Federal User Fees: Key Aspects of International Air Passenger	 
Inspection Fees Should Be Addressed Regardless of Whether Fees	 
Are Consolidated (24-SEP-07, GAO-07-1131).			 
                                                                 
International air passengers arriving in the United States are	 
subject to an inspection to ensure they possess legal entry and  
immigration documents and do not bring in contraband, such as	 
illegal drugs, counterfeit goods, or harmful pests and prohibited
agriculture products. With the creation of the Department of	 
Homeland Security (DHS) in 2003, the customs, immigration, and	 
agriculture inspections activities were integrated into one	 
program led by DHS's office of Customs and Border Protection	 
(CBP). However, the three fees--whose collections totaled about  
$1 billion in fiscal year 2006--linked to these inspections	 
remain statutorily distinct and are coadministered by CBP,	 
Immigration and Customs Enforcement (ICE), both within DHS, and  
the Department of Agriculture's Animal Plant Health Inspection	 
Service (APHIS). GAO was asked to examine how the fees are set,  
collected, and distributed, and the benefits and challenges of	 
this process to agencies and stakeholders, including implications
of consolidating these fees under the authority of DHS. 	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-1131					        
    ACCNO:   A76671						        
  TITLE:     Federal User Fees: Key Aspects of International Air      
Passenger Inspection Fees Should Be Addressed Regardless of	 
Whether Fees Are Consolidated					 
     DATE:   09/24/2007 
  SUBJECT:   Airlines						 
	     Customs administration				 
	     Federal agencies					 
	     Federal regulations				 
	     Financial management				 
	     Homeland security					 
	     Immigration					 
	     Inspection 					 
	     Interagency relations				 
	     Legislation					 
	     Regulatory agencies				 
	     User fees						 

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GAO-07-1131

   

     * [1]Results in Brief
     * [2]Background

          * [3]The Customs Air Passenger Inspection Fee
          * [4]The Immigration Air Passenger Inspection Fee
          * [5]The Agriculture Air Passenger Inspection Fee

     * [6]Separate, Dissimilar Fees Create Administrative, Operational

          * [7]A Complicated Network of Decision Makers Administer and Over
          * [8]Agencies Disagree on How to Divide and Distribute the Fees
          * [9]Distributing Fees among Agencies Has Implications for Agency
          * [10]Inconsistent Passenger Exemptions among the Fees and Record-
          * [11]Air Travel Stakeholders Play an Important Role in the Proces

     * [12]Specific Aspects of the Individual Passenger Inspection Fees

          * [13]There Is a Disconnect between What Customs User Fees Can Pay
          * [14]Airlines Collect Fees When Tickets Are Sold Rather Than When
          * [15]Compliance Tools Do Not Provide a Graduated Penalty System t
          * [16]CBP Does Not Employ a Systematic Process for Selecting Airli
          * [17]Certain Elements Have the Potential to Undermine Any Effort

     * [18]Conclusions
     * [19]Recommendations for Executive Action
     * [20]Matter for Congressional Consideration
     * [21]Agency Comments & Our Evaluation
     * [22]GAO Contact
     * [23]Acknowledgments
     * [24]GAO's Mission
     * [25]Obtaining Copies of GAO Reports and Testimony

          * [26]Order by Mail or Phone

     * [27]To Report Fraud, Waste, and Abuse in Federal Programs
     * [28]Congressional Relations
     * [29]Public Affairs

                 United States Government Accountability Office

Report to Congressional Requesters

GAO

September 2007

FEDERAL USER FEES

 Key Aspects of International Air Passenger Inspection Fees Should Be Addressed
                  Regardless of Whether Fees Are Consolidated

GAO-07-1131

FEDERAL USER FEES

  Key Aspects of International Air Passenger Inspection FeesShould Be Addressed
  Regardless of Whether Fees Are Consolidated

    What GAO Found

The process of setting, collecting, and distributing separate, dissimilar
fees creates challenges for agencies and stakeholders. Although air
passenger inspections were integrated within CBP, the fees supporting
these inspections were created and are still governed by separate,
dissimilar authorizing legislation. Two fee amounts are set in statute and
one is set by regulation; all are collected by the airlines, deposited
into three separate accounts and distributed among the agencies. As a
result, the fees are administered and overseen by a complicated network of
executive branch agencies and congressional committees, creating a series
of challenges. For example, neither CBP nor ICE know whether the fees
collected are recovering the full cost of the immigration inspection
activities or whether the fees are properly divided between them, because
ICE does not have finalized cost calculations for its inspection-related
activities. In addition, certain passengers are exempt from some fees but
not others, making it difficult for agencies to administer the fees.
Further, although airports and airlines play an important role in
facilitating inspections and the process of collecting and remitting the
fees, opportunities for two-way communication are fragmented and limited,
reducing stakeholder buy-in and acceptance of the fees and contributing to
confusion about how the three fees work and what activities they may fund.

Other challenges are due to the statutory structure of the individual
passenger inspection fees. For example, the customs inspection fees are
available for limited purposes: not all reimbursable activities may be
associated with inspections, and not all inspection activities are
reimbursable. However, CBP officials said even if the customs fees were
spent on inspection-related activities, they still would only recover
about 72 percent of costs in fiscal year 2006. Therefore, customs
inspection-related activities are mainly funded by appropriations from
general revenues. Further, without auditing each airline, CBP cannot
independently verify the amount owed by airlines, partly because airlines
are required to remit the fees based on ticket sales rather than
passengers transported. CBP said it is developing a legislative proposal
that would address these and other challenges by requiring airlines to
remit based on passengers transported, but airline industry stakeholders
said this change would complicate their collection process and create
substantial transition costs.

Although a number of options for addressing these fees have been raised,
regardless of whether these fees are consolidated in whole, in part, or
not at all, certain problems specific to the individual fees can and
should be resolved first, and in a manner consistent with principles of
effective user fee design, on which GAO has previously reported. Moreover,
although partly or fully consolidating the fees under DHS's authority
could provide opportunities to address some of the many challenges
identified in this report, consolidation in-and-of-itself will not solve
all of the problems we have identified.

Contents

  Letter 1

[30]Results in Brief 3 [31]Background  7 Separate, Dissimilar Fees  Create
Administrative, Operational, and

[32]Oversight Challenges 11 Specific  Aspects of the Individual  Passenger
Inspection Fees

Should Be Addressed Prior to or in Concert with Any

[33]Consolidation Effort  25  [34]Conclusions 34  [35]Recommendations  for
Executive  Action  35  [36]Matter   for  Congressional  Consideration   37
[37]Agency Comments 37

[38]Appendix I Objectives, Scope, and Methodology

Appendix II Comments from the Department of Homeland Security

[39]Appendix III Comments from the Department of Agriculture

[40]Appendix III GAO Contact and Staff Acknowledgments

  Tables

Table 1: Passenger Inspection Fees' Legislative Authorities,

[41]Congressional Jurisdiction, and Fee Adjustments 13 Table 2:  Bimonthly
Transfers of Agriculture Fees from APHIS to

[42]CBP, Including  Additional Lump  Sum in  August. 17  [43]Table 3:  Air
Passenger  Exemptions  21  [44]Table  4:  Legal  Availability  of  Customs
Passenger User Fee 26 [45]Table 5: Actual Customs Air Passenger Inspection
Activities 27

  Figure

Figure  1:  Process   for  Setting,  Collecting,   and  Distributing   Air
[46]Passenger Inspection Fees (Simplified)

Abbreviations                                                              
Advisory Committee     Airport and Seaport Inspections User Fee Advisory   
                          Committee                                           
APHIS                  Department of Agriculture's Animal and Plant        
                          Health Inspection Service                           
APIS                   Advance Passenger Information System                
AQI                    agriculture quarantine inspections                  
ATA                    Air Transport Association                           
CBP                    U.S. Customs and Border Protection                  
CFO Act                Chief Financial Officers Act of 1990                
DHS                    Department of Homeland Security                     
FAA                    Federal Aviation Administration                     
FTE                    full-time equivalent                                
IATA                   International Air Transport Association             
ICE                    U.S. Immigration and Customs Enforcement            
INS                    United States Customs Service, the Immigration and  
                          Naturalization Service                              
MOU/MOA                memorandum of understanding / memorandum of         
                          agreement                                           
OMB                    Office of Management and Budget                     
PFC                    passenger facility charge                           
SABPOE                 Securing America's Borders at Ports of Entry        

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United States Government Accountability Office
Washington, DC 20548

September 24, 2007

The Honorable John L. Mica
Ranking Member
Committee on Transportation and Infrastructure
House of Representatives

The Honorable Daniel E. Lungren
Ranking Member
Subcommittee on Transportation, Security,
  and Infrastructure Protection
Committee on Homeland 
House of Representatives

The Honorable Thomas Petri
Ranking Member
Subcommittee on Aviation
Committee on Transportation and Infrastructure
House of Representatives

International air passengers arriving in the United States are subject to
an inspection to ensure they possess legal entry and immigration documents
and do not bring in contraband, such as illegal drugs, counterfeit goods,
or harmful pests and prohibited agriculture products. ^[47]1 With the
creation of the Department of Homeland Security (DHS) in 2003, the
customs, immigration, and agriculture quarantine inspection activities
were integrated into a unified inspection program--often referred to as
Securing America's Borders at Ports of Entry (SABPOE)--led by DHS's

U.S. Customs and Border Protection (CBP). However, the three fees charged
for these inspections--for which collections totaled about $1 billion in
fiscal year 2006--remain statutorily distinct and are coadministered by
CBP, U.S. Immigration and Customs Enforcement (ICE), both within DHS, and
the Department of Agriculture's Animal and Plant Health Inspection Service
(APHIS), referred to in this report as agencies.

Although CBP now conducts primary and secondary passenger inspections, ICE
and APHIS each still conduct inspection-related
activities. APHIS retained responsibility for 17 plant inspection
stations, smuggling interdiction and trade compliance, pest and disease
identification and notification, and risk analysis, in addition to
agriculture inspection policy and training. ICE is responsible for the
investigation, detention, and removal activities for inadmissible aliens.

1International  arrivals  at  sea  and  land  ports  are  also  subject  to
inspection.
 
You asked us to review how the three user fees charged for the inspection
of arriving international airline passengers are set, collected, and
distributed and the benefits and challenges of this process for agencies
and stakeholders, including examining the implications of consolidating
these fees under DHS's authority.

To meet these objectives, we reviewed the passenger inspection user fee
legislation, regulations, guidance, agency documents, prior GAO reports,
and literature on principles of effective user fee design and
implementation characteristics. We observed the inspections process and
interviewed CBP officials responsible for port management and airport and
airline officials involved with international passenger processing for the
three passenger inspection fees. We did not assess the effectiveness of
these inspections. We reviewed audit and cost data related to air
passenger inspection activities. We also interviewed APHIS, CBP, and ICE
officials responsible for managing the user fees and auditing the user fee
collections at DHS and the Department of Agriculture. We asked questions
about CBP's and APHIS's internal controls for the data we used and
determined that the data are sufficiently reliable for the purposes of
this report. However, it was beyond the scope of this report to evaluate
the reliability of the cost data for purposes beyond this report.

For more information on our scope and methodology, see appendix I. We
performed our work from October 2006 through August 2007 in Washington,
D.C.; San Francisco, California; Miami, Florida; Boston, Massachusetts;
Newark, New Jersey; New York, New York; Dallas and Houston, Texas; and
Seattle, Washington in accordance with generally accepted government
auditing standards.

We reviewed the passenger inspection fees taking into consideration
principles of effective user fee design. These principles, on which we
have previously reported, can inform efforts to design or redesign user
fees by
helping to clarify the trade-offs associated with various fee design
elements. ^[48]2 These principles include: ^[49]3

Equity: An equitable user fee is one in which the consumers pay for the
cost of the services received, or the burden imposed on the program.
Efficiency: An efficient user fee is set at a rate that is in proportion
to the cost that the user imposes on the program. Revenue Adequacy: The
revenue adequacy of a fee is determined by its ability to cover the costs
of the program over time. Administrative Burden: The burden or cost of
administering the user fee should not exceed the funds generated by the
user fee, including any transitional costs associated with changes to the
existing system.

We are currently studying these user fee design issues in more depth and
expect to issue a report in the coming months.

                                Results in Brief

The process for setting, collecting, distributing, and using the customs,
immigration, and agriculture passenger inspection fees is complex and
varies for each fee. Although air passenger inspections were integrated
within CBP, the fees supporting these inspections were created and are
still governed by separate, dissimilar authorizing legislation. The
amounts of two fees are set by legislation and the amount of one fee is
set by the agency in regulation. All three are collected by the airlines
and then deposited into three separate accounts and distributed among the
agencies (see fig. 1).

^2For characteristics useful for reviewing user fees in general, see GAO,
Aviation Finance: Observations on Potential FAA Funding Options,
GAO-06-973 (Washington, D.C.: Sept. 29, 2006).

^3This is an abbreviated description of the principles relating to the
passenger inspection fees. There are many specific factors to be
considered within each of these principles; for example, when assessing
the equity of a fee, one can consider whether it is based on the
individual's ability to pay for the service, and when assessing a fee's
efficiency, one can consider whether the rate is set to encourage or
discourage consumption of a resource.

Figure 1: Process for Setting, Collecting, and Distributing Air Passenger
                          Inspection Fees (Simplified)

aThe fees are remitted to the government quarterly, except for the last
quarter of the year, when the immigration fees collected to-date are
remitted 10 days before the end of the fiscal year, with the remaining
fees collected in the fourth quarter remitted along with the first quarter
payment of the next fiscal year.

As a result, the fees are administered and overseen by a complicated
network of executive branch agencies and congressional committees,
creating a series of challenges:

        o The eight congressional committees that oversee the fees do not
          have a unified picture of whether the fees work in concert or
          conflict with each other because none of the agencies submit a
          comprehensive review of the passenger inspection fees.
        o Agencies disagree on how to distribute the fees. For example,

     o Both conduct immigration inspection activities, but neither CBP nor
       ICE know whether the fees collected are recovering the full cost of
       the immigration inspection activities or whether the fees are properly
       divided between them, because ICE does not have finalized cost
       calculations for its inspection-related activities.
     o Passengers from Canada, Mexico, and U.S. territories and adjacent
       islands are exempt from the customs fee but not from the immigration
       or agriculture fees, which complicates the oversight and audit
       process.

          o Finally, although stakeholders--primarily airports and
            airlines--play an important role in both facilitating inspections
            and the process of collecting and remitting the fees,
            opportunities for two-way communication with the three agencies
            are fragmented and limited. This reduces stakeholder buy-in and
            acceptance of the fees, and contributes to misunderstandings and
            confusion about how the fees work and what activities they may
            fund. For example, the Airport and Seaport Inspections User Fee
            Advisory Committee, under the auspices of CBP, focuses on the
            passenger inspection activities under CBP's purview but omits
            other passenger inspection activities for which ICE and APHIS are
            responsible.
          o Other challenges are not the result of the separate passenger
            inspection fees but are related to the specific statutory
            structures of the individual fees:

          o Under the authorizing statute, the customs passenger inspection
            fees collected are only available to reimburse appropriations for
            a limited set of activities related to customs inspections,
            namely overtime and premium pay, retirement and disability
            contributions, preclearance
          o services, ^[50]4 and foreign language proficiency awards.
            Therefore not all activities that may be funded from the customs
            fee may be associated with conducting passenger inspections, and
            not all inspection activities are reimbursable, that is, can be
            covered by funds from the user fee account.

     o Even if the customs fee was limited to funding the customs inspection
       activities, according to CBP, for fiscal year 2006 it would have only
       covered about 72 percent of total inspection costs. After the April
       2007 fee increase, CBP estimates the fee would still need to increase
       an additional 39 percent to cover total costs. Therefore, customs
       inspection-related activities are generally funded by appropriations
       from general revenues, limiting funds available for other federal
       priorities.
     o Without auditing each airline, CBP cannot independently verify the
       total amount owed by airlines. Because the user fee statutes or
       regulations require airlines and ticket issuers to collect all three
       fees based on total ticket sales, rather than number of passengers
       actually transported, CBP cannot verify the airlines are appropriately
       collecting and remitting the fees. CBP is developing a legislative
       proposal that would address several of the challenges identified in
       this report, including a proposal to require airlines to remit fees
       based on passengers transported along with documentation of passengers
       who traveled. Airline industry stakeholders report that this change
       would complicate their role in the collection process and create
       substantial transition costs.

A number of options for addressing these issues have been raised. ^[51]5
Regardless of whether these fees are consolidated in whole or in part or
not at all, the problems resulting from specific elements in the
individual fees--such as those identified above--need to be resolved
first. Moreover, although partly or fully consolidating the fees under
DHS's authority could provide opportunities to address some of the many
challenges identified in this report, consolidation in-and-of-itself will
not solve all of the problems we have identified.

In light of this, we are making 10 recommendations for executive action to
help the Secretaries of Agriculture and of Homeland Security improve the
cost estimates, collection, distribution, remittance, and compliance of
the three user fees. Further, we suggest Congress consider eliminating key
differences among the user fees such as authority to set the fee rates and
the country of origin exemptions mentioned above, and aspects of
individual fees such as the set of activities on which customs fee
collections may be spent. We provided a draft of this report to DHS and
the Department of Agriculture for comment and both agencies concurred with
our recommendations.

^4Precleared passengers are inspected in  the departing country rather  than
in the United States.

^5See for example, S. 1160, 110^th Cong. (2007); H. Amend. 704, 110^th Cong.
(2007); H.R. 1706, 110^th Cong. (2007); H.R. 2629, 110^th Cong. (2007); S.
887, 110^th Cong. (2007).

                                   Background

Millions of individuals arrive in the United States every year and undergo
an inspection to ensure they are entering the country lawfully and not
transporting any illegal goods or harmful pests and prohibited
agricultural products.

Prior to the creation of DHS in 2003, passengers were required to undergo
separate customs, immigration, and agriculture quarantine inspections
(AQI), which were performed by the United States Customs Service, the
United States Immigration and Naturalization Service (INS), and APHIS.
Under the Homeland Security Act of 2002, however, these passenger
inspection functions were transferred to DHS. As part of this realignment,
CBP was charged with leading the customs, immigration, and agriculture
quarantine inspection functions, and all immigration and agriculture
quarantine inspectors were transferred to CBP. ^[52]6 The newly created
CBP officers were cross-trained on customs, immigration, and agricultural
quarantine inspections in what is now referred to as "SABPOE." ^[53]7 As a
result, all international passengers are now subject to a single primary
inspection--looking for customs, immigration, and agriculture quarantine
violations--conducted by a CBP officer. If, as a result of the primary
inspection, a passenger requires further scrutiny, that passenger is
referred to another CBP officer who conducts a more in-depth secondary
inspection. Secondary inspection can involve additional interviews,
document reviews, database queries, communication with other law
enforcement agencies, observational techniques, and heightened physical
inspections. ^[54]8 Although CBP absorbed and leads the inspection program
for customs, immigration, and agriculture quarantine, other immigration
and agriculture responsibilities were not merged into CBP. (See text box
for more information on CBP, ICE, and APHIS and their missions.)

^6For more information on the AQI program, as well as (1) the extent to
which the Department of Agriculture and DHS have changed the inspection
program since the transfer, (2) how the agencies have managed and
coordinated their responsibilities, and (3) how funding for agricultural
inspections has been managed since the transfer, see GAO, Homeland
Security: Management and Coordination Problems Increase the Vulnerability
of U.S. Agriculture to Foreign Pests and Disease, GAO-06-644 (Washington,
D.C.: May 19, 2006).

^7Similar transitions took place at land ports and seaports of entry.

                              CBP, ICE, and APHIS

The Homeland Security Act established DHS by merging 22 disparate agencies
and organizations with multiple missions, values, and cultures. As part of
this transition, both CBP and ICE were newly created from parts of legacy
agencies.

CBP was assigned the border inspection functions of the former Immigration
and Naturalization Service (INS) and former U.S. Customs Service and the
Department of Agriculture's APHIS program. The new agency's mission is the
following:

     o interdicting illegal drugs and other contraband;
     o apprehending individuals who are attempting to enter the United States
       illegally;
     o inspecting inbound and outbound people, vehicles, and cargo;
     o enforcing all laws of the United States at the border;
     o protecting U.S. agricultural and economic interests from harmful pests
       and diseases;
     o regulating and facilitating international trade;
     o collecting import duties; and
     o enforcing U.S. trade laws.

ICE was created by combining the law enforcement arms of the former INS
and the former

U.S. Customs Service. Its mission is the following:

     o to enforce immigration and customs laws, and

          o to protect the United States against terrorist attacks by
            targeting illegal immigrants-- including the people, money, and
            materials that support terrorism and other criminal activities.
          o The APHIS Program remains part of the Department of Agriculture,
            though the agriculture quarantine inspection functions have now
            been transferred to CBP. The program's mission is to

     o protect and promote U.S. agricultural health, and
     o administer certain domestic and wild animal management programs.

Although the inspections were unified  in 2002, the Homeland Security  Act
did not consolidate the corresponding air passenger inspection fees.  Thus
the previous separate processes for setting, collecting, and  distributing
the
fees remain in place. So, whereas most passengers likely notice only that
they pay "fees" when they purchase a ticket, they actually pay--among
other charges--three separate inspection user fees: one for the legacy
customs inspection, one for the legacy immigration inspection, and one for
the legacy agriculture quarantine inspection.

^8Agriculture  secondary  inspections  are  performed  by  CBP   Agriculture
Specialists.

    What Is a User Fee?

A user fee is a fee assessed to consumers of goods or services provided by
the federal government. User fees generally apply to federal programs or
activities that provide special benefits to identifiable recipients above
and beyond what is normally available to the public. User fees are
normally related to the cost of the goods or services provided. An example
of a user fee is a fee for entering a national park. In the narrow
budgetary sense, a toll for the use of a highway is considered a user fee
because it is related to the specific use of a particular section of
highway. Alternatively, highway excise taxes on gasoline are considered a
form of user charge in the economic sense, but since the tax must be paid
regardless of how the gasoline is used and since it is not directly linked
with the provision of the specific service, it is considered a tax.

Source: GAO, A Glossary of Terms Used in the Federal Budget Process,
[55]GAO-05-734SP (Washington, D.C.: September 2005).

    The Customs Air Passenger Inspection Fee

The customs air passenger inspection is designed to prevent passengers
from bringing illegal goods--such as narcotics--into the United States.
Passengers pay a customs air passenger inspection fee, currently set in
statute at $5.50 per passenger, when they purchase their tickets. The fees
are remitted to the government quarterly, after which they reimburse CBP
appropriations for a specific set of reimbursable expenses. The air
passenger inspection fee is only one of several types of customs
inspection fees also known as COBRA fees--named for its authorizing
legislation, the Consolidated Omnibus Reconciliation Act of 1985. For
example, commercial vessel passengers also pay a customs inspection fee.


The Immigration Air Passenger Inspection Fee

The immigration air passenger inspection is designed to prevent passengers
from entering the United States without legal entry and immigration
documents. Passengers pay an inspection fee (set in statute at $7 per
passenger) when they purchase their tickets. The fees are remitted to the
government quarterly, except for the last quarter of the year, when the
immigration fees collected to-date are remitted 10 days before the end of
the fiscal year, with the remaining fees collected in the fourth quarter
remitted along with the first quarter payment of the next fiscal year. The
fees are then divided between CBP and ICE according to the costs of the
immigration inspection activities for which each agency is responsible.

The immigration air passenger fee is one of two immigration inspection fees, the
other being the international passenger commercial vessel fee.


    The Agriculture Air Passenger Inspection Fee

The agriculture air passenger inspection is in place to seize prohibited
materials and intercept foreign agricultural pests. Passengers pay an
inspection fee, set by the agency in regulation at $5.00 per passenger,
when they purchase their tickets. The fees are remitted to the government
quarterly and are made available to APHIS. The fees are then divided
between APHIS and CBP based on the proportion of costs associated with
each agency's agriculture quarantine inspection activities. The air
passenger inspection fee is only one of several types of APHIS inspection
fees, known as AQI fees. For example, commercial aircraft and vessels also
pay AQI fees.

By statute, the authority to collect the three passenger inspection user
fees varies from a legislative grant of broad agency discretion to set and
collect a full-cost recovery fee, to more restrictive authority to collect
a sumcertain amount available for a limited number of purposes. For
example, the agriculture inspection statute grants the Secretary of
Agriculture broad discretion to prescribe and collect fees sufficient to
cover the cost of providing agricultural quarantine and inspection
services. ^[56]9 APHIS adjusts fees under this authority through the
federal regulatory process by public notice and comment on proposed rates
and implementing regulations in the federal register. In contrast, the
customs passenger inspection fee statute is the most restrictive of these
three fee statutes. It limits both the fee that may be charged and the set
of activities for which collections may reimburse appropriations. ^[57]10
Somewhere between these two margins is the immigration fee statute. It is
available to refund any appropriation for expenses incurred in providing
immigration inspection and preinspection services, but it limits the fee
that may be charged. ^[58]11 While both the immigration and customs
statutes contain language that fees equal or be reasonably related to the
cost of services, the two statutes actually prescribe an exact amount in
law to be charged for their respective
inspection services. That is, the immigration and customs user fees
actually limit cost recovery to a sum certain.

^9 21 U.S.C. S 136a(a)(1).

^10 19 U.S.C. SS 58c(a)(5), (f)(3). These activities include: overtime and
premium pay generally (i.e., not limited solely to international passenger
inspection but for all customs inspections); retirement and disability
contributions; preclearance service; and foreign language proficiency
awards.

^11 8 U.S.C. SS 1356(d), (h).

During our audit work, CBP informed us that they are developing a broad
legislative proposal that would, among other things, partially consolidate
the three passenger inspection user fees and make other changes to address
certain administrative challenges. ^[59]12 As of August 2007, the
legislative proposal had been reviewed by CBP chief counsel but officials
were still working on estimates of the cost of ICE's inspection
activities. We have not received, reviewed, or evaluated this proposal,
although we have been briefed on elements of it. Because CBP has widely
circulated elements of the proposal among key stakeholders, we refer to
relevant elements of this proposal throughout this report. Any proposal to
consolidate these fees, however, will be considered in an environment of
considerable flux and controversy. For example, there are proposals before
lawmakers to transfer the agriculture quarantine inspection function back
out of DHS and under the Department of Agriculture's authority.

  Separate, Dissimilar Fees Create Administrative, Operational, and Oversight
  Challenges

The complex process for setting, collecting, and distributing the
passenger inspection fees is different for each fee, creating
administrative, operational, and oversight challenges for agencies and
stakeholders, and oversight challenges for Congress. The fees are still
governed by separate, dissimilar authorizing legislation and are
administered by multiple executive branch agencies and overseen by
multiple congressional committees. Agencies involved face difficulties
reimbursing the collections among their various appropriations because
there is disagreement on how to divide the receipts among them and because
the process of transferring the funds from one agency to another
complicates agency budget execution. Finally, airports and airlines play
an important role in both facilitating inspections and in fee collection
and remittance, but they have limited substantive interaction with the
three agencies. This contributes to misunderstandings, skepticism, and
confusion about how the fees work and what activities they may fund.

^12 CBP aims to fully consolidate the authorities that govern the three
inspection user fees that support CBP inspection functions, but officials
said they are proposing a partial consolidation of the customs,
immigration, and CBP's portion of the agriculture fee because the
Department of Agriculture does not support consolidating the portion of
the agriculture fee that APHIS retained.
	
    A Complicated Network of Decision Makers Administer and Oversee These Fees

Although the passenger inspections themselves have largely been
consolidated, administrative authority remains divided. The Treasury
Department, from which the legacy U.S. Customs Service was transferred,
retained administrative authority over the customs fee, although most of
these duties have been delegated to DHS. ^[60]13 The Department of
Agriculture's APHIS retained administrative authority over the agriculture
inspection fee, although a majority of the fee collections is transferred
to CBP to cover the cost of agriculture quarantine inspections. The
administrative authority for the immigration passenger inspection fee was
transferred to CBP, but CBP and ICE divide the immigration fee
collections.

^13CBP has proposed  formally moving these  authorities to DHS  in its  draft
legislative proposal.

Table 1 shows the differences in authorizing statute, rate, congressional
committees of jurisdiction, and administrative authority.

Table 1: Passenger Inspection Fees' Legislative Authorities, Congressional
                       Jurisdiction, and Fee Adjustments

            Authorizing    Per-passenger                                        
 Passenger  legislation    fee rates and Authority                              
 inspection and amendments adjustments   to adjust Congressional Administrative 
 fee        to rates and                 fee       oversight     authority      
            disposition of                                                      
            fees                                                                
 Customs    Consolidated   August 1986   Congress  House Ways    Delegated by   
            Omnibus        through                 and Means     the Department 
            Reconciliation fiscal year             Committee     of Treasury to 
            Act (COBRA) of 1993: $5.00                           the            
            1985, Pub. L.                                                       
            No. 99-272, as                                                      
            amended by:  o Fiscal years            Senate        Department of  
            Omnibus Budget 1994- 1997:             Finance       Homeland       
            Reconciliation $6.50                   Committee     Security (DHS) 
            Act of 1986,                                                        
            Pub. L. No.                                                         
            99-509;  o     Fiscal years                                         
            Omnibus Budget 1998- 2005:                                          
            Reconciliation $5.00                                                
            Act of 1987,                                                        
            Pub. L. No.                                                         
            100-203;                                                            
            o The Customs                                                       
            and Trade Act  Fiscal years                                         
            of 1990, Pub.  2006- 2014:                                          
            L. No.         Congress                                             
            101-382;                                                            
            o Omnibus      authorized                                           
            Budget         the Secretary                                        
            Reconciliation of Treasury                                          
            Act of 1993,   to raise the                                         
            Pub. L. No.    fee from                                             
            103-66;  o The $5.00 to                                             
            North American $5.50 and the                                        
            Free Trade     Secretary did                                        
            Agreement      so.                                                  
            Implementation                                                      
            Act, Pub. L.                                                        
            No. 103-182;                                                        
            o Uruguay                                                           
            Round                                                               
            Agreements                                                          
            Act, Pub. L.                                                        
            No. 103-465;                                                        
            o                                                                   
            Miscellaneous                                                       
            Trade and                                                           
            Technical                                                           
            Corrections                                                         
            Act of                                                              
            1996, Pub. L.                                                       
            No. 104-295;                                                        
            Pub. L. No.                                                         
            105-150;                                                            
            o                                                                   
            Miscellaneous                                                       
            Trade and                                                           
            Technical                                                           
            Corrections                                                         
            Act of                                                              
            1999, Pub. L.                                                       
             No. 106-36;                                                        
            o Homeland                                                          
            Security Act                                                        
            of 2002, Pub.                                                       
            L. No.                                                              
            107-296;                                                            
            and                                                                 
            o The American                                                      
            Jobs Creation                                                       
            Act of 2004,                                                        
            Pub. L. No.                                                         
            108                                                                 
            357.                                                                
            (COBRA customs                                                      
            user fees                                                           
            authority is                                                        
            currently set                                                       
            to expire                                                           
            Sept. 30,                                                           
            2014.)                                                              

                     Page 14 GAO-07-1131 Federal User Fees

            Authorizing    Per-passenger fee                                                 
Passenger   legislation    rates and                                                         
inspection  and amendments adjustments       Authority to      Congressional  Administrative 
fee         to rates and                     adjust fee        oversight      authority      
            disposition of                                                                   
            fees                                                                             
Immigration The Department From 1987 to      Congress          Judiciary      DHS            
            of Justice     1993: $5.00                         Committees                    
            Appropriation                                                                    
            Act of 1987,                                                                     
            Pub. L. No.                                                                      
            99-500, as                                                                       
            amended by:                                                                      
            o Departments  In 1993: raised                     Homeland                      
            of Commerce,   from $5.00 to                       Security                      
            Justice, and   $6.00                               Committees                    
            State, the                                                                       
            Judiciary, and                                                                   
            Related                                                                          
            Agencies                                                                         
            Appropriations                                                                   
            Act, 1994,     In 2002: raised                     House Ways and                
            Pub. L. No.    from $6.00 to                       Means                         
            103-121;       $7.00                               Committee                     
            and                                                                              
            o The                                                                            
            Departments of                                                                   
            Commerce,                                          Senate Finance                
            Justice, and                                       Committee                     
            State, the                                                                       
            Judiciary, and                                                                   
            Related                                                                          
            Agencies                                                                         
            Appropriations                                                                   
            Act, 2002,                                                                       
            Pub. L. No.                                                                      
            107-77. The                                                                      
            Food,          Set at $2.00 in                                                   
Agriculture Agriculture,   1991                  Department of Agriculture    Department of  
       Conservation and Trade                         Agriculture Committees Agriculture
       (FACT)                                                                 
       Act of 1990, Pub. L. No.   Reduced to $1.45 in             House Ways  
       101-624, as amended by:    1993                            and         
                                                                  Means       
                                                                  Committee   
         o Omnibus Reconciliation                                             
                           Act of                                             
       1990, Pub. L. No. 101-508; In 1997, raised to                          
       o Food, Agriculture,       $1.95 for fiscal                Senate      
       Conservation, and Trade    year 1997, and                  Finance     
       Act                                                        Committee   
         Amendments of 1991, Pub. raised to $2.00 for                         
                               L.                                             
       No. 102-237;               fiscal years 1998-                          
       o The Federal Agriculture  1999.                                       
       Improvement and Reform Act In 1999 raised to                           
             of 1996, Pub. L. No. $3.00 from January                          
                         104-127;                                             
       and                        1, 2000-September                           
       o Farm Security and Rural  30, 2001; and to                            
       Investment Act of 2002,    $3.10 after October                         
       Pub. L. No. 107-171.       1, 2001                                     
                                  In 2005: raised to                          
                                  $4.95 through                               
                                  September 2005,                             
                                  then to $5.00 (rate                         
                                  effective through                           
                                  end of fiscal year                          
                                  2010)                                       

Source: GAO.

Although the agencies are required to report to Congress on their
respective fees, Congress lacks a comprehensive picture of all three fees
because the agencies report separately. Both the Office of Management and
Budget (OMB) Circular A-25 and the Chief Financial Officers Act of 1990
(CFO Act) require an agency to review its user fees biennially and make
recommendations on topics such as revising the fees to reflect costs
incurred. We have previously reported that agencies with shared
responsibilities for common outcomes or related functions should reinforce
agency accountability for collaborative efforts through common agency
planning and reporting. ^[61]14 However, when CBP issued its user fee
review it only reported on the customs fee, the portion of the agriculture
fee it received, and the immigration fee. Further, the information
provided about the immigration fee did not include any input from ICE,
which did not have cost information about its portion of the immigration
fee at that time. APHIS's review included the entire agriculture fee.
^[62]15 As a result, the eight congressional committees that oversee the
inspection fees do not have a complete picture as to whether the fees work
in concert or conflict with each other. ^[63]16

    Agencies Disagree on How to Divide and Distribute the Fees

Although the immigration fee may be used for any immigration inspection
activity, ICE officials said that they do not receive sufficient
immigration fee collections to cover their reimbursable activities.
Principles of effective user fee design suggest that user fees should be
set at a rate to cover allowable costs as a way of ensuring the fee is as
efficient as possible. Instead, however, ICE officials said they rely on
appropriated funds to cover the gap between fee collections and costs. By
law, ICE uses appropriated money for fee-reimbursable expenses and then
refunds the appropriations when user fees are received. They are also
permitted to use appropriations if fees are insufficient to cover
inspection costs. ICE officials said that although they have not finalized
their activity cost analysis, the preliminary data shows that ICE's
current portion of the fee collections is not sufficient to fully refund
the appropriations used and demonstrates that ICE should receive a greater
proportion of the
immigration user fee funds. CBP officials do not agree with the
preliminary assessment. ^[64]17 CBP officials told us that the immigration
fee collections CBP receives are sufficient to cover the cost of CBP's
immigration-related reimbursable activities. In fact, CBP's data show that
its portion of the immigration fee collections were 1 percent more than
CBP's immigration inspection costs for fiscal year 2006. Until ICE
completes its cost analysis, it will not be known whether the immigration
fee is set at a rate that covers the total cost of both CBP and ICE's
immigration activities.

^14GAO, Results-Oriented Government: Practices That Can Help Enhance and
Sustain Collaboration among Federal Agencies, GAO-06-15 (Washington, D.C.:
Oct. 21, 2005).

^15However, APHIS's report did not include CBP's analysis of its agriculture
inspection costs. APHIS's report is based only on APHIS's analysis of the
agriculture fee collections and inspection costs.

^16Starting in fiscal year 2007, APHIS and CBP are submitting a joint report
to OMB on the AQI user fees, for use in evaluating the agencies' budget
requests. This report will include current and projected collections and
costs by activity, FTE to be funded from the user fees, and performance
measures on the effectiveness of the AQI program.

CBP and APHIS disagree on how future collections should be estimated and
how the fees are subsequently distributed. CBP and APHIS use different
rates of passenger volume increases to calculate the costs of covered
activities. APHIS--the agency responsible for setting the agriculture
fee--estimates future international air passenger volumes by extrapolating
historical growth, whereas CBP primarily uses Federal Aviation
Administration's (FAA) passenger volume forecast and collection trends. In
the December 2004 interim rule for the January 2005 fee adjustment, for
example, APHIS forecast passenger volume to increase by
1.18 percent per year for fiscal years 2005 through 2010, which was the
average volume increase for fiscal years 1999 through 2003. In contrast,
CBP projected a 4.7 to 4.8 percent annual growth. The resulting higher
passenger volume estimate leads to higher total collections estimates by
CBP than the one APHIS uses. CBP officials said that in 2004, 2005, and
2006 actual collections were higher than APHIS's forecast by $17 million,
$11 million, and $12 million, respectively. CBP officials said 2007
collections to-date are also $13 million higher than forecasted, and APHIS
officials told us they would make additional transfers to CBP to
distribute the extra collections. CBP officials said that if the
agriculture fee estimates tracked actual collections better, CBP would
receive more money earlier in the year rather than toward the end of the
fiscal year, which would allow CBP to better plan for its use. However,
APHIS officials said the more conservative forecasting approach was
appropriate since they do not receive appropriations for these activities
and must be able to provide the services even if fee collections should
decline. ^[65]18 Table 2 shows the

^17At the end of our audit, CBP and ICE officials agreed to work together to
address the immigration inspection user fee.

^18The agriculture inspection fee also authorizes APHIS to maintain a user
fee reserve fund equal to 3 months of agriculture quarantine inspection
costs for use in the event of a decline in fee collections.
bimonthly transfers  for  November  2005  through  August  2006,  and  the
additional year-end transfer of additional fees.

Table 2:  Bimonthly  Transfers of  Agriculture  Fees from  APHIS  to  CBP,
Including Additional Lump Sum in August

          Bimonthly transfer Agriculture user fees transferred to CBP

                           November 2005 $35,186,667

                            January 2006 35,186,667

                             March 2006 35,186,667

                              May 2006 40,931,000

                              July 2006 40,931,000

                             August 2006 40,930,999

                   August 2006^a (excess transfer) 12,191,000

Source: CBP and APHIS data.

^aCBP officials said this transfer was scheduled for August 2006 but did not
occur until September 2006.

Agencies divide and distribute the fees as specified in memoranda. CBP and
APHIS, and CBP and ICE signed a memorandum of agreement (MOA) / memorandum
of understanding (MOU) establishing a process for fee distribution. The
Homeland Security Act of 2002 requires an agreement between the
Secretaries governing the transfer of agriculture user fee funds from the
Department of Agriculture to DHS for DHS's agriculture quarantine
inspection activities. The most recent MOA, dated 2007, documents the fee
distribution: 60.64 percent of total agriculture passenger inspection fees
were allotted to CBP and 39.36 percent to APHIS. ^[66]19 Per the MOA,
APHIS transfers CBP's portion via a bimonthly transfer. Although we
reported in May 2006 that APHIS did not always make regular transfers to
CBP, ^[67]20 we found that these issues have generally been resolved. The
CBP/ICE memo allotted 82.63 percent of total immigration fee collections
to CBP and 17.37 percent to ICE, and required CBP to submit monthly
warrants to the Treasury to initiate the distribution of the immigration
fees between ICE and CBP.

^19In addition to the base collections, this MOA documents the distribution
of the agriculture passenger inspection fees collected from passengers
originating in Canada, as a result of the January 2007 elimination of the
Canadian exemption. Per MOA, for fiscal year 2007, CBP will receive 75.5
percent and APHIS will receive 24.5 percent of these new collections.

^20GAO-06-644.

However, the extent, quality, and results of agency coordination differ.
The CBP/APHIS MOA requires the agencies to periodically exchange cost
information. Specifically, CBP is required to submit to APHIS at the end
of each quarter an accounting of the costs of its agriculture quarantine
inspection activities. APHIS is also required to submit to CBP a quarterly
and annual report on both agriculture user fee collections by activity and
associated costs of the agriculture quarantine inspection fees. Officials
told us that these requirements are important to help them address issues
such as changing workloads and costs, and the MOA has been updated
accordingly. CBP and APHIS's experience is consistent with our past work
on agency coordination, which states that optimal coordination requires
agencies to establish compatible policies and procedures and communicate
frequently. ^[68]21 Such communication is critical, as evidenced by our
recent report on APHIS and CBP management coordination issues, which found
that the agencies' coordination problems sometimes result in operational
weaknesses that increase the vulnerability of United States agriculture to
foreign pests and disease. ^[69]22 In contrast, the CBP/ICE MOU is much
less specific and lacks important elements present in the CBP/APHIS MOA.
For example, the CBP/ICE MOU only states that, "ICE and CBP agree to
provide each other reports on the total amounts of immigration user fees
received to ensure that such receipts are equitably split." ICE officials
said the MOU was primarily intended to set up the initial transfer of
immigration fee collections from the newly formed ICE to CBP and was not
designed to address how CBP and ICE would regularly coordinate on the
immigration fee.

Even if agencies generate complete cost data and agree on how to divide
collections between them, the precise activities associated with
inspections--and the costs of those activities--can change over time.
Legislation, regulations, or agency agreements governing a fee should
ideally contain a mechanism for adjusting user fee rates that is flexible
and timely enough to allow for periodic review and, as appropriate,
adjustment. The CBP/APHIS MOA requires both agencies to appoint Chief
Budget Liaisons who must hold "quarterly and annual face-to-face meetings
where both parties would share and analyze their respective program costs
... " so that the proportions can be reviewed and adjusted as appropriate.
Through this coordination, CBP received an additional 1.31 percent in
agricultural passenger inspection fees, pursuant to approval by
both agencies, after actual fee collections exceeded projections. ICE
officials told us that, at the time of the transition to DHS, ICE
requested that the MOU be renegotiated every 2 years; however, the CBP/ICE
MOU does not include any provision to renegotiate, and CBP and ICE
officials have not regularly met to discuss potential adjustments to each
agency's portion of the fee.

^21GAO-06-15.

^22GAO-06-644.

    Distributing Fees among Agencies Has Implications for Agency Budget
    Execution

Airlines remit collections of the customs and immigration user fees to CBP
and the agriculture fees to APHIS. The three fees are remitted to the
government quarterly, except for the last quarter, when the immigration
fees collected to-date are remitted 10 days before the end of the fiscal
year, with the remaining fees collected in the fourth quarter remitted
along with the first quarter payment of the next fiscal year. By law, each
of the three passenger inspection fees is deposited into a separate
account. Therefore CBP must transfer ICE's portion of the immigration fees
to reimburse ICE's appropriations, and APHIS must transfer CBP's portion
of the agriculture passenger inspection fee to reimburse CBP's
appropriations. CBP officials told us that CBP has more flexibility in
spending customs fees than immigration and agriculture fees, partly
because of the fees' budgetary treatment and partly because of the
interagency transfer process for the APHIS fee. ^[70]23 The customs fee is
subject to an automatic warrant process, wherein within 5 business days
Treasury confirms the total amount remitted and then the fees are directly
reimbursed to CBP appropriations to spend from right away. In contrast,
CBP's immigration and agriculture activities are funded on a reimbursable
basis by CBP's portion of the respective fees. Therefore, CBP initially
uses appropriations to cover the cost of the agriculture quarantine and
immigration inspections and then reimburses the appropriations accounts
from the immigration and agriculture user fee accounts. To ensure that
they reimburse from the correct fee account, CBP officers track time spent
on customs, agriculture quarantine, and immigration activities,
respectively. ^[71]24

^23The customs and immigration fees are both classified as offsetting
receipts and the agriculture fee is a governmental receipt. Offsetting
receipts are collections that are offset against gross outlays but are not
authorized to be credited to expenditure accounts. Offsetting receipts are
deposited in receipt accounts and cannot be used without being
appropriated.

^24Generally, CBP uses a standard system to estimate the amount of time an
inspector spends on customs, immigration, and agriculture inspection
activities per shift, and files exception reports as necessary.

CBP officials said that the quarterly remittance schedule--which is
exacerbated by the fourth quarter remittance schedule for the immigration
fee--contributes to a several-month delay between use of the appropriated
funds and receipt of the reimbursement from the immigration and
agriculture user fee accounts, which has delayed CBP's ability to spend
funds on critical mission areas such as hiring personnel, purchasing
equipment, or travel. For example, CBP officials told us of instances
where they had to delay entering into a contract because of cash-flow
issues resulting from the delay in fee reimbursement. They also said
transferring funds between budget accounts creates administrative rework.
To address these challenges, CBP told us it is requesting in its draft
legislative proposal direct reimbursement authority for the immigration
and agriculture quarantine activities it conducts.

    Inconsistent Passenger Exemptions among the Fees and Record-Keeping
    Requirements for Airlines Complicate Remittance and Verification

Inconsistencies in passenger exemptions and definitions across the three
fees make administering the fees difficult. Each statute specifies the
same standard passenger exemptions for each fee, but there are additional
exemptions for the customs fee. Passengers from Canada, Mexico, and
U.S. territories and adjacent islands are exempt from the customs fee but
not from the immigration or agriculture fees. ^[72]25 (See table 3). For
instance, a passenger arriving from the Bahamas must pay the immigration
and agriculture fee, but not the customs fee. Aspects of a fee, such as
country of origin exemptions, may promote certain policy goals. However,
complex fee structures--like the variations in passenger exemptions--can
increase administrative costs and potential for error and complicate the
audit process since CBP must reconcile the remittance for a single
passenger with different exemptions rules. It is important to understand
the likely administrative and operational consequences of a fee's design
in order to address and mitigate challenges.

^25There was  an  exemption from  the  agricultural fee  for  air  passengers
arriving from Canada, but it was eliminated effective January 1, 2007.

Table 3: Air Passenger Exemptions                                    
Geographic exemptions Customs Immigration                            
Passengers originating in Canada, Mexico, a territory or possession  X 
of the United                                                          
States: American Samoa, Guam, the Northern Mariana Islands, Puerto     
Rico, and the                                                          
U.S. Virgin Islands; or any adjacent island: Saint Pierre, Miquelon,   
Cuba, the Dominican                                                    
Republic, Haiti, Bermuda, the Bahamas, Barbados, Jamaica, the          
Windward and                                                           
Leeward Islands, Trinidad, Martinique, and other British, French,      
and Netherlands                                                        
territory or possessions in or bordering on the Caribbean Sea          
Passengers moving from the U.S. Virgin Islands to Puerto Rico        X X X 
Passengers moving between Alaska, Hawaii, Puerto Rico, Guam, the     X X   
U.S. Virgin                                                                
Islands, and the continental United Statesa                                
Standard exemptions                                                        
On-duty crew members                                                 X X X 
Airline employees traveling on official business                     X X X 
Diplomats, except U.S. diplomats                                     X X X 
Passengers arriving on commercial aircraft used exclusively in       X X X 
government service                                                         
(U.S. or foreign)                                                          
Passengers arriving on an aircraft due to emergency or forced        X X X 
landing when original                                                      
destination was a foreign port                                             

                                  Agriculture

Source: GAO analysis of authorized statutes and governing regulations.

^aThe agriculture fee exempts passengers from all of these locations except
Guam.

CBP officials said its draft legislative proposal recommends eliminating
the customs-specific country of origin exemptions. ^[73]26 The airline
industry officials we spoke with generally support this change and said
the administrative transition costs would be minimal, since calculations
are automated and could be easily adjusted to accommodate this type of
change.

In response to Treasury Inspector General recommendations, the audit
function was consolidated before the inspection functions themselves were
consolidated, creating efficiencies and simplifying the process for
government and industry alike by having only one agency audit all three
fees concurrently. However, the improvement was limited because the
regulations for each of the fees still specify different airline
record-keeping
requirements for audit purposes. Airlines must retain customs
documentation for 5 years and immigration documentation for 2 years. There
is no time period specified for airline documentation for the agriculture
fees. Both CBP and airline officials said inconsistent recordkeeping
requirements impose an unnecessary administrative burden on both parties.
Airline officials told us that the custom fee's 5-year document retention
requirement is especially burdensome.

^26According to  CBP  officials,  CBP's draft  proposal  does  not  recommend
eliminating the exemption for passengers arriving from U.S. territories.

    Air Travel Stakeholders Play an Important Role in the Process, but
    Mechanisms for Ensuring Substantive Stakeholder Communication and
    Information Exchange Are Fragmented and Reportedly Insufficient

The administering agencies use separate, different processes for
communicating with stakeholders, including soliciting stakeholder feedback
on proposed adjustments to the fees, an area of great interest to
stakeholders. However, stakeholders report that these disjointed
mechanisms for two-way communication are insufficient. CBP uses the
Airport and Seaport Inspections User Fee Advisory Committee (Advisory
Committee) ^[74]27 to solicit stakeholder perspectives, but limits the
breadth of the Advisory Committee by discussing only the customs fee and
CBP's portion of the immigration and agriculture fees. ^[75]28 ICE is not
included in planning these Advisory Committee meetings even though the
legacy Department of Justice immigration fee advisory committee was
combined with the customs advisory committee when immigration functions
were transferred to DHS. ICE officials said they were not aware that a
meeting had been scheduled and were not consulted on the agenda, even
though their user fee statute specifies that they meet regularly with
stakeholders. ICE officials attended the June 2007 Advisory Committee
meeting but did not participate in the presentations and had not been
involved in the planning or agenda-setting for the meeting. ^[76]29 APHIS
is also not included in planning Advisory Committee meetings. APHIS
officials said issues
pertaining to the agricultural inspection fee are handled by CBP's liaison
to APHIS, but no one from this office attended the June 2007 meeting. CBP
officials said CBP met the notification requirements of the Federal
Advisory Committee Act ^[77]30 by publishing notice of the meeting date
and the agenda in the Federal Register.

^27The Advisory Committee is a standing committee that meets biannually to
advise the Commissioner of CBP on issues related to the performance of
airport and seaport agriculture, customs, or immigration inspections. The
14 committee members and chairperson are nominated as representatives from
their organizations--generally airlines, airports, cruise lines, and
associations with each of these industries. Both the customs and
immigration passenger inspection fee statutes required the establishment
and periodic meetings of advisory committees consisting of industry
representatives to advise the agency on issues related to inspectional
services, including fee levels. See 8 U.S.C. 1356(k); 19 U.S.C. 58c(k).

^28CBP officials said they also regularly meet with officials from ATA and
IATA, however, as we will discuss later, stakeholders said they do not
feel these interactions are substantive.

^29According to the Advisory Committee sign-in sheet, ICE officials also
attended the August 2006 Advisory Committee meeting, but we do not know
the extent of their participation.

APHIS provides information about inspection costs and receives stakeholder
input on proposed changes to the agriculture fee through public notice and
comment under the federal rule-making process. APHIS officials also told
us that they meet informally with stakeholders when issues arise,
particularly in the field, and that this informal consultation is
sufficient for their purposes, but our audit work indicates otherwise. For
the past two adjustments, however APHIS has adjusted the fees through
interim final rules, an option within the regulatory process that allows
an agency, for "good cause" to make a rule change effective before
receiving public comment. That is, the increase took effect before
stakeholders had an opportunity to comment. ^[78]31 For example, on
December 9, 2004, APHIS published an interim final rule in the Federal
Register proposing to increase the agriculture passenger inspection fee
from $3.10 in 2004 to $4.95 in 2005 and to $5.00 per passenger for 2006 to
2010. The change was effective January 1, 2005, although comments received
by February 7, 2005, would be considered before the final rule was issued.
In another instance, APHIS eliminated the fee exemption for passengers
originating in Canada by means of an interim final rule published in the
Federal Register in August 2006, which stated that it was effective
November 24, 2006, and comments received by November 24, 2006, would be
considered. ^[79]32

APHIS's use of the "good cause" exemptions to issue interim final rules
limits stakeholder input. Stakeholders said they do not feel their
comments are taken into account since the Department of Agriculture
adjusts the fee before even soliciting feedback and the final rule matches
the interim one regardless of stakeholder feedback. Furthermore, we have
previously reported that nonfederal stakeholders believe relying solely on
notice and comment through the Federal Register is insufficient for
obtaining stakeholder input. ^[80]33 When agencies do not effectively
communicate their analysis and results, they miss the opportunity to
obtain meaningful comments that could affect the outcome of their
regulatory changes. Without showing the underlying analysis, the agencies'
conclusions may lack credibility.

^305 U.S.C. App. 2., S 10.

^31See 5 U.S.C. S 553(b)(B) and (d)(3).

^32The elimination of the Canadian exemption for air passengers actually went
into effect January 1, 2007, allowing affected groups more time to make
necessary preparations in order to comply with the inspection and
collection procedures.

ICE and APHIS officials told us that air travel stakeholders have little
information on their respective activities and fees and generally do not
understand how these fees work or what they are intended to fund. As we
will discuss in the next section, CBP stakeholders also do not have a
clear understanding of how the customs fee works and what activities it
may fund. ^[81]34 For example, officials said the agriculture quarantine
inspection function has become less transparent to air passengers and
stakeholders since CBP officers all wear the same uniform and conduct the
primary customs, immigration, and agriculture quarantine inspections--and
not all passengers are identified for an agriculture-related secondary
inspection. Similarly, many of the inspection activities retained by APHIS
and ICE are not visible to most passengers or stakeholders during the
actual inspection process.

Stakeholders said the Advisory Committee meetings had declined in value
since INS ran them because cost and full time equivalent (FTE) information
is no longer provided. CBP officials said that in the post-September 11
environment, airport inspector staffing information is "lawenforcement
sensitive" and therefore not shared with airports and airlines. Airport,
airline, and industry officials said they have requested information about
passenger inspection activities or the cost of these activities. As a
result, they feel they lack data necessary to know whether the passenger
inspection fees are set fairly or accurately, or are being spent on the
appropriate activities.

^33GAO, Reexamining Regulations: Opportunities Exist to Improve the
Effectiveness and Transparency of Retrospective Reviews, GAO-07-791
(Washington, D.C.: July 16, 2007).

^34CBP provided information on the costs of performing air passenger
inspections at the aggregated level at the Advisory Committee meetings.
However, the information provided--fiscal year 2006 total costs and
collections for each of the three air passenger inspections, and the
forecasted collections for fiscal years 2007and 2008--was at too high of a
level to be useful to stakeholders.

  Specific Aspects of the Individual Passenger Inspection Fees Should Be
  Addressed Prior to or in Concert with Any Consolidation Effort

Some difficulties with these fees arise not because the fees are separate
but because of factors that are specific to the individual passenger
inspection fees. First of all, by statute, the customs fees are available
for limited purposes. Not all of these purposes are associated with
conducting inspections, and not all inspection activities are
reimbursable. Even if all the costs were reimburseable, according to CBP,
the fees collected still would not cover the full inspection costs. This
misalignment, coupled with the problems in stakeholder communication
described in the previous section, have created confusion and
misunderstandings, and in some cases the misimpression among stakeholders
that CBP in particular is using the air passenger fee collections
inappropriately. Furthermore, the collection process itself is complex and
presents challenges for CBP and the airlines. Finally, the tools provided
to the agencies to ensure the airlines' compliance are not applied
consistently and, contrary to strategies associated with effective
incentives and penalties, do not provide progressively stronger
disincentives for noncompliance (i.e., a graduated penalty system).

    There Is a Disconnect between What Customs User Fees Can Pay for and
    Activities Involved in Customs Inspections

The activities that can be funded by passenger inspection collections vary
among the fees and are specified in statute. Principles of effective user
fee design suggest that fees should be aligned with the costs of the
activities for which the fee is collected. The agriculture and immigration
statutes generally permit the Secretaries of Agriculture and Homeland
Security to cover costs associated with agricultural and immigration
inspection activities. ^[82]35 In contrast, the customs user fee
collections are available for limited purposes. Under the customs
authorizing statute, passenger inspection fee collections are only
available to reimburse appropriations for a limited, prioritized set of
activities, including general deficit reduction, overtime and premium pay,
retirement and disability contributions, preclearance services, and
foreign language proficiency awards. Customs inspection-related activities
that occur while a CBP officer is earning overtime, premium pay, or during
preclearance can be funded by the user fees, but the customs fee is not
authorized to fund
customs-inspection activities that occur beyond these times. ^[83]36
Moreover, the customs air passenger fee can be used for overtime and
premium pay as well as retirement and disability contributions for CBP
officers for time spent conducting inspections regardless of whether the
CBP officers are inspecting passengers at air, sea, or land ports of
entry. Therefore, under current law not all activities that may be funded
from the customs fee (see table 4) are necessarily associated with
conducting air passenger inspections (see table 5), and not all inspection
activities are reimbursable, that is, can be covered by funds from the
user fee account. ^[84]37

^35 The agriculture statute permits the Secretary of Agriculture to "prescribe
and collect fees sufficient to cover the cost of providing agricultural
quarantine and inspection services in connection with the arrival at a
port in the customs territory of the United States, or the preclearance or
preinspection . . . " 21 U.S.C. S 136a(a)(1). Similarly, although the
immigration user fee statute prescribes the exact amount of the fee, the
statutory language is broadly available to refund any appropriation for
the amount paid out of such appropriation for expenses incurred in
providing immigration inspection and preinspection services. 8 U.S.C. S
1356(d) and 1356(h).

          Table 4: Legal Availability of Customs Passenger User Fee^a

  Customs user fees availability limited to (in specified order of priority):

(1)
           Transfers to the Treasury's General Fund for deficit reduction
           purposes, of the difference between estimated overtime
           compensation for customs inspections and actual overtime, premium
           pay, agency retirement contributions, and foreign language
           proficiency awards, or $18,000,000, whichever is less.

(2)
           Reimbursements to appropriations for  o overtime compensation,

     o certain premium pay costs,
     o retirement and disability contributions,
     o all unreimburseable preclearance services, and
     o foreign language proficiency awards

(3) To the extent funds remain available after reimbursements to
appropriations (listed in (2) above), user fees are further available for

o providing full- and part-time salaries for inspections personnel and
equipment that enhance customs services for persons or entities required
to pay fees generally for commercial vessels; trucks; railroad cars;
private vessels or private aircraft; commercial passenger inspections;
dutiable mail; customs broker permits; and barge or other bulk carriers.

(4)  To  the  extent  funds  remain  available  after  reimbursements   to
appropriations (listed in (3) above), user fees are further available for

o 50 full-time equivalent  inspectional positions to provide  preclearance
services.

Source: GAO analysis of legislation and CBP data.

^a19 U.S.C. S 58c(f).


^36According to CBP, of the customs user fee funds spent on overtime and
premium pay, more than 66 percent of the overtime and nearly 12 percent of
premium pay was used for CBP officers in airports in fiscal year 2006.
COBRA fees can be spent on other types of inspection overtime and premium
pay for inspections related to barges, broker permits, commercial
vehicles, dutiable mail, private aircraft/vessels, rail cars, and sea
passengers. COBRA overtime is paid at a rate of 100 percent for any time
worked outside the 40-hour workweek. Premium pay is additional
compensation employees receive for working nights, Sundays, and holidays.

^37In fact, although the Customs Service Inspector General once questioned
the agency's use of user fees to cover costs of activities unrelated to
actual services provided, the Comptroller General ruled that the Customs
Service was permitted by law to cover other expenses as specified by the
user fee statute. B-279865, Apr. 22, 1999.

          Table 5: Actual Customs Air Passenger Inspection Activities

                           Air fee audits--passenger.

Antiterrorism--passenger.

For customs-related passenger analysis unit activities and customs-related
anti-terrorism-passenger/nonpassenger activities.

Contraband enforcement team activities in passenger: seizure processing by
canine officers.

All canine officer activities involving the removing, testing, weighing of
narcotics during seizure processing. And CBP officer (canine) functions:
all activities involving the daily or reoccurring needs of detector dogs
such as veterinary exams, feeding, grooming, etc.

Entrance--aircraft: entrance/clearance - commercial aircraft (PAX).

Processing of  entry control  documents, general  declarations,  clearance
numbers, and collection of fees.

Examine--compliant passengers. For customs-related primary inspection.

Examine--noncompliance passengers.

For customs-related seizure/penalty case processing, for customs-related
processing of seizures and arrests, for customs-related secondary
inspections, hospital detail: processing and transporting of passengers to
the hospital for examination/detention; monitoring and security of
detainees and arrestees at the hospital, and for customsrelated court
time.

                     Identify--for customs-related roving.

Informed compliance--for customs  canine-related (K9) informed  compliance
and outreach and for customs-related informed compliance and outreach.

Military personnel--military aircraft.

All activities associated with the processing of military personnel and
military aircraft. Includes primary and secondary functions and also
includes CARNETS, informal entry, Temporary Importation under Bond (TIB),
other government agency processing, left over baggage clearance, duty
calculations, collections, 14-point intensive exams, currency forms,
currency verification, STOP, Blitzes, 7/14s inspections, COMPEX; sanctions
and embargos for OFAC; munitions, dual use materials, with military
applications and chemicals. Military Vessels: all activities associated
with the processing of military personnel and military vessels. Includes
primary and secondary functions. Also includes CARNETS, informal entry,
TIB, other government agency processing, left over baggage clearance, duty
calculations, collections, 14-point intensive exams, currency forms,
currency verification, STOP, Blitzes, 7/14s inspections, COMPEX; sanctions
and embargos for OFAC; munitions, dual-use materials, with military
applications and chemicals.

Nonintrusive  technology--passenger:  for  customs-related   non-intrusive
technology-- (PAX).

Other Activities--airport security and safety.

Officers assigned to work within the airport security office, processing
of applications and fingerprinting of airport applicants; ramp security;
internal conspiracy operations. Program administration for shared
intelligence operations. Multi-agency taskforce, information,
participation in technical training with foreign governments.
Coordination, integration, cooperation with other federal agencies and
international task forces.

Source: CBP.

Even if the customs fee was limited to funding the customs air passenger
inspection activities, according to CBP, for fiscal year 2006 it would
have only covered about 72 percent of total inspection costs. After the
April 2007 fee increase, CBP estimates that the fee would still need to
increase an additional 39 percent to cover total costs. Therefore, customs
inspection-related activities are generally funded by appropriations from
general revenues, limiting funds available for other federal priorities.
However, CBP officials also said that customs fee collections would fully
cover current inspection costs if the country-of-origin exemption for
Canada, Mexico, and the adjacent islands were lifted.

Another difference between the customs fee and the other two passenger
inspection fees is that although the immigration and agriculture fees are
to be used for any costs related to inspection activities (referred to in
this report as full cost recovery fees), the customs fee is structured to
recover only a portion of the cost of the customs inspection activities
(referred to in this report as a partial cost recovery fee). In its draft
legislative proposal, CBP officials said it will request both the
authority to recover the full costs of the customs inspections and to fund
all international air passenger inspection-related activities.
Stakeholders said they would support these changes, which helps bring the
customs fee more in line with principles of effective user fee design, but
were concerned that the agencies do not have reliable cost data to
determine the actual cost of conducting inspections. ^[85]38

Passenger exemptions are also factors in whether fee collections can
recover the costs of inspections. As previously discussed, passengers
whose travel into the United States originates in Canada are exempt from
paying the customs fee. Since exempt passengers receive but do not pay
for inspections, either nonexempt passengers bear these costs by paying
higher fees, or the inspections must be funded with appropriations.
^[86]39 Although passengers originating in Canada are often "precleared"--
meaning that passengers are inspected before departing Canada rather than
upon arrival in the United States ^[87]40--preclearance inspections are
allowable reimbursable activities per the customs inspection fee statute.
Therefore, passengers originating in Canada are exempted from paying the
customs inspection fee, even though their inspections are funded by it.

^28Reliable cost information is critical to setting user fees because if  the
data are wrong, the  resulting analysis can  lead to improper  fee-setting
decisions.

    Airlines Collect Fees When Tickets Are Sold Rather Than When Passengers
    Travel, Which Makes It Difficult for Agencies to Verify Collection and
    Payment

Despite a unified collection process for the three fees, CBP faces
challenges in verifying individual passenger payment and accurately
determining each airline's liability. By law, the ticket seller (i.e., the
airline or ticket agent) must collect the applicable passenger inspection
fees from the passenger at the time the ticket is sold. ^[88]41 Tickets
can be sold up to a year in advance, and CBP has no independent
documentation on which to calculate liability. Therefore, CBP cannot match
the fees paid to individual passengers. ^[89]42 The only way CBP can
independently confirm that passengers traveling to the United States have
paid the requisite inspection fees is through postremittance audits. To
remedy this, CBP would like to move to a system wherein airlines remit
fees based on the passengers transported into the United States. CBP could
then track the remittances to the number of passengers per flight by
comparing them to the airplane manifest data and "onboard" counts that
airlines already provide to CBP. According to CBP officials, if the fees
were remitted based on passengers
transported, there would be little need for auditing carrier remittance
since CBP would be able to automatically calculate and verify airline
liability.

^39Currently, only the customs fee exempts air passengers originating in
Canada and Mexico from paying the inspection fee. The Canadian agriculture
air passenger exemption was eliminated in January 2007.

^40The United States preclears passengers at 15 airports around the world.

^41According to CBP, if the fees are not collected at the time of purchase,
the airline is responsible for collecting the fee from the passenger at
the airport. If the ticket is sold by a travel agent or online travel
service, they collect and transfer the fee as part of the overall ticket
transaction to the airline. The Court of Federal Claims has ruled that the
immigration and agriculture user fee statutes and implementing regulations
do not impose liability on airlines for payment of any uncollected
inspection fees. American Airlines v. United States, 68 Fed. Cl. 723
(2005); Continental Airlines v. United States, No. 06-432C (Fed. Cl. July
12, 2007). CBP and APHIS argue that airlines must remit immigration and
agriculture fees, regardless of whether airlines collected them from
passengers. CBP reported to us that it is appealing both cases, as well as
submitting a legislative proposal to Congress that would hold carriers
liable even for those fees that should have been collected but were not.

^42Since fees are collected when the ticket is sold, fees may be remitted in
advance of passenger travel.

Airline and Air Transport Association (ATA) officials with whom we spoke
said that changing from a ticket-based collection system to a
passengertransported collection system poses challenges to airlines.
First, the airline that transports the passenger is not always the airline
that sold the ticket. This means that in a manifest-based system the
airline responsible for remitting a fee might not be the airline that
collected it from the passenger. Nearly all United States airlines use the
"interlining" system, in which one airline can contract with another to
provide transportation for one or more segments of a passenger's journey.
Under the current ticket-based collection system, on an interlined ticket
the airline that sells the ticket remits the fee, regardless of which
airline transports the passenger into the United States. For example, a
passenger who purchases a Madrid-Paris-New York ticket from ABC airline
pays the fee to ABC airline even if he flies ABC from Madrid to Paris and
XYZ from Paris to New York. Airline ABC is liable for the fee and remits
it to the U.S. government. However, under CBP's original proposed
passenger-transported system, the liability for remitting the fee would
fall on airline XYZ--the airline that brought the passenger into the
country--even though ABC airline sold the ticket and collected the fee.
^[90]43 As a result, airline XYZ--the airline that transported the
passenger into the United States--would have to ensure not only that ABC
paid airline XYZ for the ticket but also that it collected and transferred
the correct fees.

According to CBP officials many foreign-owned airlines already remit the
fees based on passengers transported, though these payments are in
violation of the statute, and the International Air Transport Association
(IATA) reports that the manifest-based remittance system is common in
other countries that collect similar fees. ^[91]44 Nevertheless, airlines
and ATA officials said that transition costs would be significant--though
limited to the first year--because airlines begin selling tickets for a
flight 1 year in
advance, and as a result they would have to maintain two separate
remittance systems--ticket-based and passenger-transported-based--for a
full year. Airlines question the need for such a change. Officials from
two major airlines noted that CBP's audits put their remittance error rate
at less than 1 percent. CBP officials concur that for the six to seven
major domestic airlines the remittance error rate is extremely low, but as
we will discuss, error and timely remittance rates for small and
medium-sized airlines are more problematic. A shift to a
passenger-transported system would, they argue, increase the ability of
CBP's finance office to determine the compliance of smaller airlines and
potentially reduce CBP's audit costs.

^43According to CBP officials, CBP's draft legislative proposal has been
amended such that "when feasible," the Secretary of DHS may establish an
alternative system to remit user fees.

^44According to airline officials we spoke with, domestically-owned
carriers--responsible for 60 percent of the international flights into the
United States--generally believe their positions are better represented by
ATA, while IATA is more in line with foreign-owned carriers, which
represent 40 percent of the international flights into the United States.

In addition, the airlines also see fee collection as a cost they incur
over and above the cost of the audits. To help offset collection costs,
airlines are permitted to keep the "interest float"--that is, the interest
income that accrues between the quarterly remittances. Airline
representatives view this as minimal for two reasons. First, in the recent
era of low interest rates, the interest float is small; airline officials
told us that it covered as little as 38 percent of collection costs. This
would decline even further if CBP moves to monthly remittance as it
suggests it will in its legislative proposal. Second, airline and airline
industry officials said credit card transaction fees averaging 2.15
percent on the total transaction--including taxes and fees as well as the
ticket price--further reduce the benefit. Another user fee collected by
airlines on behalf of the government--the passenger facility charges
^[92]45 (PFC)--has a provision that is designed to compensate for the
actual cost of collections, in addition to the interest float. The
airlines told us they would prefer this type of direct compensation for
their collection role, similar to the PFC.

^45Passenger facility charges are fees airports use to fund FAA-approved
projects that enhance safety, security, or capacity; reduce noise; or
increase air carrier competition. In evaluating how much the carrier
compensation should be for the collection of PFCs, the FAA asked carriers
to submit their incremental costs associated with PFC collection,
handling, remittance, reporting, recordkeeping, and auditing. These
categories consisted of the following: credit card fees, audit fees, PFC
disclosure, reservations, passenger service, revenue accounting, data
entry, accounts payable, tax, legal, corporate property department,
training reservations, ticket agents, and other departments, carrier
ongoing information systems, computer reservation systems ongoing, PFC
absorption, airline tariff publishing company, airline reporting
corporation, and interest income. From the analysis of these data, the FAA
determined the average carrier cost was $0.11 per PFC.

    Compliance Tools Do Not Provide a Graduated Penalty System to Encourage
    Airline Remittance

The tools used to ensure airline compliance do not provide optimal
incentives for airlines to make accurate and timely payments. We have
previously reported that rewards and penalties should correspond to
performance. ^[93]46 Although each fee contains enforcement mechanisms
meant to encourage airlines to remit the correct fee amount on time--
namely the carrier bond associated with the customs fee, the denial of
landing rights for the customs and immigration fees, and the penalties and
interest associated with the agriculture and immigration fees--none are
designed in this manner. For the customs fee, CBP is authorized to require
airlines to maintain a carrier bond, which is used both to enforce payment
of inspection fees and to encourage airlines to comply with
inspectionrelated requirements, such as submitting complete Advance
Passenger Information System (APIS) data prior to takeoff. In addition,
airlines that do not remit the customs fee timely--or not at all--are
charged liquidated damages for breach of bond conditions that are equal to
twice the fee amount owed for each violation, whether it is the first
violation or a repeat violation. CBP officials said they have issued
liquidated damages against 20-25 airlines on average per quarter since
2003 for late payment or nonpayment. ^[94]47

For the immigration and agriculture fees, the agencies may require
airlines to pay interest and penalties because of late payment or
nonpayment. CBP officials said the interest and penalty rates charged for
late payments are set by the Treasury Department and do not provide for
increasing interest or penalty rates, or both, for repeated instances of
late or nonpayment. ^[95]48 Thus an airline that repeatedly pays late--or
not at all--is charged the same interest and penalty amount each time,
which may just offset the interest the airline earned by not remitting
user fee collections in the first place. Therefore, CBP officials said the
penalty is not high enough to discourage violations.

CBP is also authorized to deny landing rights if the airline does not
remit customs and immigration fees. However, this tool suffers from the
very
opposite design flaw: it is perceived to be too severe to invoke. CBP
officials said that denying landing rights is such a severe penalty that
its very existence--infrequent application notwithstanding--is effective
enough to discourage late payment or nonpayment of passenger inspection
fees by the airlines. However, even in cases of carrier nonremittance or
chronic late remittance, CBP officials said CBP has threatened to use this
authority to deny landing rights on four occasions-- twice against the
same airline--in nearly 20 years. Three of these instances occurred in
2007. We have previously reported that penalties may lose their
effectiveness and credibility over time if they are not executed
consistently. ^[96]49

^46GAO, Grants Management: Enhancing Performance Accountability Provisions
Could Lead to Better Results, GAO-06-1046 (Washington, D.C.: Sept. 29,
2006).

^47Because customs fees are treated as duties for administration and
enforcement purposes, CBP also has the authority to charge interest on
unremitted customs user fees at the tariff rate of interest, however, in
practice interest charges are included in the liquidated damages
calculation.

^48 31 U.S.C. Section 3717(a)(1).

    CBP Does Not Employ a Systematic Process for Selecting Airlines for Audit

Officials said there is no standard set of criteria used to guide the
selection of airlines for audit. The audit function for all three
inspection fees is consolidated within CBP's Office of Regulatory Audit,
and all audits cover all three fees. Approximately 385 airlines remit
immigration and agriculture fees, and 290 airlines remit the customs fee.
CBP audits about 50 carriers annually to test for compliance. CBP's Office
of Finance recommends airlines for audit based on a number of factors,
including whether a carrier's remittance dropped substantially from one
quarter to the next, news articles about changes in flights or airline
financial issues, and prior audit findings. Experience and judgment also
come into play. Officials are responsible for processing the same
airlines' payments every quarter and become "experts" on those airlines
and the normal trends in their remittances. Although this flexibility and
individualized understanding of the airlines is important, we have
previously reported that developing internal controls is key to minimizing
the risks that may prevent an agency from meeting its objective. ^[97]50
Documenting selection criteria could also protect the agency when
experienced officials leave the agency. CBP officials told us that
although the larger airlines generally present a much lower risk of
noncompliance or incomplete remittance, they are audited every couple of
years because the record-keeping requirements are so burdensome. In
addition, if CBP audited a large airline only once every 5 years, the
audit would be very resource-intensive. Nevertheless, the fact that there
is significantly more volatility in compliance by small and mid-sized
airlines and those offering seasonal
GAO,  Internal  Control  Management  and  Evaluation  Tool,   GAO-01-1008G
(Washington, D.C.: August 2001).

^49GAO-06-1046.

^50flights means they require more audit attention. For context, in a 5-year
sample of 16 airlines, ^[98]51 the 11 airlines with the smallest passenger
volume rate remitted the passenger inspection fees late 35 times. These 11
airlines represented 14.6 percent of total international passenger
volume--slightly larger than that of the single largest airline in the
sample.

    Certain Elements Have the Potential to Undermine Any Effort to Consolidate
    the Fees

As we have discussed, the challenges related to the passenger inspection
user fees result both from inconsistencies among the fees--making them
difficult to administer--and from specific design elements within the
individual fees. For example, agencies face difficulties distributing the
fee collections, both because they disagree on how to allocate the
receipts among them, and because the process of transferring the funds
from one agency or appropriation to another complicates agency budget
execution. Moreover, the statutory structure does not permit the
administering agencies to easily verify collection and payment, and the
customs fee does not permit reimbursement for many activities directly
associated with air passenger inspections. These issues should be
considered regardless of whether the fees are consolidated.

As discussed earlier, we have previously reported on a number of
principles that could inform efforts such as these to redesign or
consolidate these fees. Understanding the trade-offs inherent in various
fee design elements and the likely consequences of various design choices
with respect to efficiency, equity, revenue adequacy and administrative
burden can help policy makers carefully weigh the likely effects of
various policy decisions and move discussion and debate to a more informed
plane.

                                  Conclusions

Although the need to address some of the user fee challenges presented in
this report may appear obvious, how to accomplish this is less clear. Any
changes made to one fee should be designed to complement rather than
conflict with the other two fees. Moreover, although whether and how to
consolidate the international passenger inspection fees is ultimately a
policy decision Congress must make, it is important to note that
consolidating the passenger inspection fees absent other changes will not
eliminate some of the administrative and operational challenges agencies
and stakeholders currently encounter. In some cases the origins of these
challenges lie in the statutory structure of the fees themselves, and not
their lack of consolidation.

^51 The  sample   included  airlines   whose  total   passengers   transported
represented top, middle,  and low  shares or segments  of total  passenger
volume.

Any consolidation effort that neglects to consider these issues is
unlikely to have the desired effect:

     o Unless agencies present a comprehensive picture of the three fees,
       including the full scope of inspection activities and their costs,
       Congress will lack a complete picture of whether the fees work in
       concert or conflict with each other, which could hamper oversight.
       Furthermore, agencies will be less able to develop and maintain the
       partnerships necessary to collect and distribute the fees as
       efficiently and effectively as possible.
     o The lack of complete cost data and regular, formal opportunities to
       share such information can prevent the agencies from addressing
       existing issues, including differences in forecasting assumptions and
       lack of agreement on activity costs, standardized audit selection
       criteria, and the design and implementation of a graduated penalty
       system to encourage and enforce airline compliance.
     o More broadly, if agencies cannot determine whether these fees are
       recovering costs, Congress cannot be sure that resources are allocated
       to the activities it most values.
     o Likewise, without substantive, transparent coordination between
       agencies and stakeholders, agencies will not be able to effectively
       address administrative burdens such as disparate airline
       record-keeping requirements among the fees.

The principles of effective user fee design discussed earlier in this
report can both offer a framework for considering the implications of
various statutory structures and help clarify and illuminate the
trade-offs associated with various policy choices available to Congress
associated with amending the individual statutes related to passenger
inspection fees or consolidating all or part of them into a single
passenger inspection fee. Such a framework could also provide the basis
for future reviews of federal user fees as Congress works to ensure that
user fee financing mechanisms remain relevant and up-to-date.

  Recommendations for Executive Action

We recommend that the Secretaries of Agriculture and Homeland Security
take the following seven actions:


     o direct CBP, ICE, and APHIS to make information on the estimated cost
       of inspections as well as the basis for these cost estimates readily
       available to affected parties to improve the transparency and
       credibility--and hence the acceptance by stakeholders and payers--of
       the processes for setting, collecting, and distributing the fees;
     o direct CBP, ICE, and APHIS to collaborate on agendas, presentations,
       and discussions with stakeholders for the CBP Airport and Seaport
       Inspections User Fee Advisory Committee (Advisory Committee) meetings
       in order to improve the usefulness of these meetings for both agencies
       and fee stakeholders;
     o consolidate reporting of the passenger inspection fees, to include the
       activities and proportion of fees for which CBP, ICE, and APHIS are
       each responsible to provide a comprehensive picture of the user fees
       supporting the passenger inspection process;
     o develop a legislative proposal in consultation with Congress on a
       consolidated, graduated penalty system that reflects airline payment
       history and includes specific administrative procedures regarding when
       penalties should be invoked in order to improve the effectiveness of
       the tools for enforcing payment of passenger inspection fees;
     o develop a legislative proposal in consultation with Congress on a
       single, common set of airline record-keeping requirements for all
       three passenger inspection fees that reflects the consolidated audit
       function for these fees and reduces the administrative burden on
       airlines;
     o develop a legislative proposal in consultation with Congress to
       eliminate key differences among the fourth quarter remittance
       requirement for the immigration fee; and

          o develop and implement common assumptions used to forecast the
            collections of agriculture quarantine inspection activities in
            order to more closely tie the fee rate to CBP's and APHIS's
            agriculture fee distribution to actual collections.
          o Further, we make the following three recommendations to the
            Secretary of Homeland Security:

     o develop and implement formal written guidance on factors to be
       considered in selecting airlines for audit, including factors intended
       to reflect the risk of non- or incomplete payment;
     o complete development of and report on ICE's activity costs to ensure
       the immigration fee is divided between ICE and CBP according to their
       respective proportion of immigration inspection activity costs.
       Further, if the study shows that immigration activity costs exceed
       collections, develop a legislative proposal in consultation with
       Congress to adjust the immigration fee to recover costs as closely as
       possible, per statute; and
     o direct CBP and ICE to develop and implement a fee-sharing memorandum
       of understanding (MOU) to include time frames for when funds would be
       transferred and to provide for periodic review and update.

Matter for Congressional Consideration

Congress should consider

o  harmonizing  the  passenger  exemption  and  statutory
definitions across the various inspections fees,

     o eliminating the differences among the three fees in the authority to
       set fee rates,
     o whether it wishes the customs fee to be a full cost recovery fee, and
     o reviewing the activities that may be reimbursed by the customs fee
       collections.

Agency Comments & Our Evaluation

We provided a draft of this report to the Secretaries of the Departments
of Homeland Security (DHS) and Agriculture for review and received
comments from both agencies that are reprinted in appendixes II and III.
In addition, DHS provided technical corrections, which were incorporated
as appropriate. DHS and USDA concurred with our recommendations, and
provided additional comments for our consideration. We also provided
portions of the report for non-federal stakeholder review and made
technical corrections where appropriate.

While DHS concurred with our recommendations to work with Congress to (1)
develop a graduated penalty system, (2) develop a common set of airline
record-keeping requirements, (3) eliminate the differences in the fourth
quarter remittance requirements for airlines, and, if needed, (4) increase
the immigration passenger inspection fee, by developing legislative
proposals to address these issues, DHS officials said implementing these
individually could take several years and only address the challenges in
the air passenger environment. In recommending these separately we did not
intend to imply that they should be addressed separately and recognize
that the agencies could address these issues in a single legislative
proposal. Further, since this engagement only reviewed air passenger
inspection fees we limited our recommendations to those fees.

We are sending copies of this report to the Secretaries of Homeland
Security and Agriculture and interested congressional committees. We will
also make copies available to others on request. In addition, this report
[99]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 at (202) 512-9142 or [email protected]. Contact
points for our Offices of Congressional Relations and Public Affairs may
be found on the last page of this report. GAO staff making major
contributions to this report are listed in appendix IV.

Susan J. Irving
Director for Federal Budget Analysis, Strategic Issues

Appendix I: Objectives, Scope, and Methodology

The objectives of this report were to identify how the three separate
passenger inspection user fees are set, collected, and distributed and the
benefits and challenges of this process for agencies and stakeholders, and
implications of consolidating these fees under the Department of Homeland
Security (DHS).

To meet these objectives, we reviewed the passenger inspection user fee
legislation and guidance, agency documents, and literature on user fee
design and implementation characteristics, and interviewed officials
responsible for managing user fees at the Customs and Border Protection
(CBP) offices in Washington, D.C., and from the New York/New Jersey, Miami
and Seattle Regional Offices, Immigration and Customs Enforcement (ICE),
and Animal and Plant Health Inspection Service (APHIS). We observed the
inspections process and interviewed CBP officials responsible for port
management and certain airport and airline officials involved with
international passenger processing or the three passenger inspection fees.
We did not assess the effectiveness of these inspections. We reviewed
audit and cost data related to air passenger inspection activities. We
also asked questions about CBP's and APHIS's internal controls for the
data we used and determined that the data are sufficiently reliable for
the purposes of this report. However, it was beyond the scope of this
report to evaluate the reliability of the cost data for purposes beyond
this report.

We also interviewed APHIS, CBP, and ICE officials responsible for managing
the user fees and auditing the user fee collections at DHS and the
Department of Agriculture.

We also met with officials from Continental Airlines, American Airlines,
Air Transport Association, International Air Transport Association,
Airports Council International-North America, Miami-Dade County
International Airport, New York/New Jersey Port Authority, Bush
Houston-Intercontinental International Airport, Dallas-Fort Worth
International Airport, San Francisco International Airport, and
Seattle-Tacoma International Airport. We also met with and reviewed
documents from the travel industry organization, the Discover America
Partnership.

To select the airlines and airports to meet with, we reviewed Bureau of
Transportation Statistics data on the volume of international air
passengers and number of international flights and consulted with
officials from government and industry associations. To select industry
stakeholders to meet with, we consulted government agency officials and
reviewed CBP's Airport and Seaport User Fee Advisory Committee membership.

We performed our work from October 2006 through August 2007 in accordance
with generally accepted government auditing standards.

Appendix II: Comments from the Department of Homeland Security

Appendix III: Comments from the Department of Agriculture

Appendix IV: GAO Contact and Staff Acknowledgments

  GAO Contact
  
[100]Susan Irving, (202) 512-9142 or [email protected]

  Acknowledgements

Jacqueline M. Nowicki (Assistant Director) and Chelsa Gurkin managed
this assignment. Robin Freshwater and Amy Rosewarne made key contributions
to all aspects of the report. Susan Etzel, Terrance N. Horner Jr., Jessica
Nierenberg, Kathleen Padulchick, and Jack Warner also provided assistance.
In addition, Carlos Diz and Pedro Briones provided legal support and Donna
Miller developed the report's graphics.

(450541)

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