeliness by reviewing the files for prospective ruling
request cases opened and closed from February 2002, when OR& R started

its efforts to issue rulings within 90 days, through October 2002, when we
initiated our review. In addition, our report identifies that OR& R
improved its response time for cases in the latter part of our sample (i.
e., cases

opened and closed from July through October 2002, after OR& R had made
significant progress in reducing the size of its ruling request backlog),
with an estimated 94 percent of these cases completed within 90 days.

Regarding whether OR& R has eliminated timeliness as a problem, the scope
of our work and the possibility of OR& R changing its priorities does not
allow us to reach this conclusion. We identified, however, that OR& R
continuing to give priority to rulings should help institutionalize and
sustain the progress made in improving the timeliness of headquarters
prospective rulings. In addition, although Customs said that the report
did not recognize the elimination of the February 2002 backlog of cases
open 90 days or more, the report clearly identified that OR& R reported it
had Agency Comments

and Our Evaluation

Page 25 GAO- 03- 828 U. S. Customs Service

eliminated the backlog, with a few exceptions that were beyond Customs*
control.

Customs also commented on recent steps OR& R has taken to improve LCIS
data reliability, as outlined in a July 8, 2003, memorandum from the OR& R
Assistant Commissioner to OR& R managers. The memorandum formally
establishes and communicates two corrective actions taken by OR& R to
address LCIS data errors that we identified in the report: verifying the
accuracy of LCIS data on a quarterly basis, and establishing a uniform
approach to coding ruling requests that result in administrative

closures or the issuance of information letters. The memorandum also
requires OR& R managers to verify the accuracy of LCIS data for each case
as it is closed and note their review on the Case Assignment sheet, which

is now to be retained in each case file. We agree with Customs that this
action sufficiently addresses a second recommendation made in our draft
report. Accordingly, we removed this recommendation. In addition to
implementing this recommendation, Customs also concurred with our
remaining recommendation to continue to assess LCIS data reliability
issues and is taking actions to address it. We believe OR& R*s recent
actions demonstrate a willingness to continue to assess and improve data
reliability for LCIS.

We are sending copies of this report to the Commissioner of Customs and
interested congressional committees. We will also make copies available to
others upon request. In addition, the report will be available on GAO*s
Web site at http:// www. gao. gov.

If you or your staff have any questions about this report, please contact
Seto J. Bagdoyan, Assistant Director, at 202- 512- 8658, or me at 202-
512- 8777. Other staff are acknowledged in appendix III.

Cathleen A. Berrick, Acting Director Homeland Security and Justice Issues

Appendix I: Scope and Methodology Page 26 GAO- 03- 828 U. S. Customs
Service

Our scope and methodology for responding to our three objectives,
presented earlier in the report, and carrying out related work is
described in the next sections.

To determine whether the Office of Regulations and Rulings (OR& R)
headquarters improved its response time for issuing prospective rulings on
the classification, valuation, and marking of imported goods since our

September 2000 report, we reviewed hard- copy files for a sample of 325
headquarters cases. OR& R had categorized these cases as prospective
rulings involving requests for the classification, valuation, and marking
of imported goods, and they were closed from February 1, 2002, through
October 31, 2002. We attempted to review a random sample of 344 case
files, representing 387 cases categorized in OR& R*s Legal Case Inventory
system (LCIS) database as prospective rulings, but OR& R staff could not

locate 19 of the files. We grouped the cases into three categories: those
cases that were assigned to OR& R attorneys for processing before February
1, 2002; cases assigned from February 1, 2002, through June 30, 2002; and
cases assigned from July 1, 2002, through October 31, 2002; with

all cases in each of the three categories closed from February 1, 2002,
through October 31, 2002. We were primarily interested in whether or not
the days in progress for prospective rulings has decreased if they were
assigned after February 1, 2002. Days in progress, as defined by OR& R, is
measured as the number of calendar days from the date a case was assigned
to an OR& R attorney for processing (date assigned) until the date that
same case was closed (date closed). We determined the days in

progress with data we collected from OR& R*s hard- copy case files and
recorded using an electronic data collection instrument.

We obtained from OR& R a listing of cases categorized as prospective
rulings, which OR& R extracted from its LCIS database and put on an
electronic spreadsheet. We narrowed down this population so that it
consisted of only cases categorized as prospective rulings that were
closed from February 1, 2002, through October 31, 2002. These prospective
ruling cases involved the classification, valuation, and marking of
imported

goods and were from OR& R*s Textile Branch, General Classification Branch,
Value Branch, and Special Classification and Marking Branch. We excluded
other prospective ruling cases that the Trade Act of 2002 did not require
us to study. Our sampling units are each individual prospective ruling
request case. There were a total of 387 cases categorized in the LCIS
database as prospective rulings covering the classification, valuation,
and marking of imported goods that were from these four OR& R branches and

were closed between February 1, 2002, and October 31, 2002. Appendix I:
Scope and Methodology Response Time for

OR& R Headquarters Rulings

Appendix I: Scope and Methodology Page 27 GAO- 03- 828 U. S. Customs
Service

In conducting the file review, we used a random list of the 387 cases to
ensure a random sample regardless of whether or not we would be able to
review all of the cases, and we reviewed 325 of the 387 cases (as noted

earlier, we attempted to review a random sample of 344 of the 387 cases,
but OR& R staff could not locate files for 19 cases). Table 4 provides
details of the strata samples and population. Table 4: File Review Strata
for OR& R Headquarters Cases Categorized as

Prospective Rulings and Closed from February 1, 2002, through October 31,
2002 Strata Time period Total cases Cases randomly selected Cases

reviewed

1 Cases assigned before February 1, 2002 229 186 175

2 Cases assigned between February 1, 2002, and June 30, 2002 125 125 117

3 Cases assigned between July 1, 2002, and October 31, 2002 33 33 33

Total 387 344 325

Source: GAO data.

Our probability samples allow us to make estimates to the populations of
total cases for each of the three time periods. Because we used random
sampling, the results obtained are subject to some uncertainty or sampling
error. The sampling error can be expressed in terms of confidence levels
and ranges. The confidence level indicates the degree of confidence that

can be placed in the estimates derived from the samples. The range is a
pair of values derived from the sample data, an upper and lower limit,
between which the actual population values might be found. Our samples
were designed so that the sampling error around the estimates of
percentages would not be greater than 5 percentage points at the 95-
percent confidence level. Thus, if all cases in our populations had been
examined, the chances are 95 out of 100 that the results obtained would be
included in the range formed by adding or subtracting no more than 5
percentage points from the sample estimates. Table 5 provides the 95-
percent confidence intervals for each of the estimates to the populations
of total cases that we made in this report.

Appendix I: Scope and Methodology Page 28 GAO- 03- 828 U. S. Customs
Service

Table 5: 95- Percent Confidence Intervals for Estimates to Populations of
Total Cases

Estimate Confidence interval Report page number

75% 66.9% - 82.7% 3 64% 60.1% - 68.0% 3 94% 79.8% - 99.3% 3 75% 66.9% -
82.7% 8 64% 60.1% - 68.0% 8 64% 60.1% - 68.0% 9 11% 6.4% - 18.3% 9 25%
17.3% - 33.1% 9 55% 49.7% - 60.0% 9 94% 79.8% - 99.3% 9 581 days average
553 - 609 days 11 501 days median 463 - 540 days 11 Source: GAO data.

To determine what actions OR& R headquarters took to improve the
timeliness of its prospective rulings and eliminate its backlog of ruling
request cases, we interviewed OR& R management officials and collected and
reviewed pertinent documentation (e. g., OR& R reports to the Commissioner
regarding the status of efforts to implement procedural changes to issue
rulings within 90 days and eliminate the backlog; the July 2002 draft
Standard Operating Procedure intended to provide a standardized approach
for processing and issuing rulings 1 ).

To determine whether OR& R resolved the data reliability challenges it
faced with LCIS, we interviewed OR& R management officials; reviewed case
file information for our sample of 325 OR& R headquarters cases
categorized in LCIS as prospective rulings; and collected and reviewed
other available information, such as the July 2002 Standard Operating
Procedure intended to ensure a consistent process for receiving,
acknowledging, assigning, recording, tracking, updating, signing, and
closing ruling cases in LCIS.

1 According OR& R officials, the SOP was being used by OR& R but was still
in draft form as of June 2003. The OR& R officials noted that the latest
version of the draft SOP was dated June 2003, and the final version was
expected to be issued by August 2003. OR& R Headquarters

Actions on Rulings OR& R Data Reliability Challenges

Appendix I: Scope and Methodology Page 29 GAO- 03- 828 U. S. Customs
Service

In reviewing OR& R*s case files for our sample of cases and noting
discrepancies with LCIS data for *type of case code,* *case category
code,* *date assigned,* and *date closed,* we did not discuss each case
with

OR& R officials to determine the reasons that case file data did not match
LCIS data or data were missing from case files. To do so would have been a
time- consuming and complex task, for us as well as OR& R, with little
likelihood of determining the reason for each discrepancy. In carrying out
the work for our September 2000 report on OR& R headquarters rulings, we
asked OR& R officials to explain the reasons for discrepancies as part of
our methodology. However, we reported that we could not always

identify the reasons why LCIS data were inaccurate for the cases we
reviewed.

We also obtained the trade community*s perspective on OR& R headquarters*
prospective rulings. We interviewed the chair of the Subcommittee on OR& R
of the Treasury Advisory Committee on Commercial Operations of the U. S.
Customs Service (COAC), representatives of selected associations, and
selected importer representatives. The trade representatives we
interviewed are not a representative, national sample from which we can
make estimates to the entire trade community. We did not independently
validate or verify the accuracy or reliability of information they
provided.

We conducted a telephone interview with the chair of COAC*s Subcommittee
on OR& R. We also conducted telephone interviews with representatives of
the American Bar Association Customs Law Committee 2 and five trade
associations suggested to us by congressional staff and

identified by the media and other sources as being knowledgeable about OR&
R headquarters* prospective rulings: the American Association of Exporters
& Importers; Business Alliance for Customs Modernization; International
Mass Retail Association; Joint Industry Group Import Committee; and
National Customs Brokers & Forwarders Association of America.

2 The American Bar Association is not a trade association. However, the
association*s Customs Law Committee is concerned with the full range of
laws and regulations administered by the Customs Service in connection
with the importation and exportation of merchandise. The Committee
provides information, educational programs and materials, and a forum for
reviewing, advising, commenting on, and participating in the development

of Customs laws, regulations, and practices. Trade Community

Perspective on OR& R Headquarters Rulings

Appendix I: Scope and Methodology Page 30 GAO- 03- 828 U. S. Customs
Service

We attempted to conduct structured telephone interviews with a judgmental
sample of 76 importer representatives who had requested rulings from OR& R
to obtain their views on how OR& R handled their requests and to ask
whether OR& R*s response had adversely affected the importers. We
successfully interviewed 35 of these importer representatives; the
remaining 41 either did not return our messages, did not answer our
questions, or could not be contacted at the telephone number we obtained
from OR& R files. For the interviews, we selected importer representatives
who were involved with ruling request cases in our sample that were either
untimely, administratively closed, or resulted in an information letter.

We conducted our work between October 2002 and June 2003 in accordance
with generally accepted government auditing standards.

Appendix II: Comments from the Bureau of Customs and Border Protection
Page 31 GAO- 03- 828 U. S. Customs Service

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

Appendix II: Comments from the Bureau of Customs and Border Protection
Page 32 GAO- 03- 828 U. S. Customs Service

Appendix II: Comments from the Bureau of Customs and Border Protection
Page 33 GAO- 03- 828 U. S. Customs Service

Appendix II: Comments from the Bureau of Customs and Border Protection
Page 34 GAO- 03- 828 U. S. Customs Service

Appendix II: Comments from the Bureau of Customs and Border Protection
Page 35 GAO- 03- 828 U. S. Customs Service

Appendix III: GAO Contacts and Staff Acknowledgments Page 36 GAO- 03- 828
U. S. Customs Service

Cathleen A. Berrick 202- 512- 8777 Seto J. Bagdoyan 202- 512- 8658

In addition to those named above, Ronald G. Viereck, Brian J. Lipman,
Kristy N. Brown, Elizabeth Neidert, Michele C. Fejfar, Kriti Bhandari,
Nathan A. Morris, Elizabeth A. Laffoon, and Ann H. Finley made key
contributions to this report. Appendix III: GAO Contacts and Staff

Acknowledgments GAO Contacts Staff Acknowledgments

(440166)

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